With broad industry consensus around the benefits of increased central clearing of U.S. Treasury transactions, firm outlines how to best implement a clearing mandate.

The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today issued a new white paper, “Making the U.S. Treasury Market Safer for All Participants: How FICC’s Open Access Model Promotes Central Clearing,” that explores how to advance central clearing around U.S. Treasury transactions.

The latest paper from DTCC’s subsidiary, Fixed Income Clearing Corporation (FICC), describes how FICC’s long-standing “open-access” approach provides the flexibility necessary to allow a wide variety of market participants to access central clearing, while also ensuring impartiality and fairness. It also compares and contrasts key differences between the cleared U.S Treasury market and the cleared swaps market, as well as important considerations for implementing a possible clearing mandate.

The paper suggests that it is important to consider the significant differences between markets when developing market regulation. For example, several market participants who do not engage in the swaps market are critical liquidity providers to the U.S. Treasury market. The systemic risk mitigation objectives of a clearing mandate will not be achieved if those market participants cannot effectively access clearing. FICC currently offers a variety of client clearing models for U.S. Treasury cash and repo transactions, including correspondent clearing, prime broker clearing and Sponsored clearing via FICC’s Sponsored Service, to allow market participants to select the model that best addresses their needs.

“DTCC applauds industry efforts to introduce greater levels of central clearing to the U.S. Treasury markets,” said Murray Pozmanter, Head of Clearing Agency Services and Global Business Operations at DTCC. “The benefits of such a move are significant, including a reduction in settlement and counterparty risk, lowering the risk of market disorder and fire sales and enhancing market access and liquidity. However, in order for such an effort to be implemented effectively and deliver upon risk management objectives, considerations must be given to current market practices and approaches as mandates are developed. We look forward to working with regulators and the industry on this important effort.”

To advance this critical initiative, DTCC will continue its work with the industry to ensure that all firms looking to access clearing, either on a voluntary or on a potentially mandatory basis, can do so in an impartial and fair way. 

“FICC believes that it is well-positioned to support increased central clearing in the U.S. Treasury market,” stated Laura Klimpel, General Manager of Fixed Income Clearing Corporation (FICC) & Head of SIFMU Business Development at DTCC. “FICC has developed an open and flexible approach over the course of four decades to provide the diverse array of U.S. Treasury market participants with access to central clearing on their preferred terms and in a manner that meets their needs.”

Industry participants are welcomed and encouraged to become active parts of this conversation as next steps are identified.