U.S. Treasury Securities Central Clearing

Industry and market players continue their efforts to meet the U.S. Treasury securities clearing standards

Regulation
Regulatory intelligence
4 min

Written by

Alice Elizabeth Othigo

Alice Elizabeth Othigo

Director, Investment & Administration Services

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This article was first published on 20 September 2024. It was last updated on 26 February 2025.

On 13 December 2023, the Securities & Exchange Commission (SEC) adopted a new regulation promoting central clearing of the U.S. Treasury securities transactions. The Rule is designed to improve risk management practices, protect investors and reinforce market resiliency. The eligible U.S. Treasury securities cash transactions and U.S. Treasury securities repo & reverse repo transactions will be subject to mandatory clearing starting December 2025 and June 2026 respectively.

U.S. Treasury central clearing: regulatory compliance dates

In the past months, the industry has expressed concerns over the looming regulatory timeline as market participants prepare to support the change. On 24 January 2025, the Securities Industry and Financial Markets Association (SIFMA) jointly with other industry groups sent a request[1] to the Securities and Exchange Commission (SEC) asking for at least a 1-year implementation delay to:

  • Allow the smooth transition as actors continue to address outstanding points
  • Work on technical and operational readiness

In this request, the group draws attention to several open points that require further clarification before effective implementation, namely:

  • Done-away transactions agent clearing model and its accounting treatment
  • Double margining for investment managers as currently repo transactions are fully collateralized
  • Treatment of mixed CUSIP triparty transactions
  • Legal documentation standardization, etc.

On 25 February 2025, the SEC extended the compliance dates by one year with U.S. Treasury securities cash transactions effective date moving to 31 December 2026 and U.S. Treasury securities repo & reverse repo transactions to 30 June 2027.

U.S. Treasury central clearing: a changing landscape

The Fixed Income Clearing Corporation (FICC) remains the largest clearing house authorized to clear the U.S. Treasury securities transactions with current daily average[2] of USD 9 trillion (in total value) and more than 2,600 sponsored members active on the platform.

This landscape is changing as other clearing houses (e.g., CME Securities Clearing Incorporated, ICE Clear Credit) are preparing their alternative service models. Having multiple clearing houses competing in this space diversifies risk exposure, promotes innovative solutions and improves pricing structure. It is worth noting that these firms are also expected to expand their cross-margining capabilities as they open their processes to U.S. Treasury securities transactions. Nevertheless, the proliferation of clearing houses may also create some drawbacks, such as limited multilateral netting effect as well as increased operating, onboarding and connectivity costs.

Preparatory efforts towards central clearing

The U.S. Treasury securities clearing rule is a major shift in the current market practice. As such, eligible counterparties take forward this topic by assessing their trading patterns, reviewing counterparties list, corresponding statuses (e.g., if an entity is a FICC direct participant) – all to decide on the best-suited clearing access option. The qualifying standards for sell-side and buy-side firms may vary depending on clearing house terms and conditions, operating models and client requirements. Nevertheless, clients are encouraged to undertake preparatory work and engage with clearing brokers and service providers as earlier as possible.

U.S. Treasury securities clearing regulatory readiness checklist

  1. Identify in-scope transactions in the portfolio: U.S. Treasury cash transactions (buy/sell) and/or U.S. Treasury repo and reverse repo transactions
  2. Identify transactions nature: done-with[3] or done-away[4] transactions
  3. Engage with trading counterparties (e.g., FICC direct participants) to determine the best-suited clearing access model they can facilitate: sponsored[5] model or agent clearing[6] model
  4. Review clearing access model requirements and FICC qualifying terms and conditions (e.g., conditions for FICC indirect participants and/or executing broker customers)
  5. Review with trading counterparties margin requirements: clients need to determine if they will pay the margin or require funding. This will also influence the FICC margin account structure to be put in place.
  6. Execute legal documentation (e.g., Master Treasury Securities Clearing Agreement & corresponding Clearing Schedule[7]) to enable cleared transactions execution, clearing & post-trade processing
  7. Assess IT & operational changes required to support new processes
  8. Align with service providers on the post-trade operating model (i.e., middle office/trade management, collateral management, settlement, custody, reporting, etc.)
  9. Follow industry discussions to track the clarification and resolution of outstanding points
  10. Analyze and provision for multiple clearing houses environment

U.S. Treasury securities clearing: next steps

The U.S. Treasury securities clearing regulation is a step toward market integrity and avoidance of systemic event. Reducing overall exposure to bilateral transactions and implementing best practices are key objectives for the industry.

BNP Paribas continues to follow closely this regulation as industry is expecting further clarifications from the regulators with respect to the implementation timeline and open points resolution.

Extension of Compliance Dates for Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule With Respect to U.S. Treasury Securities

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[1] Source: Standards for Covered Clearing Agencies for US Treasury Securities and Application of the Broker-Dealer Customer Protection Rule with Respect to US Treasury Securities (Joint Trades) – SIFMA – Standards for Covered Clearing Agencies for US Treasury Securities and Application of the Broker-Dealer Customer Protection Rule with Respect to US Treasury Securities (Joint Trades) – SIFMA
[2] Source: U.S. Treasury Clearing | DTCC
[3] Done-with transactions executed and cleared by the same broker-dealer
[4] Done-away transactions executed by one broker-dealer and cleared by another one
[5] Sponsored model – direct participant broker-dealer (i.e. Sponsoring member) provides indirect participant its counterparty (i.e. Sponsored member) with access to FICC for clearing purposes
[6] Agent clearing model – direct participant broker-dealer (i.e. Agent Clearing member) provides executing broker-dealer customer with access to FICC for clearing purposes 
[7] Source: SIFMA and SIFMA AMG Publish Master Treasury Securities Clearing Agreement – SIFMA – SIFMA and SIFMA AMG Publish Master Treasury Securities Clearing Agreement – SIFMA