[ I N D E P T H | T R E A S U R Y C L E A R I N G ]
“ Transparency is always good for competition , right ? It narrows bid ask spreads . It makes things easier to trade and encourages more to be involved because there ' s more information ,” notes Brian Rubin , head of US fixed income trading at T . Rowe Price .
“ The new rules should make markets more liquid . We ' re always looking for greater transparency .”
Established firms , which have more robust infrastructure and regulatory expertise , may find it easier to adapt to these changes , while newer players will need to navigate increased regulatory expectations to compete effectively .
The new rules also have the potential to shift the ways in which transparency exists within the fixed income landscape . Particularly , with a shift from transparency solely being held by broker dealers , to the buy-side .
“ As you move from more of a bilateral transaction-based market to more of a cleared based model , market participants including buy-side participants will potentially see more transparency into what the transactions levels look like , what overall trading volume trends are , and also some of the post-trade aspects that impact FI Treasury and repo markets ,” emphasises Khokhar . “ That gives market end users more transparency on the buy-side to see what potentially may be happening from the dealer / broker community .”
Impacts on trading Central clearing is expected to alleviate counterparty credit limits through improved risk management and transparency offered by central counterparties ( CCPs ) and shift previously uncollateralised bilateral agreements to CCPs . This transition should notably reduce the risks of counterparty defaults and fire sales .
“ This could improve market liquidity by removing existing trading restrictions and mitigating counterparty and bilateral trading risk . This will be particularly beneficial in times of stress , as these factors will ensure that dealers don ’ t withdraw liquidity ,” notes Pacenti .
“ At the same time , the cost of central clearing and risk management activities will likely increase the overall costs of transactions for participants who don ' t currently centrally clear transactions . These costs will be passed on from FICC members to non- FICC members .”
Likewise , highly leveraged or low-margin trading
“ The new rules should make markets more liquid . We ' re always looking for greater transparency .”
BRIAN RUBIN , HEAD OF US FIXED INCOME TRADING AT T . ROWE PRICE
strategies , such as basis and relative value trades , may become less viable due to these proposals . As a result , fewer PTFs may engage in these trades , causing a decline in liquidity for the underlying asset classes , like US Treasury actives . This could offset some of the anticipated benefits of the new rules .
Anticipating the changes DTCC ’ s Klimpel tells The TRADE that as a covered clearing agency , FICC has been taking the necessary steps under the SEC rule requirements to prepare for this significant market structure initiative .
“ FICC offers a variety of both direct and indirect membership models for buy- and sell-side market participants . As we prepare for the upcoming mandate , FICC continues to work with the industry to educate firms , assess offerings , and ensure readiness ,” she states .
“ Our guidance to market participants is to begin preparations now by evaluating direct and indirect access models to determine the best approach for their organisations and clients to achieve successful implementation by the SEC compliance dates .”
Another strategy being developed in response to these changes is increased investment in technology , primarily to offset the costs of central clearing . This involves investing in scalable transaction reporting systems , which reduce reliance on manual processes ,
56 // TheTRADE // Q3 2024