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 1. Home →
 2. Industry news →
 3. Participants raise concerns over SEC’s Treasury clearing mandates

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Image: Andrii_Yalanskyi/stock.adobe.com


Sell side firms have raised concerns over the Securities and Exchange
Commission’s (SEC) Treasury and repo clearing mandates an Acuiti report has
found.

These firms, which will provide clearing services under the SEC’s mandates, have
highlighted the “economics of participation in the market” and the timeline for
implementation as a worry.

The SEC has introduced mandates for centralised clearing of treasury and repo
transactions to enhance transparency, stability, and resilience in the US$27
trillion Treasury market, which represents one of the most significant shifts in
US capital markets for decades.

The report, produced in partnership with ION, interviewed senior executives at
the major Future Commission Merchants (FCMs) and banks that will be active in
the market.

FCMs expressed concern over the timeline and the economics of providing clearing
services in treasuries and repos, with several questioning the capacity of the
market to absorb the demand for clearing.

Ross Lancaster, head of research at Acuiti, says: “With just over a year until
the introduction of the mandate begins, there remain significant uncertainties
in how FCMs and repo desks will approach treasury and repo clearing.”

The deadline for the new mandated central clearing framework is set to 31
December 2025 for cash central clearing and 30 June 2026 for repo clearing, with
central clearing houses still developing their access models.

There is an industry-wide uncertainty about the viability of current mandate
deadlines, with 48 per cent of survey respondents noting that the repo deadline
was unlikely or impossible, and 31 per cent saying the same for the cash
deadline.

Lancaster continues: “Clarifications and potential additional regulatory
activity around accounting treatment, capital requirements, and cross-asset
margin offsets will ultimately indicate whether a dominant model will emerge, or
the current sponsored model will co-exist with an agency clearing model.”

In addition, many FCMs are still uncertain about their approach to the market
and the models they will offer clients from day one.

Around a third of respondents said that they were “critically concerned” over
the overall level of returns from offering repo clearing in what is likely to be
a capital-intensive, high-volume, low-margin business.

Francesco Margini, chief product officer for cleared derivatives at ION Markets,
adds: “Despite the current uncertainties, what is clear today is that automation
and scalability of the clearing process will be essential for firms to support
the high-volume US Treasury cash and repo business.

“Big decisions lie ahead of sell side firms on the technology strategy in
support of the clearing mandate. The expectation is that market standardisation
brought by a centrally cleared business will enable software vendors like ION to
play an important role in delivering solutions that meet the needs of our
customers.”
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