The mandatory deadlines for central clearing of U.S. Treasuries – year-end for cash securities and June 2027 for repurchase agreements – are close enough for leading market-structure executives to contemplate end results.
Asked on a recent ISDA podcast “What does good look like?”, Nate Wuerffel of BNY envisioned firms reaping the benefits of modernization, and ultimately “a more liquid and resilient Treasury market. Safer markets attract capital” – and Treasuries are especially critical for smooth functioning of the global financial system.
Wuerffel’s counterpart at BlackRock, global head of market structure Tyler Wellensiek, answered, “Ensuring as little disruption as possible to the participation in and functioning of the U.S. Treasury market,” and those who trade repo do so “come 2027 without undue economic shock.” But, she added, the journey of “compliance, capacity and optimization” will continue as conditions evolve.
Implicit in both comments is that the operational changes set in motion by the Securities and Exchange Commission’s December 2023 rule were – and are – a heavy and expensive lift. Understandably, considering that 70% or more of the transactions were uncleared back then, and the SEC saw fit in February 2025 to push the original compliance dates back by a year. The drive toward a “more efficient, competitive, and resilient” Treasury market, as former SEC Chair Gary Gensler expressed it, is accompanied by a complex web of capital, collateral, liquidity and margin management challenges – but also opportunities spurred by innovation and competition.
Wuerffel noted that the incumbent central counterparty (CCP), Depository Trust & Clearing Corp.’s Fixed Income Clearing Corp. (FICC), has rolled out new products and has two new rivals, CME Group and Intercontinental Exchange, which “have their own ideas for creating efficient clearing models.”
In April, FICC and CME obtained regulatory approvals “to extend the benefits of cross-margining to end-user clients of dually registered broker-dealers and futures commission merchants (FCMs) that are common members” of the two market infrastructures.
DTCC’s Frank La Salla: “Margin and capital efficiency.”
With activation on April 30, “We are delivering meaningful margin and capital efficiency benefits for end-user clients, while helping our members support more effective risk management across cash U.S. Treasuries and interest rate futures,” stated DTCC president and CEO Frank La Salla. “We look forward to continuing to advance our offerings to deliver optimal efficiency and capital benefits to our clients."
The extended arrangement “advances the goal of both the SEC and the CFTC [Commodity Futures Trading Commission] to unlock additional liquidity and helps ensure the market for U.S. Treasury securities remains resilient,” said SEC Commissioner Mark Uyeda.
Deloitte’s George Black: Some cost offset.
Marex Group announced completion of the first transaction under the new framework on May 5.
“It improves margin efficiency,” observed George Black, principal in Deloitte’s Capital Markets practice. “Does it offset the cost of clearing? A little bit for certain customers.”
He contended that central clearing will ultimately increase costs for most market participants who now settle the trades bilaterally.
Third quarter, 2025 data from the Treasury Department’s Office of Financial Research showed that out of $12.6 trillion in daily average repo exposures, $4.4 trillion was centrally cleared by FICC, $3.1 trillion settled on BNY’s tri-party platform (excluding centrally cleared), and the remaining $5 trillion was non-centrally cleared bilateral.
Clearing brokers sponsoring clients’ access to FICC must provide them with operational support for all clearinghouse interactions, which, Black pointed out, is more cumbersome than bilateral settlement and likely requires additional staff.
With new CCPs entering the fray, clearing brokers joining more than one will bear higher costs. A 2024 DTCC white paper estimated aggregate margin increasing by $58.4 billion for 83 sell-side survey respondents.
“You’re going to have different liquidity in each of those trading pools,” Black said. “Almost by definition you’re going to have different prices . . . If I’m doing a trade over ICE, but the inventory I’m transacting in lives in my custody account related to the FICC, will I have to do an internal transaction to deliver the securities? Post-trade and even pre-trade may be impacted by which CCP the trade will clear at.”
Black described documentation, negotiation and legal fees as “nontrivial,” adding he has heard from repo desks that expect to charge clients more if clearing their trades.
As for competitive effects, “Unless the new [clearing] entrants innovate, they will be challenged to draw business away from the incumbent,” Black said. “They can, and intend to, innovate in ways that save costs, both in the set-up as well as transactional levels.”
CME plans to expand cross-margining of Treasuries with its other derivatives products, “continuing the extension of CME’s capital-efficient solutions for market participants,” CEO Terrence Duffy said in April 29 congressional testimony.
Nearly 9 out of 10 in an August 2025 Pulse Survey were very or somewhat confident of being ready to support mandatory clearing ahead of the deadline. Back-office systems and client contracts topped the list of respondents’ concerns.
Readiness for the 2026 and 2027 deadlines was on the agenda of the May 5 quarterly meeting of the Treasury Borrowing Advisory Committee (TBAC), a private-sector executive panel convened by the Treasury Department and currently chaired by Deirdre Dunn, head of Global Rates, Citigroup Global Markets.
“What steps, if any, could the official sector take to support a smooth transition?” was the “charge” addressed at the TBAC session. “The presenter concluded,” according to the minutes, “that, although the industry has made steady progress, some operational and implementation challenges remain as the market transitions to expanded central clearing.”
Travis Keltner, global head of secured financing at State Street, said clearing brokers may lose some benefits upfront when connecting to more than one CCP. “But if used appropriately, like tools in a toolkit, it can help the dealer optimize its costs and pass that benefit through to clients.”
While acknowledging additional costs to centrally clear, Keltner noted that State Street, a top repo clearer and liquidity provider, would be constrained in running its repo matched book without sponsored clearing.
“A key catalyst for us to offer repo financing, considering the cost of leverage on the balance sheet, is the ability to receive netting on those transactions through central clearing,” Keltner said.
FICC has sought to address concerns about margin and liquidity costs with new and enhanced models including Agent Clearing Service and Collateral-in-Lieu. BNY’s Wuerffel described the latter as a version 2.0 of the Sponsored GC (General Collateral) model that “doesn’t require as much margin and capital committed from intermediaries.”
Some Treasury market participants may be able to avoid Treasury clearing altogether. The SEC recently requested comments on potentially exempting transactions among affiliates and between entities outside the U.S. Uyeda referred on April 20 to a Securities Industry and Financial Markets Association request to exempt institutions relying on internal repo activity for liquidity, treasury and collateral management.
“These are real-world challenges that firms face as they prepare for the upcoming compliance dates,” the SEC commissioner said.
The agency reopened a comment solicitation on exempting Treasury transactions done entirely outside the U.S., as requested by the Institute of International Bankers. The group argued that they pose operational challenges, create legal uncertainty around netting arrangements, and raise practical issues given time-zone differences – all potentially impacting costs.
Fed Governor Cook: An eye on tokenization.
“Because both SIFMA’s and IIB’s requests for relief may intersect in important ways – including competitive, operational, and structural considerations – it is appropriate to solicit further public comment,” Uyeda said.
In the April 24 podcast, International Swaps and Derivatives Association CEO Scott O’Malia and his market-structure panelists said anticipated growth in the $30 trillion-plus Treasury market by itself will present challenges and opportunities, not to mention the advent and operational implications of digitization and blockchain technologies.
“Tokenization in financial markets is growing rapidly, which warrants a closer understanding of its potential,” Federal Reserve Board Governor Lisa D. Cook said in a May 8 speech to a Central Bank of West African States conference. “While I do not see tokenization as substituting for traditional market infrastructure, the technology presents a tremendous opportunity for innovation in the sector."
“Since repos represent a major source of funding and liquidity management for large financial institutions, even marginal efficiency gains could translate into significant cost savings for market participants,” Cook said. “In terms of broader market dynamics, tokenization can foster competition and new forms of market collaboration. Tokenization can potentially lower operational barriers to entry for emerging financial services firms to compete with traditional institutions.”
Jeffrey Kutler of GARP contributed reporting for this article.