CME and ICE set year-end go-live date for Treasury clearing
Exchange giants CME Group and Intercontinental Exchange have announced that their clearing services for the US$28trn Treasuries market are expected to go live before the end of the year ahead of the world’s most important bond market transitioning to mandatory clearing by December 2026.
“We have been quite busy trying to build out our new clearing house to support Treasury [clearing] … Our target to go live is end of this year, but in the next few short weeks we will be opening up our systems for operational and other testing aspects,” Udesh Jha, managing director of post trade and clearing services at CME told ISDA’s annual general meeting in Amsterdam on Thursday.
ICE will be targeting a similar go-live date “this year”, confirmed Paul Hamill, chief commercial officer of ICE Clear Credit.
“[It’s] very clear that the market wants competition and wants choice, and ideally, will have a period of time to experience that competition and choice before the [clearing] mandate kicks in,” said Hamill, also speaking at ISDA's AGM. “Rather than just talking about it … people will get a truer sense of what some of [the] modernised architectures that we bring to the market mean.”
The US Securities and Exchange Commission is looking to increase the resilience of the Treasury market by pushing more trades through central clearing following a series of disruptive events in recent years.
"Hedge funds moving in"
All activity involving a direct participant of the Depository Trust & Clearing Corp's Fixed Income Clearing Corp, which operates the largest clearinghouse for Treasuries, will fall under the scope of the rules. That is expected to increase Treasury clearing volumes by more than US$4trn per day to about US$11trn, DTCC has said.
There has already been a marked uptick in voluntary clearing of Treasuries, with volumes hitting a daily record of more than US$11trn on April 9 at DTCC amid heighted market volatility following US president Donald Trump’s tariff announcements on April 2.
Frank La Salla, chief executive of DTCC, told the ISDA AGM on Wednesday that 76% of the hedge funds that traded Treasuries that day netted their positions through DTCC's clearinghouse, well above the previous record of 44%.
"The hedge funds are moving in. They want netting relief," La Salla said. "The asset managers, we have to do more work with ... but I will tell you the industry is moving in that direction."
While mandatory clearing rules were initially set to kick in by December this year, the SEC recently granted the market a 12-month extension amid growing concern among traders and lawyers over the industry’s readiness for the new rules – including the development of clearing models that can handle more activity from buyside firms.
That includes the development of “done-away” clearing models, which involve banks clearing Treasuries for their clients within their prime brokerage, agency clearing or futures commission merchant business units.
CME, DTCC and ICE have set their sights on providing done-away clearing services – competition which should encourage better services for end-users, according to Stephen Berger, global head of government and regulatory policy at Citadel.
“Ten years ago, when CME entered to compete with LCH in the interest rate swap clearing space, the competitive threat of that new entry made everyone in the system sort of up their game. LCH is a much better clearinghouse today for having to respond to a competitive threat that CME brought at that time, and I think we'll see the same thing [with DTCC],” Berger told the AGM.
LCH is part of LSEG, which also owns IFR.