Examining a Clearing Service Rulebook

Clearing Service rulebooks are complex and lengthy documents. In this article I use Google Gemini to examine Fixed Income Clearing Corporation's 337 page rulebook.

Background

In Capital Markets, Clearing Service providers such as CME Group or DTCC, publish rulebooks that specify in immense details the rules they operate by. These documents are generally public and are important documents for member firms to understand the detailed rules of the clearing service.

The Fixed Income Clearing Corporation, part of DTCC, a SEC registered clearing service for US Treasury and Mortgage-Backed Securities, is one of the most important market infrastructures. It’s rulebook is published on the DTCC website, see Government Securities division rulebook.

In this article, I examine the rulebook using Google Gemini.

Which Financial Products?

Let’s download the 337 page rulebook from the above link, upload into Gemini Advanced, select 2.5 Pro (experimental) and ask the first question:

What products does FICC clear?

So there you have it, US Treasuries, both Cash (Buy/Sell) and Repos.

Summary?

Next I could ask Gemini to Summarise the document.

However that would be too obvious a step and while often worthwhile, in my case I am interested in specific aspects of the rule book.

Now, I could start reading the 337 page pdf, use the table of contents to navigate to the section that I think will have the answer and read that. Given time that will work.

However we now have a better way.

Let’s explore using specific questions.

IntraDay Margin

An important aspect that members need to be aware of is can a clearing service call them intraday for margin. So let’s ask:

Does the rulebook state that FICC can make intra-day margin calls?

There you have the answer, yes with supporting information from the rulebook.

Next I asked:

Can the intraday supplemental deposit only be provided in usd cash or are other currencies or securities eligible?

The response correctly summarises that dollar cash and eligible clearing fund securities can be provided.

Eligible Securities

Which naturally leads to the next question:

What constitues eligible clearing fund securities?

You get the idea, I can interrogate the rulebook, in a way that I need to, in much the same way that I would ask an expert, who had read and memorised the rulebook.

Related Information

However there is more. My question might require information related to but not actually in the rulebook document itself.

Let’s see if that works or throws Gemini.

In the previous response, last paragraph, first sentence we see “subject to valuation haircuts”, so let’s ask about these.

What are the current valuation haircuts set to?

Expanding Show Thinking, we can see that Gemini

• finds that the rulebook states “that the specific haircut values are not within the rulebook itself but are published separately on the FICC/DTCC website in a haircut schedule.”

• considers whether to call another tool and decides on Google Search

• uses Google Search for terms like “FICC clearing fund haircut schedule"

• finds the appropriate file at GSD-Haircut-Schedule-Current.pdf

• extracts specific values from this file

• synthesizes to get the answer

• does a self-check, to check the answer directly addresses the user request (nice)

And returns the information I asked for.

(I have only produced the first part of the response for brevity).

You get the point.

It is great that as my question requires another related document, Gemini can figure that out and get me the information I asked for.

Time saving indeed, as I could have spent a some time trying to find it myself, first in the rulebook itself and then on the DTCC website.

Testing Knowledge

Most of us in the corporate world, will have had to take compulsory online training, e.g. on cybersecurity. This usually involves a quiz for each section, to evidence that we have indeed read and understood the content.

This is an effective way of learning.

Well, following the same approach, to check that once we have skimmed the 337 page document, we have learnt the key concepts, we can easily create a quiz for ourselves.

Turning on the Canvas feature in Gemini, I can enter

Create an interactive quiz game with 10 questions that tests my high-level knowledge of this rulebook

This creates the code for an interactive quiz, which I can then interact with:

Amazing, I got the first question correct.

Stepping through and answering all 10 questions, I get to:

Hurray, a perfect score!

Mind you, I did make it easy for myself, by stating in my prompt “10 questions that tests my high-level knowledge of this rulebook”

Let’s make it harder.

Can you create a new quiz game with 10 new questions, but this time make them harder and answerable by a clearing service expert or someone who has carefully read the rulebook

Oh dear, that is a tricky one.

I better have read Rule 10 or read it now or make an educated guess.

Now for question 1, I opened the document and read the specific rule and was able to get the correct answer.

But lets try questions 2 to 10 blind or rather make educated guesses.

And the result?

Not bad, 6 out of 10 or rather 5 out of 9 (excluding q1 for which I referred to the rulebook).

A sufficiently hard test, but I got by with some educated guesses and prior knowledge of clearing services (not specifically FICC).

Let’s end todays blog there.

Learnings

Complex documents can be summarised by Large Language Models (LLMs).

Even better, we can ask questions on the contents.

Much as we would ask an expert.

And follow a path of enquiry relevant to us.

Even when these queries require other documents.

As Search is now a tool in all leading GenAI Chat Apps.

It is also easy to create a Quiz Game on the contents.

To test and improve our expertise.

What is not to like.

For those complex documents that you do not have to or want to read.

GenAI Apps are the way to go.

Try it out for yourself.