Click an item below to read more about SIFMA and allocations.
While TBA trades are traded in the forward market, they are typically settled on the settlement dates established by SIFMA for the associated product Class (known as Classes A, B, C and D). The SIFMA classes and settlement dates are industry-recognized and provide the foundation of the FICC/MBSD TBA netting process.
| SIFMA CALENDAR | |||
| CLASS A 30-YEAR |
CLASS B 15-YEAR |
CLASS C 30-YEAR |
CLASS D BALLOONS |
| FHLMC FNMA UMBS |
FHLMC FNMA GNMA UMBS |
GNMA I GNMA II |
FHLMC |
The allocation process revolves around the Good-Delivery Guidelines, which SIFMA establishes and publishes. For example, pool deliveries for trades of $1 million must consist of a maximum of three or five pools1 with the same coupon, and the variance permitted is plus or minus 0.01% of the agreed to dollar amount of the trade.2 Understanding SIFMA Uniform Practices is critical to understanding the allocation process, as well as the principles that guide the clearance and settlement process.
SIFMA sets the settlement dates for the TBA market. The pool allocation process is very time sensitive. At least 48 hours prior to the settlement date (known as 48-hour Day), the seller must notify FICC by 3:00 p.m.3 (ET) of the mortgage pools it plans to deliver on settlement date. For example, the July 2016 settlement date for Class A TBAs was July 14th, so pool allocations were due by 3:00 p.m. (ET) on July 12th. Although the contractual settlement date (“CSD”) never changes, the delivery date for pools allocated after 3:00 p.m. (ET) is pushed back one business day, and for each subsequent business day the pool allocation is delayed, the delivery date of that pool is delayed. For example, if a July 2016 Class A TBA was not allocated until after 3:00 p.m. (ET) on July 12th, the CSD would remain as July 14th but the delivery date for those allocated pools would be pushed back from July 14th to July 15th. For each subsequent missed cutoff, the delivery date is pushed back another business day. This delay means the seller now has to finance the pools and will incur financing charges. As a result, delays in allocations can be expensive.
1The maximum number of pools to satisfy delivery is based on the coupon rate defined by SIFMA guidelines.
2For the complete list of good-delivery guidelines, see SIFMA’s Uniform Practices (www.sifma.org).
3EPN allocations with timestamp of 3:00:01 are considered to be late.