Two key U.S. Treasury market utilities—The Depository Trust and Clearing Corporation (DTCC) and CME Group—are set to introduce new rules by the end of this year that will govern the amount of leverage hedge funds and other investors can deploy in Treasury trades. This move is expected to mitigate the impact of rising transaction costs caused by upcoming clearing requirements.
The DTCC and CME Group, which launched an enhanced cross-margining arrangement last year for clearing members trading both U.S. Treasury securities and CME Group interest rate futures, plan to extend this system to clearing members’ clients by December 2025, pending regulatory approval.
This initiative comes as Treasury market participants prepare for new rules introduced by the Securities and Exchange Commission (SEC) in 2023. These rules are designed to reduce systemic risk in the $28.5 trillion Treasury market by pushing more trades through clearinghouses.
“Aligning enhanced cross-margining for end-user customers with the regulatory timeline for expanded U.S. Treasury clearing requirements encourages greater utilization of central clearing, thereby reducing systemic risk,” the companies said in a joint statement.
Clearinghouses, which act as intermediaries between buyers and sellers, require traders to deposit collateral, known as margin, to cover potential losses on their positions. Under the proposed system, margin will be calculated across both cash and futures positions, allowing for offsets between the two markets rather than calculating collateral separately for each.
The Fixed Income Clearing Corporation (FICC), a subsidiary of DTCC, will designate cross-margin accounts, allowing qualifying positions to offset against CME Group interest rate futures. CME Group will also permit market participants to allocate futures to these cross-margin accounts throughout the day, enabling offsets within the framework.
“This portfolio margining arrangement will provide customers with the same capital efficiency as CME Group and FICC clearing members when they have material offsets between their futures, cash, and repo positions,” said Laura Klimpel, Head of Fixed Income and Financing Solutions at DTCC.
The new central clearing rules are slated for phased implementation by June 2026, though several Wall Street trade associations have recently requested an extension of key deadlines by one year.
