With trading volume in excess of 90% of the total trading volume in agency mortgage-backed securities (“MBS”) taking place as forward-settling transactions in the “to-be announced” (“TBA”) market, it is no surprise that TBA transactions have come under the watchful eye of both market professionals and regulators alike in the past several years. Following the financial crisis of 2008 market professionals and regulators have sought methods to reduce systemic risk in markets in which forward-settling transactions are not margined and/or not centrally cleared and settled. In a trading environment such as the TBA market, where trades measuring in the hundreds of billions of dollars on a daily basis may be executed and settled bilaterally, an event may occur whereby multiple parties simultaneously are unable to settle trades posing a systemic risk across market participants and to the market as whole.
Futures and Derivatives Law Report
Master Securities Forward Transaction Agreement: Key Buy-Side Issues