Skip to main content

The U.S. Treasury market is the largest in the world, and its performance is critical to the strength and stability of the overall U.S. economy. However, U.S. Treasury market activity today is split between two disparate clearing processes: bilaterally cleared transactions, and centrally cleared transactions via DTCC’s Fixed Income Clearing Corporation (FICC).

The issue of fragmentation has taken on greater urgency as of late due to ongoing market volatility, prompting discussion among industry participants and regulators on the need for an ideal market structure.

This latest white paper from DTCC, More Clearing, Less Risk: Increasing Centrally Cleared Activity in the U.S. Treasury Cash Market, explores the risks created by market fragmentation and the growing concerns around the increased adoption of bilateral clearing for Treasury activity. It also details the industry-wide benefits of unifying the market under a central clearing model, including:

  • Reduced market risk through margin processing, which is collected twice a day. This promotes orderly control, wind-down and liquidation in the event of a member default, reducing the risk of liquidity drain and fire sales in a stress event.
  • Added liquidity by allowing trades to be netted across all CCP members, lowering net settlement exposures and freeing up capital.
  • Improved financial stability by increasing transparency in this important area of the Treasuries market. FICC does not have visibility into its members’ Treasury market activity that clears bilaterally away from FICC.

FICC intends to use this paper to engage with clients, regulators, and other stakeholders to discuss these topics which should remain a focus area for the industry.

Read the press release to learn more.