CME files to extend US government bond clearing to funds

The Chicago-based exchange group said it has applied to the Commodity Futures Trading Commission (CFTC) for approval to extend the cross-margin service offered jointly by CME and the Depository Trust & Clearing Corporation to include end-clients.

The cross-margining service, which launched in January last year, currently offsets on behalf of banks and brokers government bonds cleared at DTCC with the related government bond futures traded and cleared at CME.

The US exchange group said in a statement on Monday the DTCC plans to make a similar extension filing with its regulator, the Securities and Exchange Commission.

Under the joint proposal, end clients will need to use the same clearing broker for both the DTCC and CME legs to benefit from the cross-margining service, the firms said.

CME and DTCC announced in February this year the plan to extend the service to end-clients, saying at the time the new features will go live before the end of this year.

CME is also planning to launch a government bond clearing service before the introduction of the US treasury clearing mandate, slated for the end of next year, meaning CME is set to partner and compete with DTCC at the same time.

Suzanne Sprague, CME group’s chief operating officer and global head of clearing, said in July the dual-track approach should enable more clients to benefit from margin offsets between US cash Treasuries and the related futures and options.

“If the client chooses to clear cash treasuries at FICC, they can cross-margin with CME Group interest rate futures once the program is expanded to clients, targeted for the end of this year, subject to regulatory approval,” Sprague said.

“If the end-client chooses to clear cash treasuries at CME Group, they will in time be able to benefit from cross-margining with interest rate futures and options, and interest rate swaps, subject to regulatory approval.”

The DTCC filed last week with the SEC to upgrade its government bond clearing service ahead of the US Treasury clearing mandate next year.