US Treasury clearing: competition, choice and readiness move to the fore

Key takeaways

• A structural shift: Central clearing could strengthen Treasury market resilience, improve balance sheet efficiency and price discovery, while also requiring firms to rework established trading and clearing arrangements.
• Clearing models are evolving: As done-away, sponsored and agency-style models gain attention, capacity, cost, capital and client choice could determine which approaches gain traction.
• Risk management matters: Central clearing will depend on robust, transparent risk management frameworks and margin methodologies that can respond to market stress without creating unnecessary liquidity pressure.
• Operational readiness is the immediate priority: Legal documentation, connectivity, access models, margin processes and securing internal resources remain significant implementation challenges ahead of the mandate.

The panel

Stan Ivanov, President, ICE Clear Credit

Oscar Rodriguez, Director, futures and derivatives 
clearing markets, Citi

Nate Wuerffel, Global head of market structure and 
head of product for global collateral, BNY

Moderator: Sakshi Sharma, Commercial editor, Risk.net

As mandatory central clearing approaches in the US, Treasury market participants convened to discuss competing clearing models, margin and capital implications, and the operational work required to adapt to a new market structure

The US Treasury market is in the final stages of one of the most major structural transitions in its history, as firms prepare for mandatory central clearing of US government securities. The reforms are intended to strengthen market resilience, reduce credit risk and improve overall functioning, but they also bring significant decisions around clearing access, central counterparties, margin, liquidity and operational infrastructure.

In a Risk.net webinar, US Treasury clearing: how to prepare for the transformation, convened in collaboration with ICE, senior industry leaders and practitioners examined the implications of the reform and the elements firms need to consider as the market transitions to mandatory clearing.

The timetable is firmly in view: eligible cash Treasury transactions must be cleared from December 31, 2026, with eligible repo transactions following on June 30, 2027. The deadlines take effect in accordance with the US Securities and Exchange Commission’s Treasury clearing rules adopted in December 2023, and the subsequent one-year extension of the original compliance dates.

With the cash market deadline approaching, firms have moved from questions about the direction of reform to the practical work of implementation. This involves establishing clearing relationships, agreeing access models, completing documentation, preparing for margin requirements and allocating the necessary operational and capital resources.

But the transition is not simply about meeting deadlines. Market participants are also considering how different clearing models and competition between clearing houses could affect market structure, liquidity and the economics of Treasury trading over the longer term.

The idea has been always to develop a flexible solution that could cater to the taste, the risk appetite, as well as the overall cost to different segments of the market

Stan Ivanov, ICE Clear Credit

Central clearing: the cost-benefit balance

The case for Treasury clearing has been strengthened by episodes of market stress, particularly the March 2020 Treasury market selloff. Central clearing can reduce bilateral counterparty exposure and concentrate risk management within the clearing infrastructure.

“I think it really is a generational transformation of the Treasury market,” said Nate Wuerffel, global head of market structure and head of product, global collateral at BNY.

He emphasised that the reform represents a fundamental change to how the Treasury market operates, pointing to periods of stress in 2014, 2019 and 2020 as part of the rationale for the move towards central clearing. But those benefits come with certain cost implications and require firms to reconsider the infrastructure and relationships supporting their Treasury businesses ahead of time. “You have to actually make liquidity commitments, you have to post margin – [this] has capital implications,” Wuerffel said.

Firms will also need to change operations, counterparty relationships and legal documentation.

Stan Ivanov, president at ICE Clear Credit, highlighted the potential benefits for balance sheet usage, price discovery and market liquidity. “Definitely, mandated central clearing will provide additional netting benefits. Ultimately, the expectation is that the balance sheet pressure that was observed during the Covid-19 pandemic – specifically the ‘dash for cash’ – would be relieved.”

Ivanov also expects clearing to introduce more balance sheet elasticity to the market and make price discovery more efficient, as the presence of a clearing house and the ability to trade all to-all change the way participants access liquidity.

“So, from that perspective, my expectation is indeed that it will introduce new elements. It is not exactly risk transfer – moving the risk from one pot to the other – but overall improving the Treasury market infrastructure, providing more capital efficiencies in terms of balance sheet netting as well as initial margin and portfolio benefits that, ultimately, would improve the depth and liquidity of the Treasuries market – cash and repo.”

ICE Clear Credit is already operational for cash Treasury clearing and is preparing to add repo clearing later in 2026.

Clearing models continue to evolve

The choice between done-with, done-away, sponsored and agency models is emerging as one of the most important questions for market participants. In the traditional done-with model, execution and clearing are bundled through the same dealer relationship. Done-away models separate execution from clearing, allowing participants to execute with one provider while using another for clearing.

Sponsored and agency arrangements offer alternative routes into central clearing, with the balance between client choice, dealer capacity, cost and operational complexity likely to influence how these models develop.

Ivanov argued that clearing solutions should be able to accommodate different client economics rather than force the market into a single model. “The idea has always been to develop a flexible solution that could cater to the taste, the risk appetite, as well as the overall cost to different segments of the market,” he said.

That flexibility could become increasingly important as the market adjusts to the capacity demands of central clearing. Wuerffel said dealer capacity could ultimately encourage greater separation: “As you see dealers onboarding more and more clients, they’re going to start to consume margin funding capacity. They’ll start to consume capital capacity.” Dealers may eventually want to continue trading with clients while another firm clears the transactions.

Oscar Rodriguez, director for futures and derivatives clearing markets at Citi, noted that the priority is preserving choice. “I think, from an access models perspective, it is beneficial for the marketplace to have optionality and flexibility,” he said. He expects many major repo participants to offer clearing through sponsored or agency models, although supporting multiple arrangements will add complexity for clearing brokers.

Clients really need to get a good handle in terms of what the risk models are for each of the central counterparties, and what they’re able to offer

Oscar Rodriguez, Citi

Risk management and margin will be critical

The benefits of central clearing will ultimately depend on the quality of the risk management frameworks supporting it. Ivanov emphasised robust initial margin, guarantee-fund structures and portfolio risk management, particularly when correlations break down during periods of extreme stress.

He also highlighted the importance of avoiding unnecessary liquidity pressure. “Our requirements have been very stable,” Ivanov said of ICE’s credit default swap clearing experience. “We have always tried to maintain the stability of the requirements such that we don’t create liquidity squeezes and create more pressure on the entire market.”

Market participants will need to understand how individual central counterparty risk models operate under stress, the panel noted. “Clients really need to get a good handle in terms of what the risk models are for each of the central counterparties, and what they’re able to offer,” Rodriguez said.

Wuerffel emphasised that central clearing does not eliminate risk; it changes how risk is seen and managed. “The visibility of risk is an important thing when you’re going through these instability points because that gives people the ability to see it, measure it and then manage that risk,” he noted. Margin methodologies are therefore fundamental, not only to individual participants, but also to maintaining broader market resilience.

Operational readiness is an immediate priority

While the longer-term market structure remains uncertain, the near-term challenge is more straightforward. The panel identified legal documentation, connectivity, access models, reporting and margin processes as areas requiring significant preparation.

Based on discussions and preliminary testing with market participants and infrastructure providers, Ivanov observed that the “main limitation is the resources”. That could initially favour incumbent arrangements, even as firms analyse alternative central counterparty models.

Legal documentation, trade submission, clearing-broker reporting and margin processes all need to be addressed. Rodriguez warned that firms should not underestimate the work involved: “It’s not like you can just flip the switch and tomorrow start clearing.”

Wuerffel similarly highlighted the scale of the work. “The legal and operational documentation piece of this is very substantial,” he said, adding that typical sponsored-model documentation can take six to nine months to negotiate.

The issue becomes more complex for firms considering multiple clearing relationships. Ivanov noted that splitting Treasury books across clearing houses requires additional implementation resources as well as capital and balance sheet capacity. That suggests the first phase of implementation may be driven by compliance and existing connectivity, with broader choice developing after firms have met the mandate.

The visibility of risk is an important thing when you’re going through these instability points because that gives people the ability to see it, measure it and then manage that risk

Nate Wuerffel, BNY

Lessons from over-the-counter clearing, and the next phase

The panel’s experience with post-Dodd‑Frank derivatives clearing provided a useful reference point for how the Treasury market could evolve. “The certainty of clearing in the repo space is paramount,” Rodriguez said. In a done-away model, firms need clarity over what happens if a trade is rejected after execution.

Wuerffel argued that centrally cleared markets can become more liquid over time because a safer market can attract more capital, while done-away clearing could allow trading and clearing to become more specialised. But he cautioned against treating central clearing as a complete solution for Treasury market resilience.

Once firms have established their clearing arrangements, the focus is likely to shift from compliance towards optimisation. Ivanov expects portfolio margin efficiencies to become increasingly important as Treasury books grow, alongside “portfolio benefits and expanding the set of cleared instruments that are currently not covered by the mandate”. He also pointed to future products and added “our goal is to bring these instruments like open repos” into the portfolio approach, alongside repos with embedded optionality.

Competition between central counterparties and access models will also continue to shape the market. Ivanov believes common risk management standards across clearing houses will reduce the risk of a “race to the bottom”.

The mandate may establish the framework, but the market structure that emerges will be determined by how firms respond to the economics of clearing, the demands on capital and liquidity, and the range of models available to them.

Contact ICE

Learn more about the US Treasury clearing mandate and clearing Treasury securities with ICE Clear Credit

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