US Treasury clearing success depends on competition and choice

Paul Hamill, chief commercial officer at ICE Clear Credit, explores the origins of the forthcoming clearing mandate for US Treasury securities and shares details of the ICE clearing platform scheduled to launch by the end of the year

Paul Hamill, ICE

Next year promises to be a landmark one for US Treasury securities, as the market – often observed to be the deepest and most liquid in the world – prepares for the transition to mandatory central clearing.

US Securities and Exchange Commission (SEC) rules passed in 2023 stipulate that most cash Treasury transactions are obligated to clear from December 31, 2026, with Treasury repurchase agreements (repos) subject to the mandate from June 30, 2027. An estimated $4 trillion in daily transaction volume will move into clearing post-mandate.

Although voluntary US Treasury clearing has been available for many years, use of such services has been limited, with most trades remaining bilateral. Existing Treasury clearing models are regarded as rather basic compared to the advanced portfolio risk management, immediate novation, collateral segregation options, customer porting tools and rigorous default management protocols that underpin clearing houses for futures and over-the-counter (OTC) derivatives. ICE Clear Credit’s clearing service for credit default swaps (CDSs) provides a market-leading solution in all of these areas, as evidenced by its >80% market share in mid-2025.

As of August 2025, ICE is in the advanced stages of developing a comparable clearing service for cash Treasury securities and Treasury repos, building on its proven CDS clearing model and leveraging its existing SEC regulatory oversight and Financial Stability Oversight Council designation as a systemically important financial market utility with access to accounts and services provided by the US Federal Reserve. Ahead of its scheduled launch later in the year, this article offers a brief examination of the background to the clearing mandate and includes details about the ICE solution currently in the works.

Origins of the clearing mandate

Following the financial crisis that began in 2007–08, regulators worldwide sought to implement a more resilient risk management structure, which included mandatory central clearing and exchange of mark-to-market payments along with initial margin collateralisation for OTC derivatives, and enhanced capital requirements and liquidity ratios for banks. 

Amid these reforms, the US Treasury market received little attention from policy-makers. Although liquidity in Treasury securities deteriorated during the height of the global financial crisis, the market continued to function during the credit shock that paralysed mortgage-backed securities, corporate bonds and commercial paper markets. However, serious liquidity issues emerged in the years that followed.

On October 15, 2014, 10-year Treasury yields experienced an extraordinary 37 basis point intraday spike, significantly straining liquidity conditions. What prompted this ‘flash rally’ remains debated to this day.

Between September 15 and 17, 2019, the secured overnight financing rate – the broad measure of the cost of overnight Treasury repo borrowing – spiked by more than 300bp. The precise cause is unclear, but quarterly corporate tax payments on September 16 drained institutional cash reserves on the same day primary dealers were required to settle mid-month Treasury auctions. The Fed was forced to inject liquidity into the banking system to calm markets.

Just six months later, in March 2020, the Covid-19 pandemic sent institutions scrambling to sell Treasuries and raise cash. Ten-year yields spiked 64bp between March 9 and 18, and 30-year bonds lost 10% of their market value during March 16 and 17.

As the Group of 30 observed: “The Treasury market became essentially dysfunctional. Heavy investor demands to liquidate Treasury securities overwhelmed the capacity of dealers to intermediate the market. Treasury prices became exceptionally volatile. Bid/offer spreads quoted by dealers for off-the-run Treasuries increased by more than a factor of 10. Primary dealers reported Treasury settlement failures at triple their normal levels … In short, US Treasuries did not serve their traditional safe-haven role. Instead, dysfunction in the Treasury market exacerbated the crisis.”

In the aftermath, regulators determined the most effective mechanism to strengthen the resilience of the market would be to mandate the clearing of cash securities and Treasury repo. The benefits of clearing are numerous:

• Replacing bilateral transactions with trades facing a central counterparty (CCP) reduces operational, liquidity and counterparty risks, as well as settlement fails
• Clearing houses impose robust and transparent risk management on members, including requirements to post collateral
• Clearing enables offsetting trades to be netted down against each other
• Centralising activity in clearing houses enhances regulatory visibility into this systemically important market.

While the SEC established the basic framework, many specifics of the mandate were left to clearing houses to flesh out. Accordingly, ICE Clear Credit’s Treasury clearing platform is based on the proven architecture of its CDS clearing model and is designed to accommodate clients’ trading and clearing preferences. Following the SEC’s publication of ICE Clear Credit’s US Treasury clearing application and rule book on August 19, the platform is on schedule to launch by the end of 2025, offering clients up to 12 months to become accustomed to a cleared trading environment before such workflows become mandatory, and will feature multiple customisable elements:

1. ‘Done-with’ and ‘done-away’ clearing

Buy-side market participants typically route trades into a CCP through a clearing member (a bank or a broker-dealer). Today, clearing members usually only act as the clearing agent for a client trade if they are also the executing counterparty on a trade – known as a ‘done-with’ transaction.

The alternative is a ‘done-away’ transaction, in which a client executes a trade with one broker-dealer and uses another as the clearing agent. The ICE Clear Credit platform supports done-with and done-away transactions, in addition to enabling clearing members to ‘self-clear’ proprietary trades. ICE Clear Credit’s model ensures that done-with trades will receive the same balance sheet treatment post-mandate as they receive today.

2. Connectivity with a range of trading venues

ICE Clear Credit supports multiple trading protocols – including central limit order books, requests for quote and voice trades – providing clients with trading certainty and immediacy of clearing without having to adjust their existing Treasury execution practices.

3. Capital efficiency and transparent risk management

ICE Clear Credit’s Treasury platform operates the same risk waterfall that has been mitigating counterparty risk in CDSs for almost two decades. It also includes the segregation of client collateral and a default management framework that mutualises risk among clearing members, meeting the internationally established cover 2 requirement that ensures sufficient financial resources are available to cover the worst-case simultaneous default of clearing members related to two distinct affiliate groups. ICE Clear Credit’s state-of-the-art portfolio risk management approach utilises large-scale Monte Carlo simulations to estimate initial margin requirements, with a two-day margin period of risk.

4. A flexible approach to physical settlement

ICE provides clients with a choice of two processes for the settlement of Treasury securities: delivery and/or receiving obligations that result from their cash and repo transactions. Clients may individually settle against their clearing member, while the clearing member settles with the clearing house across all its clients on a net basis. This approach can introduce settlement latency and relinquish some control to the clearing member. Alternatively, clients can elect to settle directly with the clearing house on a net basis, providing a more efficient and lower-latency alternative.

The road ahead

What will Treasury trading look like post-mandate? We expect it to be a highly competitive and evolving landscape. Market participants have made plain their expectation for strident competition in clearing, predicting that competitive forces will drive innovation to modernise and strengthen the resilience of the market.

As well as opportunities, competition creates complexities. A robust Treasury ecosystem populated by multiple clearing venues will require participants to make strategic decisions surrounding the optimal allocation of capital, investment in operational workflows and the management of their portfolios across differentiated liquidity pools.

While concentrating trades at a single clearing house can optimise capital utilisation, netting and portfolio margining efficiencies, diversification across multiple CCPs enables market participants to reflect their cost and risk management preferences.

Furthermore, through the ICE clearing model, clearing participants benefit from the efficiencies of pre-trade credit checks and immediate novation, the elimination of bilateral counterparty credit risk, a reduced documentation burden and the ability to trade with a broader range of counterparties.

ICE Clear Credit’s goal is to make 2026 a year of competition and choice for market participants. Mandatory clearing represents one of the largest and most important transitions in the long history of US Treasuries and, given the size and complexity of this market, participants deserve the opportunity to access and evaluate a number of different clearing options.

ICE Clear Credit looks forward to competing and innovating throughout this important phase, and remains committed to working with all stakeholders across the Treasury securities ecosystem to maximise the benefits of this transition to create a scalable, modernised US Treasury market ready to meet the challenges of the decades ahead.

To learn more about clearing US Treasuries at ICE Clear Credit, contact [e-mail]

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