DTCC recently hosted a breakfast briefing at ISDA’s Annual General Meeting in Amsterdam for industry leaders and decision makers to learn more about the future of post-trade across global markets. Brian Steele, DTCC Managing Director, President, Clearing & Securities Services, and Laura Klimpel, Managing Director, Head of DTCC’s Fixed Income and Financing, discussed several recent developments on the critical topic of U.S. Treasury Clearing.
Klimpel shared some recent volume stats that demonstrate FICC’s exponential growth: before the SEC's proposed rule to expand central clearing of U.S. Treasury activity, FICC's volumes were about $4.5T daily. By December 2023, after the SEC's rule was finalized, FICC's volumes increased to approximately $7.2T daily. Currently, FICC clears a daily average of over $10T, which includes most dealer-to-dealer activity in the Treasury market, primary and secondary market cash transactions and repo, as well as a growing amount of buyside Treasury cash and repo activity.
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“FICC has successfully met the SEC’s requirements of the expanded clearing rules,” Steele remarked.
Other insights:
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FICC is committed to bringing all client segments voluntarily into central clearing.
Sponsored clearing started about 20 years ago with just one client and a relatively modest $30 billion in daily transactional volume.
Fast forward to today: cleared buyside activity through FICC’s Sponsored Service has experienced 90% year-over-year growth, with 36 Sponsoring members now contributing to daily volumes between $1.7T and over $2T.
With the Sponsored access model, FICC estimates that it is already clearing nearly half of the outstanding Treasury repo covered by the SEC’s clearing requirement.
Balance sheet netting, through FICC’s efficient and systematic novation of financing transactions, helps clients optimize capital by freeing up billions of dollars that they can use for other investment purposes. At the end of 2024, balance sheet savings across the industry, through use of the Sponsored Service, topped $900B.
“The capital and balance sheet netting capabilities that central clearing provides, particularly for financing transactions, have proven to be very powerful commercial forces that have driven a significant amount of voluntary activity into central clearing,” Steele said.
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Central clearing through FICC brings stability and transparency
Through the recent market volatility in April, FICC saw a new one-day peak of $11.4T.
But within those numbers is an even bigger story: in the peak market volatility experienced during the pandemic in March 2020, only about 40% of hedge fund Treasury repo activity was centrally cleared at FICC. Five years later, over 75% of hedge fund Treasury repo activity is now centrally cleared at FICC.
“Our robust technology infrastructure, resiliency, and risk management capabilities have been battle tested for decades, providing safety and confidence,” Klimpel said.
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FICC is innovating quickly to create capital efficiencies and optimize central clearing
Driving capital efficiency and reducing friction for the industry remain key focus areas, and FICC is innovating quickly with products and services that create exceptional margin and capital efficiencies for our clients.
FICC continues to focus on maximizing the value of clearing for its clients, with plans to introduce enhancements to its tri-party repo access models, end-user cross margining arrangement with CME and a default guaranty fund, while supporting industry efforts to finalize appropriate accounting treatment for repo activity in its Agent Clearing Service, all to deliver new value, capital savings and capabilities that advance the financial ecosystem.
On March 23, FICC launched the enhanced Agent Clearing Service, account segregation capabilities, as well as powerful new risk monitoring tools that enable FICC and its clients to measure and manage risk exposures in increments of just 15 minutes.
“We are competing with the bilateral trade,” Klimpel said. “To continue to make central clearing competitive, we need to make the trade as economical, if not even more economical than a bilateral trade.”
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FICC supports non-US jurisdictions and clients’ cross-border activity
While the extension gives the industry more time to thoroughly prepare for the transition, what remains to be resolved are some of the scoping questions of what activity outside of central clearing is covered by the mandate. While the SEC rules are not bound by the geographic location of the counterparties, there is still some ambiguity related to whether certain types of international activity are covered by the mandate.
FICC has been an international CCP for decades, with European, Asian and Canadian direct, full-service members. FICC also has over 50 jurisdictions approved for clients that want to participate in our Sponsored Service.
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FICC is clearing significant done away cash
Klimpel shared one of the biggest spikes during April’s volatility was in FICC’s enhanced Agent Clearing Service (ACS), which includes done-away cash activity. With an April average of over $200 billion cleared through ACS daily, activity peaked at over $350 billion on April 9th.
While the clearing of done-away cash through FICC is already happening in scale, Klimpel noted that the workflow for done-away repo transactions could benefit from further clarity, indicating potential areas for improvement and development.
“There has been interest, particularly from the levered community, about clearing Treasury repo on a done-away basis, where they can execute with counterparties that are different from clearing members,” Klimpel said. “This is coming from a desire to be able to consolidate the portfolios of these asset managers to get the maximum offset. There is work that needs to be done in terms of mapping out the done-away repo workflow, and we are actively engaging with all the trade associations and market participants.”
For more information about FICC’s clearing models and support for clients to comply with the SEC mandate, as well as the myriad initiatives underway, please visit USTClearing.com.