The U.S. Securities and Exchange Commission (SEC) finalised new rules in January 2024 that will significantly impact the U.S. Treasury market. According to law firm Arnold & Porter, the Treasury Clearing Rule introduces mandatory central clearing for a projected $4 trillion in daily Treasury transactions. The rule, which took effect on 18 March 2024, will be implemented in phases, with the first compliance deadline set for 31 March 2025. Market participants—including banks, broker-dealers, and investment firms—must now prepare for major operational changes as central clearing becomes a legal requirement.
The SEC’s primary goal with the Treasury Clearing Rule is to reduce counterparty credit risk while increasing market transparency and resilience. By requiring transactions to be processed through central counterparties (CCPs), the rule aims to lower systemic risk and improve liquidity management. The Fixed Income Clearing Corporation (FICC), a subsidiary of The Depository Trust & Clearing Corporation (DTCC), is currently the only registered clearing agency (CCA) capable of implementing these requirements. However, other players, including Intercontinental Exchange (ICE) and CME Group, have announced plans to enter the space, which could introduce competition in the Treasury clearing landscape.
Transactions subject to central clearing
The rule mandates clearing for two key transaction types: repurchase agreements (repos) and cash-market trades. Repo transactions involving U.S. Treasury securities must be centrally cleared when at least one counterparty is a direct participant. Cash-market transactions also fall under the rule when they involve a direct participant and a registered broker-dealer or take place within a multilateral trading facility. Despite the broad reach of the regulation, certain exemptions exist for transactions involving central banks, sovereign entities, and specific government agencies, allowing them to operate outside the central clearing framework.
Industry pushback
The implementation of the Treasury Clearing Rule will occur in stages. By 31 March, clearing agencies must adopt new risk management and access rules. Direct participants will need to comply with clearing requirements for cash-market transactions by 31 December, followed by compliance for repo transactions by 30 June 2026. However, many financial industry groups are pushing back against this timeline, requesting a 12-month extension due to the legal and operational complexities involved. Concerns include the risk of “double margining” for investment funds, changes to the treatment of inter-affiliate transactions, and the extensive updates needed for risk management frameworks and trade processing systems.
FICC has already begun modifying its rulebook to align with the new requirements, introducing stricter margining policies and expanding access criteria. Non-members of FICC must assess whether their transactions will now require clearing, while direct participants face an overhaul of their account structures, onboarding processes, and legal agreements.
