The U.S. Securities and Exchange Commission’s (SEC) recently adopted rules mandating central clearing for most trades in the $26 trillion U.S. Treasuries market represent a significant overhaul to the structure of this vital marketplace. While the changes evoke memories of the central clearing mandate for interest rate derivatives following the 2008 financial crisis, the response has been relatively muted this time around, perhaps due to over a decade of smooth operation in centrally cleared swaps markets.
Still, lingering concerns persist, particularly around the threat of increased trading costs and potential impacts on market liquidity. As the Financial Times reported, strategists at Deutsche Bank warned that ‘dealers will face higher clearing costs, which they may pass down to customers in the form of wider spreads.’ The ability to access clearinghouses and the commercial viability of indirect clearing models could further exacerbate cost pressures for some market participants.
On the liquidity front, the obligation to meet increased margin calls during periods of market stress could paradoxically diminish liquidity at critical moments. As Tradeweb’s press release notes, ‘The market disruptions at the beginning of the COVID crisis in March 2020 clearly illustrate this issue.’ Conversely, netting efficiencies enabled by central clearing could potentially increase dealer capacity, though realizing this benefit hinges on understanding the mandate’s interplay with evolving capital rules.
As implementation details continue to emerge, Tradeweb plans to work closely with industry stakeholders ‘to ensure a seamless clearing process on our platforms.’ The firm’s deep presence across institutional, wholesale and retail markets positions it well to help clients navigate the changes, which could have far-reaching implications. As the press release states, quoting from the Financial Times, ‘On the flip side, dealers will face higher clearing costs, which they may pass down to customers in the form of wider spreads.’
This news story relied on a press release distributed by News Direct. Blockchain Registration, Verification & Enhancement provided by NewsRamp™. The source URL for this press release is SEC Treasury Clearing Mandate Raises Concerns Over Trading Costs and Liquidity.