DTCC Expects Daily US Treasury Volume to Rise by $4T — Evening Brief – 06.12.24

Post-trade market infrastructure specialist DTCC expects daily Treasury volumes through its Fixed Income Clearing Corporation (FICC) to increase by more than $4 trillion once the Securities and Exchange Commission’s (SEC) expanded U.S. Treasury clearing rules go into effect.

The revised estimate, which is higher than the earlier projection of around $1.63 trillion in September 2023, is based on a poll of 83 sell-side institutions in response to the final SEC’s U.S. Treasury clearing rule.

The SEC announced new rules last December that will require most U.S. Treasury cash trades to be centrally cleared by 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 FICC, which holds a monopoly on U.S. Treasury clearing.

“Given the SEC’s rules around mandatory central clearing are now final and the industry’s understanding of their impact is becoming clearer, it is not surprising to us to see the incremental volume estimates hardening around $4 trillion daily,” said Brian Steele, DTCC managing director, president, clearing & securities Services. “While expanding Treasury clearing will be an important structural change for all Treasury market participants, we view it as a logical expansion of the services we provide and consistent with FICC’s mission.”

Steele confirmed that DTCC currently processes roughly $7 trillion in Treasury activity each day, adding that DTCC’s buy-side ‘sponsored service’ had seen volumes increase by 70% year on year.

“We expect these growth trends to steadily continue as we move toward go-live for the expanded Treasury Clearing requirement,” he added.

The DTCC emphasized “done-away activity” as an important topic of discussion due to the new SEC guidelines. Done away activity refers to U.S. Treasury activity completed by a client with one counterparty but cleared by a second counterparty.

According to the survey, approximately 33% of sell-side institutions intend to offer U.S. Treasury clearing activities through their prime brokerage, agency clearing, or futures commission merchant (FCM) business lines.

The SEC guidelines will go into effect in two phases. The modifications relating to the separation of house and client margins, the broker-dealer customer protection regulation, and access to central clearing must be completed by the end of March 2025.

“The $26 trillion Treasury market — the deepest, most liquid market in the world — is the base upon which so much of our capital markets are built,” SEC Chair Gary Gensler said in December. “Having such a significant portion of the Treasury markets uncleared — 70% to 80% of the Treasury funding market and at least 80% of the cash markets — increases system-wide risk.”