More than 500 clients and industry stakeholders attended the latest FICC Treasury Clearing Forum as the industry begins to prepare for the anticipated implementation of the U.S. Treasury Clearing mandate.
Laura Klimpel, DTCC Managing Director, Head of DTCC's Fixed Income and Financing Solutions, led a discussion with Chris Scarpati, Capital Market Advisory Lead at PWC; Claire Lough, DTCC Executive Director, Stress Testing & Liquidity Risk; and Robert Crain, DTCC Managing Director, Risk Management, on recent client survey findings to better understand the industry’s preparation for the U.S. Treasury Clearing expansion, as well as the risk management tools DTCC is developing to support the mandate.
Below is an overview of the key topics discussed:
Treasury Clearing Volume
Based on survey feedback, FICC anticipates more than $4 trillion in daily Treasury clearing activity following implementation of the mandate, in addition to the $7.5 trillion in activity currently cleared across FICC’s Government Securities Division (GSD). Of note, 58% of respondents forecasted that the additional clearing activity will be driven by indirect participant Repo activity clearing, which reflects the scope of the final Treasury Clearing rule.
Access Models
FICC’s Sponsored Membership access model is still the preferred indirect access model offered by FICC, but there is increasing interest in use of the proposed Agent Clearing Model (ACM) with 43% of respondents indicating that they plan to leverage ACM. FICC anticipates interest in ACM continuing to increase, particularly as market participants begin to understand the full scope of the Treasury clearing mandate.
Done-Away Clearing
There is growing evidence in the survey results for the adoption of done-away Treasury clearing for indirect participants. Many buy-side firms indicated that they expect to utilize done-away clearing, which are transactions executed by an indirect participant with a counterparty other than its clearing intermediary.
Aggregate Margin
Estimates of Treasury Repo and Buy/Sell activity indicate a likely corresponding increase in aggregate margin requirements (specifically, increases in the the VaR Charge). FICC continues to focus on opportunities to further improve margin efficiency, provide its membership with education on these requirements and additional transparency in how these requirements are calculated. In January 2024, FICC launched an enhanced cross margin arrangement with CME and work is underway to expand this access as well as evaluate other cross-margin opportunities.
Daily Liquidity Need
Survey responses indicate a potential maximum daily liquidity need at FICC’s GSD of $84.5 billion. Under current parameters this estimate would point to a Capped Contingency Liquidity Facility (CCLF) of $109.9 billion under current parameters. Since 2021, the CCLF facility has ranged between $71.0BN and $128.4BN. In light of this data, FICC will focus efforts on diversifying its liquidity through additional, cost-effective resources.
Public Calculators
FICC has launched two new public risk management tools to help market participants estimate their liquidity and margin obligations. A walkthrough of the CCLF® and VaR calculators, including features and functionality, can be found here. FICC continues its efforts to improve transparency of its risk management measures, including through additional calculators that would estimate other margin components.
For more information about U.S. Treasury Clearing please visit ustclearing.com.