US Treasury market by requiring central clearing for eligible instruments such as repos , reverse repos , inter-dealer broker transactions , and other cash transactions . The objective of these rules is to reduce counterparty risk , curb contagion , and enhance market transparency .
“ The lessons learnt from past financial stress conditions and crises , particularly those involving non-bank market participants , have driven these changes . One counterparty defaulting could pass risk on to another party , this in turn could have a cascading effect on liquidity across the market ,” highlights Edoardo Pacenti , head of trading tools for fixed income at ION .
“ In addition , currently , the Fixed Income Clearing Corporation ( FICC ) is indirectly exposed if one of its members makes a trade with a non-member and subsequently defaults on the transaction . With
“ The lessons learnt from past financial stress conditions and crises , particularly those involving non-bank market participants , have driven these changes .”
EDOARDO PACENTI , HEAD OF TRADING TOOLS FOR FIXED INCOME AT ION
these changes , there will be a dramatic increase in the amount of daily US Treasury clearing activity processed through the FICC .” As it currently stands , two compliance dates exist which firms should be most conscious of . If no extensions are actioned , 31
December 2025 marks the beginning of the mandate for cash transactions , while on 30 June 2026 the repo transaction mandate will commence .
Institutions should also note that the SEC has implemented a regulatory change to redefine the term ' dealer ,' aimed at increasing oversight of proprietary trading firms ( PTFs ), which are key liquidity providers in the US Treasury market .
PTFs , which trade using their own capital rather than on behalf of clients , will now be required to register as dealers with both the SEC and FINRA . Alternatively , if PTFs prefer not to register as dealers , they must set up a sponsored member arrangement . “ While this is a significant change for PTFs , they already have experience delivering similar large-scale projects following the change to the T + 1 settlement in May 2024 which can be applied to the upcoming dealer redefinition and central clearing changes ,” adds Pacenti .
Another key consideration for institutions is the increase in clearing volume that will occur as a result of these rule changes .
“ Our understanding is that seven trillion or so is the
54 // TheTRADE // Q3 2024