The Depository Trust & Clearing Corporation (DTCC) has published a new white paper that outlines ways to promote central clearing around U.S. Treasury transactions.
Written by the DTCC subsidiary Fixed Income Clearing Corporation (FICC), the paper looks at how the FICC’s open access model offers “the flexibility necessary to allow a wide variety of market participants to access central clearing, while also ensuring impartiality and fairness,” the DTCC said in a press release on its website on Tuesday (Oct. 5).
The DTCC provides clearing and settlement services for U.S. financial markets. In its latest paper, the organization compares and contrasts crucial distinctions between the cleared Treasury and cleared swaps markets, along with key considerations for launching a clearing mandate.
The paper — “Making the U.S. Treasury Market Safer for All Participants: How FICC’s Open Access Model Promotes Central Clearing” — recommends considering differences between markets when deciding these regulations.
“For example, several market participants who do not engage in the swaps market are critical liquidity providers to the U.S. Treasury market,” the DTCC says. “The systemic risk mitigation objectives of a clearing mandate will not be achieved if those market participants cannot effectively access clearing.”
The FICC offers numerous client clearing models for U.S. Treasury cash and repo transactions, such as correspondent clearing, prime broker clearing and sponsored clearing through FICC’s Sponsored Service, allowing market participants to choose a model that meets their needs.
“DTCC applauds industry efforts to introduce greater levels of central clearing to the U.S. Treasury markets,” said Murray Pozmanter, head of clearing agency services and global business operations at DTCC. “The benefits of such a move are significant, including a reduction in settlement and counterparty risk, lowering the risk of market disorder and fire sales and enhancing market access and liquidity.”
But Pozmanter added that for such an effort to be effective, considerations must be made regarding current market practices and approaches.
Earlier this year, the DTCC called for stepping up the time it takes for security settlements to clear in the wake of Robinhood’s Gamestop-related trading frenzy.