FAQs – Clearing mandate for U.S. Treasury securities – U.S.A.
On 13 December 2023, the U.S. Securities and Exchange Commission (“SEC”) adopted a final rule (the “Treasury Clearing Rule”) providing for the mandatory central clearing of certain secondary market transactions involving U.S. Treasury (“UST”) securities1. The FAQs that follow are intended to provide background information on the Treasury Clearing Rule for clients and do not constitute legal advice. They will be updated as new information becomes available.
Summary
- Following the adoption of the new clearing rules by the SEC, the Fixed Income Clearing Corporation (“FICC”), a subsidiary of the Depository Trust and Clearing Corporation (“DTCC”), published proposed changes to its rulebook. The changes will require market participants who are a member of FICC (or that trade with a counterparty who is a FICC member) to submit their eligible secondary market transactions (“ESMT”) in U.S. Treasuries (UST) (including Repos) for clearing at the FICC.
- The most significant proposed rulebook changes by FICC have been approved by the SEC and are final2.
- Certain aspects of the SEC mandate still require further clarification, particularly regarding the Industry’s request for clarification on the inclusion of mixed CUSIP Triparty baskets in the scope of the rule.
FAQs
In this section, you will find answers to the following questions. The questions highlighted in grey have been added or updated.
- What is the Treasury Clearing Rule?
- What is the implementation timeline?
- What is the purpose of the Treasury Clearing Rule?
- Which transactions are required to be centrally cleared?
- Are triparty repos required to be centrally cleared?
- What entities are subject to the clearing mandate?
- How are inter-affiliate repos treated?
- Are securities lending transactions required to be centrally cleared?
- Does a transaction arising from the final settlement of physically-settled UST futures qualify as an ESMT?
- Are any transactions specifically excluded from the definition of ESMT?
- What is Clearstream doing in response to the Treasury Clearing Rule?
1. What is the Treasury Clearing Rule?
The SEC’s Treasury Clearing Rule requires clearing agencies that provide central counterparty services for USTs (“covered clearing agencies” or “CCAs”) to adopt rules requiring all direct participants of the CCA to submit for clearing all “eligible secondary market transactions” (“ESMTs”).
Currently, FICC is the only CCA for purposes of the Treasury Clearing Rule. Following the SEC’s adoption of the Treasury Clearing Rule, both the Chicago Mercantile Exchange (“CME”) and Intercontinental Exchange (“ICE”) announced plans to launch government clearing services, but they have not yet received authorisation from the SEC3.
In March 2024, FICC began submitting to the SEC proposed modifications to its rulebook, as required by the Treasury Clearing Rule. The majority of these modifications have now been approved by the SEC and must be implemented by FICC by 30 September 2025. Additional modifications may still be proposed and adopted prior to the final implementation date.
2. What is the implementation timeline?
On 25 February 2025, the SEC extended the compliance dates for certain elements of the Treasury Clearing Rule4. The dates listed below reflect these changes.
- 13 December 2023: SEC adopts the Treasury Clearing Rule.
- 30 September 2025: CCAs must implement required rulebook modifications to comply with the Treasury Clearing Rule.
- 31 December 2026: Direct participants of CCAs must being clearing cash market ESMTs.
- 30 June 2027: Direct participants of CCAs must begin clearing repo ESMTs.
3. What is the purpose of the Treasury Clearing Rule?
The SEC has stated that the requirements of the Treasury Clearing Rule are designed to “protect investors, reduce risk, and increase operational efficiency” in UST markets5.
In adopting the Treasury Clearing Rule, the SEC pointed to several recent UST market disruptions, the risks of which the SEC hopes to mitigate via the rule:
- the “flash rally” of October 2014, when yields on UST bonds plunged, following a sharp increase in prices;
- the dramatic acceleration of repo rates in September 2019 amid a large withdrawal of reserves from the banking system and the settlement of UST auctions, which generated a significant need for cash reserves; and
- the COVID-19 shock of March 2020, when market uncertainty caused a spike in volume in the market for UST, leading to intervention by the Board of Governors of the Federal Reserve System6.
4. Which transactions are required to be centrally cleared?
The Treasury Clearing Rule makes it mandatory for CCAs to require their direct participants to submit for clearing all eligible secondary market transactions (“ESMTs”).
The Treasury Clearing Rule generally defines ESMTs to include:
- Repo transactions: Repurchase or reverse repurchase agreements collateralised by USTs, in which one of the counterparties is a direct participant or member of a CCA.
- Cash market transactions: Purchases or sales of USTs between a direct participant or member of a CCA and (a) any counterparty, if the direct participant facilitates multiple buyers using a trading facility and acts as a counterparty to both buyer and seller in separate transactions or (b) a registered broker-dealer, government securities broker, or government securities dealer7.
Transactions that would otherwise qualify as ESMTs, but which include at least one counterparty which is a central bank, a sovereign entity, an international financial institution, or a natural person are specifically excluded from the definition of ESMT.
5. Are triparty repos required to be centrally cleared?
Triparty repo transactions that are collateralised with USTs and involve a counterparty who is a member of a CCA, including FICC, could be included in the scope of the ESMT definition. However, questions remain on the applicable scope of the definition as it pertains to mixed CUSIP triparty transactions, which are transactions with baskets composed of both USTs and other types of securities. The industry, through its trade body SIFMA, has requested an exemption for such mixed transactions from the mandate8.
Further clarity is ultimately needed regarding the extent to which triparty repos are in-scope given the lack of viable operating models to clear mixed baskets, disruptions to offshore financing operations and issues with extra-territorial enforceability.
Clients are responsible for determining whether their transactions in USTs fall within the scope of the mandate and should seek legal advice in case of doubt.
6. What entities are subject to the clearing mandate?
Generally, only the direct participants of a CCA will be subject to the clearing mandate adopted by that CCA. The term “direct participant” refers to an entity that directly accesses a CCA, as opposed to an “indirect participant,” which refers to an entity that relies on a direct participant to clear and settle its UST transactions with a CCA9.
However, where a firm that is not direct participant of a CCA engages in a UST transaction with a counterparty that is a direct participant of a CCA, that transaction may be subject to the central clearing requirement if it otherwise meets the definition of an ESMT. In other words, even firms that are not direct participants of a CCA may still be indirectly subject to the clearing mandate.
7. How are inter-affiliate repos treated?
Any repo entered into between a direct participant and an affiliated counterparty that would otherwise qualify as an ESMT may be excluded from qualification as an ESMT, provided that the affiliated counterparty: (1) is a bank, broker-dealer or futures commission merchant (“FCM”), or foreign equivalent, and (2) submits for central clearing all other repos collateralised by USTs to which the affiliate is a party10.
8. Are securities lending transactions required to be centrally cleared?
No, the SEC has said that securities lending transactions do not fall within the definition of an ESMT11.
9. Does a transaction arising from the final settlement of physically-settled UST futures qualify as an ESMT?
No, the SEC has said that the physical settlement of UST futures does not fall within the definition of an ESMT12.
10. Are any transactions specifically excluded from the definition of ESMT?
Repo and cash market transactions that would otherwise qualify as ESMTs, but which include a counterparty which is one of the following are specifically excluded from the definition of ESMT:
- a central bank (meaning a reserve bank or monetary authority of a central government or the Bank for International Settlements);
- a sovereign entity (meaning a central government, or an agency, department, or ministry of a central government);
- an international financial institution, such as a multilateral development bank; or
- a natural person.
Additionally, repo transactions that would otherwise qualify as ESMTs, but which include a counterparty which is one of the following are specifically excluded from the definition of ESMT:
- an SEC-registered clearing agency, a CFTC-registered derivatives clearing organisation, or non-U.S. central counterparty regulated as such in its home jurisdiction;
- a state or local government (but not a pension plan); or
- an affiliated counterparty of the direct participant, provided that the affiliated counterparty submits for central clearing all other repos collateralised by USTs to which the affiliate is a party.
11. What is Clearstream doing in response to the Treasury Clearing Rule?
- Clearstream is actively engaged with its partners and through industry groups to ensure it is ready to support its clients according to the implementation timeline.
- Based on the rule changes, Clearstream has not identified any immediate roadblocks but is exploring opportunities to expand and enhance offerings to better service its clients.
- Should any element of friction emerge during the rule adoption process, Clearstream will take all the necessary steps to ensure its clients will be able to comply.
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1. 89 Fed. Reg. 2714 (https://www.govinfo.gov/content/pkg/FR-2024-01-16/pdf/2023-27860.pdf).
3. In June 2024, ICE announced its intention to launch a UST clearing service via ICE Clear Credit LLC, its existing registered clearing agency (https://ir.theice.com/press/news-details/2024/ICE-to-Launch-Treasury-Clearing-Service-to-Increase-Transparency-and-Enhance-Resilience-in-the-U.S.-Treasury-Market/default.aspx). In December 2024, CME Securities Clearing, Inc. filed an application to register with the SEC as a clearing agency for UST transactions (https://www.sec.gov/files/rules/other/2025/34-102200.pdf).
4. SEC Release No. 34-102486 (https://www.sec.gov/files/rules/exorders/2025/34-102486.pdf).
5. 89 Fed. Reg. 2714 at 2714.
6. 89 Fed. Reg. 2714 at 2790.
7. 89 Fed. Reg. 2714 at 2829.
9. 89 Fed. Reg. 2714 at 2717.
10. 89 Fed. Reg. 2714 at 2829.
11. 89 Fed. Reg. 2714 at 2740.
12. 89 Fed. Reg. 2714 at 2740.
