DTCC has made a number of proposed changes to its US fixed income clearing house in order to stem the flow of US Treasury trading away from the bilateral market.
The planned enhancements are for its subsidiary, the Fixed Income Clearing Corporation (FICC), which has already enacted a number of programmes to support the central clearing of repo trading.
The initiatives include expanding the scope of its clearing capabilities to include compared same-day starting repo transactions, expand locked-in trade sources for FICC to enable institutions to submit trades directly, and to enhance its cross-margining arrangement with CME Group, the largest market for US Treasuries.
Subject to regulatory approval, the joint proposal with the CME may include additional products and process changes in order to create greater efficiencies within the current arrangement. The proposals aim to shift trading activity away from bilateral markets and towards central clearing.
According to research from the US Treasury Department and the Treasury Market Practices Group (TMPG) over the years, the majority of trades in the secondary Treasury market are bilateral, a trend that is contrary to the direction of recent regulatory requirements.
“We need to further explore the current cause of the shift to bilateral clearing in the Treasury cash market, and deploy solutions that can broaden participation in central clearing to best manage risk in the marketplace,” said Murray Pozmanter, DTCC managing director and head of clearing agency services.