Brian C. Disken, DTCC Executive Director, Head of Treasury Product, joined a panel of industry experts at the Northern Trust Asset Servicing webinar in November to speak about the mandate for U.S. Treasury clearing and what clients need to be thinking about.
The mandate to centrally clear certain cash and repo U.S. Treasury securities will have a transformative impact on any party engaging in the U.S. Treasury market ecosystem. Following the industry’s requested time extension, the mandate to clear cash transactions in scope will now begin on December 31, 2026, while the mandate to clear eligible repo transactions will go into effect on June 30, 2027.
Further extensions to this timeline are not likely due to the importance of this rule to reduce risk and increase resiliency in the U.S. Treasury market, and clients should begin their assessments now.
Learn more about U.S. Treasury Clearing
Updates to FICC’s Clearing Models
Since the announcement of the mandate in December 2022 — just three years ago — FICC’s average daily volumes have dramatically increased to $11.3 trillion, with $2.4 trillion of sponsored activity. Voluntary clearing is increasing rapidly as members try to get ahead of the requirement, and Disken noted that FICC is actively onboarding new members to both the direct and indirect models.
One size does not fit all, and firms need to understand how the models work and analyze their workflows. FICC is actively engaging with members to deliver additional products that can provide capital efficiency for members and allow sponsors and agent-clearers to bring activity into clearing.
- Sponsored Service offers two products, DVP and GC, which both offer gross margining and segregation of customer margin deposits in certain circumstances. In addition, DVP offers both done with and done away clearing. FICC has recently implemented enhancements approved by the SEC that expand the Sponsored GC service to include Sponsored Collateral in Lieu and done away sponsored in the GC model.
- Agent Clearing Service offers both done with and done away, as well as net margining, i.e., client positions can be netted across for margin purposes. Also, certain customer margin deposits that are calculated on a gross basis would be segregated. Future enhancements (subject to regulatory approval) to this service include the Agent Clearing Tri-party Service, which will support both done with and done away activity and net margining across customers.
Other Key Areas of the Mandate
In preparation for implementation of the mandate, SIFMA is designing standardized documentation to create efficiencies in the onboarding process for customer clearing arrangements away from FICC. Documentation for done with clearing has been published and SIFMA is moving forward with done away documentation for anticipated delivery in early 2026. SIFMA is also updating a work around Industry Considerations report for firms considering done away clearing.
Importantly, SIFMA’s accounting group has published a white paper that details accounting treatment with respect to FICC’s Agent Clearing Service. The group concluded that a dealer would be an agent with no capital consequences for FICC’s Agent Clearing done away transactions. This significant conclusion was reviewed without objection by the SEC.
Key Remaining Challenges
The done away workflow — where a client executes a trade with one counterparty but clears through a different FICC member — is relevant to firms that are not direct FICC members. Open issues for this workflow include credit/limit checks, bunched orders and life cycle events. FICC is engaging with members and the industry to provide greater clarity on these issues.
SIFMA continues advocacy with the SEC to obtain further clarification of the exemption in the SEC’s U.S. Treasury clearing mandate for inter-affiliate transactions.
FICC is also working closely with CME on an end-user cross-margining agreement, currently pending regulatory approval, which would allow for significant capital efficiencies.
What Should Firms Do
Buyside participants should be engaged to fully understand the scope of the central clearing mandate and have a plan in place to ensure eligible transactions are submitted. As Disken concluded, FICC stands ready to help market participants to find right path to bring their activity into clearing at FICC.