Hedge fund Citadel executes cleared cash and repo trades through DTCC

DTCC recently broadened the category of market participants accessing the Fixed Income Clearing Corporation’s cleared repo service.

Hedge fund giant Citadel has executed and cleared both cash Treasury and repo trades through DTCC’s fixed income clearing house in the latest milestone for US buy-side activity moving to central clearing.

Palafox LLC, a subsidiary of Citadel, was able to clear its trades following the expansion of the DTCC’s sponsored service, which broadened the category of market participants accessing the Fixed Income Clearing Corporation’s (FICC) cleared repo service, including dealers, non-US banks and prime brokers.

Palafox became the first sponsor to facilitate centrally cleared cash and repo trades on behalf of its affiliated sponsored member clients, Citadel’s Global Fixed Income Master Fund.

“The greatest benefit of allowing different types of firms to be sponsors is that FICC has now made it possible to bring a much larger percentage of the market into clearing while maintaining our robust risk management standards,” said Murray Pozmanter, DTCC managing director and head of clearing agency services. “This should create needed capacity for the market, while at the same time reducing systemic risk.”

Following the 2017 expansion, which allowed buy-side firms beyond money funds and mutual funds to participate in the service as sponsored members, DTCC received increased interest from dealers, non-us banks, and prime brokers that were not previously able to be sponsors. The rise of interest across market participants prompted FICC to propose its latest approved expansion.

“We continue to support FICC’s efforts to expand the accessibility of central clearing for cash and repo trading and are excited to be a part of this important milestone in the evolution of the US Treasury markets,” said Dan Dufresne, managing director and global treasurer, Citadel.

In April, JP Morgan became the first member under the DTCC’s fixed income sponsor member programme to clear a repo transaction. DTCC has also proposed a number of changes to FICC in order to stem the flow of US Treasury trading away from the bilateral market.

These 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.