The Depository Trust & Clearing Corporation (DTCC) issued a new industry paper that explores the possible impacts of the US Securities and Exchange Commission’s (SEC) 2022 Treasury Clearing proposal. This proposal would require a significantly larger portion of the US Treasury cash and repo markets to be centrally cleared through an SEC-registered central counterparty.
DTCC’s latest industry paper explores the potential implications of the SEC’s Treasury Clearing proposal based on market participant survey feedback as well as insights from DTCC’s transactional data.
Key highlights of the paper include:
- Based on its data analysis, DTCC projects approximately $1.63 trillion daily in incremental indirect participant Treasury activity ($500 billion of Repo, $520 billion of Reverse Repo and $605 billion of cash trades) to come into central clearing.
- Survey responses indicated the Fixed Income Clearing Corporation’s (FICC’s) various central clearing access models and available services are not broadly understood, and a majority of FICC members remain unsure which models or services they want to use for indirect participant activity. Specifically, 52% indicated they were unsure as it relates to Treasury Reverse Repo and Treasury Repo activity, and 58% indicated they were unsure as it relates to indirect participant Treasury cash activity.
- FICC expects that the incremental indirect participant Treasury volume could result in a corresponding increase in Value at Risk (VaR) margin, which it conservatively estimates could be approximately $26.6 billion across the FICC / GSD membership. However, these estimates assume that all incremental indirect participant activity clears through one of FICC’s Gross Margin access models. The estimates could potentially decrease if the activity were cleared through one of FICC’s Net Margin models.
- Respondents suggested a variety of risk-focused and operations-focused enhancements to FICC’s offerings and services in connection with the potential expansion of central clearing of Treasury activity, such as improved cross-margining opportunities, increasing transparency of margin and CCLF calculations, enhanced reporting tools related to FICC’s risk management processes and operational enhancements to FICC’s novation processes and timelines.
“It is clear from industry feedback and our data analysis that the impact of the SEC’s Treasury Clearing proposal could be significant,” said Laura Klimpel, general manager of FICC & head of Systemically Important Financial Market Utility (SIFMU) Business Development at DTCC, in a statement. “We are committed to continuing to work with our members, their clients, the broader market, and our public sector stakeholders to raise awareness regarding FICC’s various central clearing access models and services. We will also continue to foster efforts that consider the potential impacts the SEC’s Treasury Clearing proposal could have on FICC’s operations, risk models and the tools we provide. We look forward to engaging the industry for further feedback as we move forward.”