Calls grow for dealers to unbundle US Treasury clearing

Securities and Exchange Commission chairman Gary Gensler has joined growing calls to unbundle client clearing and execution services for US Treasury securities.

New rules adopted by the SEC last December will require most US Treasury cash trades to be centrally cleared from the end of next year, with repos following suit in June 2026. 

Currently, most buy-side firms rely on dealers to submit trades to the Fixed Income Clearing Corporation, which has a monopoly on US Treasury clearing. The problem is that most dealers will only do this for so-called ‘done with’ trades that are executed with them – a practice permitted under FICC’s sponsored clearing model. 

To be clear, ‘done with’ trading is a business model practice preferred by the sponsoring bank or dealer, rather than a market structure parameter imposed by FICC

Michelle Neal, Federal Reserve Bank of New York

Speaking at the International Swaps and Derivatives Association’s Treasury Forum in New York on June 5, Gensler called on FICC members to drop their resistance to clearing trades executed with other counterparties – known as ‘done away’ trades – before the SEC’s clearing mandate comes into force.

“Provisioning done away transactions can be an important component of promoting access and competition,” Gensler said, noting that clearing of done away trades is standard practice in other markets. “Guess what: we have it in equities, we have it in equity options, we have it in swaps, we have it in futures.”

Buy-side firms called on the SEC to prohibit the bundling of clearing and execution services as part of its clearing mandate for US Treasuries. The regulator instead punted the issue to FICC, directing it to create incentives for members to submit done away trades to the clearing house. 

However, proposed rule changes unveiled by FICC on March 11 aimed at making it easier for buy-side firms to access its services stopped short of prohibiting members from bundling clearing and execution services.

Risk.net understands that FICC does not have the authority to prohibit a particular business model such as bundling of clearing and execution unless required to do so by the SEC.

Speaking at the same event, which was co-hosted by the Securities Industry and Financial Markets Association (Sifma), the Federal Reserve Bank of New York’s head of markets Michelle Neal argued dealers were the source of the problem.

Provisioning done away transactions can be an important component of promoting access and competition

Gary Gensler, CFTC

“To be clear, ‘done with’ trading is a business model practice preferred by the sponsoring bank or dealer, rather than a market structure parameter imposed by FICC,” she said. “While there are benefits to this practice, including balance sheet efficiencies for the sponsoring bank or dealer, it makes it extremely difficult for a client to clear transactions that are not conducted with a sponsoring bank or dealer.” 

Neal noted that FICC already has a clearing model for done away trades in repo, “but it is unclear as of yet which firms may choose to provide such a service”.  

“A done away option for cash clearing would likely also be beneficial,” she added.

Speaking on a panel at the Treasury Forum, Laura Kimpel, head of fixed income and financing at the Depository Trust & Clearing Corporation – FICC’s parent company – said there were signs that dealers were warming to the idea of clearing done away trades. 

A recent survey conducted by FICC found that 28% of the 83 sell-side respondents intended to offer US Treasury clearing services through their agency clearing, prime brokerage or futures commission merchant business, all of which facilitate done away trading.    

“There's been concern in the market that the only intermediaries in clearing in the Treasury space were going to be the repo desks that traditionally do ‘done with’ principal activity,” Kimpel said.

“The data is showing us that other parts of the institution that facilitate… executions by their clients with third parties are going to be coming into the clearing market in Treasuries and we see that as a very positive development.”