US Treasury Clearing: Competition & Choice for Success

Summary of the Text: US Treasury Market Resilience & ICE Clear Credit’s Platform

This text details the recent instability in the US Treasury market, the regulatory response, and the launch of ICE Clear Credit’s platform to improve market resilience through mandatory clearing.

key Takeaways:

Market Dysfunction: In a recent crisis, US Treasuries failed to act as a safe haven due to meaningful volatility, increased bid/offer spreads, and a tripling of settlement failures. This dysfunction actually exacerbated the crisis.
Regulatory Response: Mandatory Clearing: Regulators steadfast that mandating the clearing of cash securities and Treasury repos through a Central Counterparty (CCP) is the most effective way to strengthen the market. Benefits of clearing: Clearing offers several advantages:
Reduced operational, liquidity, and counterparty risks.
lower settlement fails.
Robust risk management and collateral requirements.
Netting of offsetting trades.
Increased regulatory visibility.
ICE Clear Credit’s Platform: ICE Clear Credit is launching a platform to facilitate this mandatory clearing, based on its successful CDS clearing model. It’s on track to launch by the end of 2025, with a 12-month acclimation period before it becomes mandatory.
Key Features of the ICE platform:
‘Done-with’ & ‘Done-away’ Clearing: Supports both existing clearing models, ensuring balance sheet treatment remains consistent.
Connectivity: Works with various trading venues and protocols (order books, RFQs, voice trades) to avoid disrupting existing trading practices.* Risk Management: Leverages a proven risk waterfall system (used in CDS clearing for nearly 20 years), client collateral segregation, and a default management framework to mutualize risk and meet international standards (“cover 2” requirement).

In essence, the text highlights a critical flaw exposed in the US Treasury market and the proactive steps being taken to address it through increased regulation and a new, robust clearing infrastructure provided by ICE Clear Credit.