Investment Operations

DTCC Provides Vision for Central Clearing in the US Treasury Cash Market

DTCC's Murray Pozmanter

New paper proposes central clearing solutions to enhance resiliency and mitigate risks associated with bilateral clearing

The Depository Trust & Clearing Corporation has announced the release of a new white paper that explores the current structure of the U.S. Treasury securities market, highlighting potential risk and resiliency issues, and describing initiatives that could promote greater use of central clearing.

The white paper, Central Clearing In The U.S. Treasury Cash Market, looks at recent reports from the U.S. Department of the Treasury and the Federal Reserve Board’s Treasury Market Practice Group on the structural transformation now underway, and explores the risk and resiliency issues of bilateral clearing. DTCC is currently engaging with the industry around ways to increase central clearing in the Treasury market to reduce risks and strengthen market resiliency.

The paper looks at initiatives – both implemented and planned – from DTCC’s subsidiary Fixed Income Clearing Corporation (FICC) and how they will promote the growth of central clearing including the Sponsored Membership Program and the Centrally Cleared Institutional Triparty (CCIT) Service. It also explores several proposals to support the growth of central clearing activity, including:

  • Advancement of the FICC Start Leg Repo Initiative to include compared same-day starting repo transactions in eligible netting securities in the risk management, novation, guarantee and settlement in the DVP Service benefit
  • Expansion of capabilities to designate Locked-In Trade Sources to allow for additional trading volume to be centrally cleared through FICC
  • FICC-CME Cross-Margining enhancements and updates

“The past 10 years have seen a global movement toward central clearing, across markets and asset classes,” said Murray Pozmanter, DTCC Managing Director and Head of Clearing Agency Services. “However, we need to further explore the current cause of the shift to bilateral clearing in the Treasury cash market, and deploy solutions that can broaden participation in central clearing to best manage risk in the marketplace.”

According to DTCC, the initiatives outlined in the paper may provide options for market participants to increase their centrally cleared activity in the U.S. Treasury cash market, thus mitigating many of the risks realized with this shift toward bilateral clearing.