[ I N D E P T H | T R E A S U R Y C L E A R I N G ]
“ As numerous policymakers , academics , and market participants have recognised , greater central clearing of US Treasury transactions would improve the safety , soundness , and efficiency of the US Treasury market [...].”
LAURA KLIMPEL , MANAGING DIRECTOR , HEAD OF FIXED INCOME
AND FINANCING SOLUTIONS AT DTCC
“ Firms will have to look at the infrastructure , systems and processes , to see if they can absorb this large market structure regulatory change .”
KEVIN KHOKHAR , HEAD OF INVESTMENT FUNDING AT T . ROWE PRICE daily average volume that is traded in these markets . Based on our engagement with market participants , we ' re expecting that it ' s going to be an increase in demand for capital - maybe a 20-30 % increase ,” notes Kevin Khokhar , head of investment funding at T . Rowe Price . “ Firms will have to look at the infrastructure , systems and processes , to see if they can absorb this large market structure regulatory change .”
Khokhar continues to highlight that margin and portfolio funding impact should be another key focus for institutions as they adapt to these rules . When considering bilateral transactions , which typically occur in the treasury trading space , when shifting into a cleared model , there will be increased rules and regulations around the type of assets you can pose for margining , to optimise and normalise FI trading books .
“ Being able to understand the impact of your liquidity profile in your trading portfolios will be one of the key factors , something that the market needs to consider as you get into clearing market structures ,” he adds .
Competition The new fixed income clearing rules could potentially have a significant impact on competition in the bond markets , particularly for new entrants . By mandating central clearing for a wider range of transactions and increasing oversight on market participants , the new rules could raise the operational and compliance costs for smaller firms and new market entrants . Despite this potentially leading to barriers to entry , it could also enable a more level playing field by reducing counterparty risk and increasing transparency .
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