“A big, end-to-end infrastructure change project for FICC, its current members, and any newly joining firms” is rolling in, as the new clearing mandate for US Treasury-issued securities has just become effective with an end-2025 deadline for cash trades. This is one of the conclusions when Clarus CEO Amir Khwaja sums up what’s in it for the players.
Widespread puzzlement about how to access the clearing services – despite them being available only at the Fixed Income Clearing Corporation (FICC) entity of US infrastructure dominant DTCC – is one of the thresholds as the market seeks to come to terms with the new rules from the US Securities and Exchange Commission. Many market partcipants will source the services indirectly, through a clearing member.
It is in a blog post by Amir Khwaja, CEO of Clarus Financial Technology, on the blog of the company’s owner group Ion, that the complex effects of the new framework are being sketched. One challenge lies in identifying, already before the trade, which clearing workflow a transaction is fit for. “Considering the optimal financial impacts will lead dealers and buy-side firms needing to determine pre-trade whether a proposed trade is mandated to clear, whether it should be cleared if optional (for example, an inter-affiliate trade), with which party it is better to do the trade, and how to price in funding and balance sheet impacts,” notes the post.
The go-live date for mandated clearing of purchases and sales (“cash trades”) is 31 December 2025, while for repurchase agreements (“repos”) it is 30 June 2026. The blog writer has taken on himself the “necessary, albeit a bit challenging and tedious” task of comparing the mandate’s scope with the possibilities to solve for it with today’s FICC service offer. Gaps exist.
An earlier post noted a widely held negative view on the shift, from the side of affected parties. With cash trades settling in one or two days, the exposures are different and smaller than those in derivatives, which run over prolonged time periods. It referred to a paper by DTCC itself, showing that “FICC’s various central clearing access models and available services are not broadly understood”. Most members were still unsure which models or services they wanted to use for indirect participants.
For readers who hope to understand the SEC final rule without reading all its 406 pages, the blog post carries links to summaries by a law firm.