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DTCC Guide to Clearing Treasury Transactions

The Depository Trust & Clearing Corporation (DTCC) has published a new whitepaper showing ways to promote centralized clearing around US Treasury note transactions.

The paper, written by DTCC subsidiary Fixed Income Clearing Corporation (FICC), examines how the FICC’s open access model “provides the flexibility necessary to enable a wide range of market participants to access central clearing while at the same time ensuring impartiality and fairness guarantee”. DTCC announced this on Tuesday (October 5) in a press release on its website.

DTCC provides clearing and settlement services for the US financial markets. In its latest paper, the organization compares and contrasts key differences between the cleared treasury and cleared swaps markets, as well as key considerations for introducing a clearing mandate.

The paper – “Making the US Treasury Market Safer for All Participants: How FICC’s Open Access Model Promotes Central Clearing” – recommends considering the differences between markets when deciding on these regulations.

“For example, several market participants who are not active in the swap market are critical liquidity providers for the US treasury market,” says the DTCC. “The objectives of a clearing mandate to reduce systemic risk will not be achieved if these market participants do not have effective access to clearing.”

The FICC offers numerous client clearing models for cash and repo transactions of US Treasuries, such as correspondence clearing, prime broker clearing and sponsored clearing via the sponsored service of FICC, so that market participants can choose a model that suits their needs.

“DTCC welcomes industry efforts to introduce greater levels of centralized clearing in the US treasury markets,” said Murray Pozmanter, director of clearing agency services and global operations at DTCC. “The benefits of such a move are significant, including reducing settlement and counterparty risk, reducing the risk of market disruption and distress sales, and improving market access and liquidity.”

Pozmanter added, however, that in order for such an attempt to be effective, consideration must be given to current market practices and approaches.

Read more: DTCC Calls for Swift Trade Agreements After Robinhood GameStop Debacle

Earlier this year, DTCC called for an increase in the amount of time it takes to settle securities settlements following Robinhood’s Gamestop-related frenzy.

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