US Treasury clearing mandate 'opportunity' for futures brokers - FIA

FIA chief executive and president Walt Lukken will publish this week a viewpoint on the US Treasury clearing mandate due to take effect for US Treasuries from the end of next year and US repo in mid-2027.

US Treasury clearing is currently available on a voluntary basis through the Depository Trust & Clearing Corporation’s Fixed Income Clearing Corporation but the mandate will significantly increase the cleared market, attracting new entrants.

Lukken accepted in his commentary US Treasuries are not derivatives and therefore fall outside the FIA’s purview but added: “When it comes to central clearing, futures markets stand out as the gold standard for client clearing. Our industry serves as a model for what is being built, and we have decades of lessons learned that we can contribute.”

Lukken, the former chair of the Commodity Futures Trading Commission, added: “And remember that US Treasurys serve as the reserve currency for trading in derivatives. Any adverse outcome from the clearing mandate on our industry’s ability to margin our markets or move collateral would have a devastating effect.”

US exchange giants CME Group and Intercontinental Exchange said last month they are starting to test their services this month with a view to going live at the end of 2025.

US Treasury clearing currently relies on the “done-with” model where one firm handles trading and clearing whereas the US regulation will allow the “done-away” model which has one firm trading and another clearing, the standard practice in futures.

The “done-away” model of US Treasury clearing, then, is interesting to FIA and its members who include the largest futures clearing brokers, Lukken said.

The FIA head wrote in his viewpoint: “This approach will open a lot of opportunity in the Treasury clearing space by offering participants a variety of options on where to clear their trades. It also helps mitigate risk in the process by clearing members requiring credit checks.”

Lukken concluded: “Our industry knows it well, and it has stood the test of time. We believe strongly in market participants having this model as an option in clearing US Treasurys and repos.”

ICE Clear Credit’s chief commercial officer Paul Hamill said in October ICE believes “done-away” clearing will provide competition that will be welcomed by clients and regulators as the US group prepared last year its application to the Securities and Exchange Commission.