Answers to your FAQs on the SEC Central Clearing Mandate
We’ve provided a central repository of answers to your most frequently asked questions about the SEC Central Clearing Mandate for US Treasuries.
May 2025
What is the SEC’s central clearing mandate? What does it mean for the industry?
The SEC’s central clearing mandate will require a significantly larger portion of US Treasury securities transactions to be cleared through a central counterparty (CCP), for which at this time Fixed Income Clearing Corporation (FICC) is the only qualifying servicer. This applies to both cash trades and repurchase agreements (repos)1 involving US Treasuries.
Central clearing reduces counterparty risk by making the CCP the counterparty to all trades, ensuring that if one party to the initial trade defaults, the CCP mitigates the impact on the broader market. Originally, the following deadlines were set forth by this mandate:
|
Initial Deadline |
Revised Deadline |
FICC is required to expand its rulebook to improve covered clearing agencies’ risk management practices, protection of client assets, and access to clearance and settlement services. |
March 31, 2025 |
September 30, 2025 |
Compliance to these guidelines by US Treasury cash transactions |
December 31, 2025 |
December 31, 2026 |
Compliance to these guidelines for all US Treasury repurchase (repo) agreements |
June 30, 2026 |
June 30, 2027 |
Who is affected by the mandate?
The mandate applies to direct participants of FICC, such as major banks and broker dealers, which generally have to shift their dealer-to-dealer cash activity and both dealer-to-dealer and dealer-to-client repo activity into clearing. The “clients” here, (traditional buyside firms, including asset managers, hedge funds and pension funds), will also be impacted by this mandate.
While buyside firms are not required to be direct participants of FICC and largely out of scope for cash trade activities,2 they will likely need to clear their repo trades through indirect access models.
This means for US Treasury repos:
There are a few exceptions, including repo transactions between a firm and its affiliates provided certain conditions are met, and repo transactions with certain sovereign entities such as state and local governments, central banks and international financial institutions.
When does the mandate come into effect?
The SEC rule became final in late 2023 and compliance dates were initially set in 2025 for cash transactions, and 2026 for repo transactions; however, these compliance dates have been delayed to 2026 and 2027, respectively.
Market participants should be aware of three important dates:
Why is the SEC mandating central clearing and what are the benefits?
The SEC’s stated goal is to reduce systemic risk and improve transparency in the US Treasury market.
Central clearing offers several generally agreed benefits, including:
What are the drawbacks to central clearing?
While central clearing has several benefits, there are some drawbacks, including:
How can buyside firms access clearing?
Direct membership with the FICC tends to be restricted to large institutions, as it has capital and entity restrictions as to eligibility.
For buyside firms, there are two main indirect access models currently offered by FICC:
What should market participants do to prepare?
Determine whether your transactions in Treasury securities are subject to clearing requirements. You should consult with your own advisors when making this assessment. Even if your transactions in US Treasury securities are not subject to clearing requirements, you may wish to clear them voluntarily if they are eligible to be cleared.
Ensure that your legal documentation is in order. Key documents include:
Consider the access models:
Consider margin requirements and options:
Key considerations when selecting a sponsor include:
What are the potential risks of central clearing?
While central clearing reduces counterparty risk, it does not eliminate this risk entirely. Instead, it consolidates counterparty risk within FICC. The risk is managed through a waterfall structure, where losses are mutualized among members and backed by margin contributions. The FICC makes its own capital contribution to the waterfall, meaning it has an interest that the process works appropriately.
Will non-US market participants be affected?
Yes. Non-US entities trading with FICC direct members will also need to centrally clear US Treasury transactions, regardless of where the Treasuries are held. There are no specific exemptions for cross-border trades, meaning global participants must comply with this new mandate.
Will bilateral transactions continue?
Yes, bilateral trading will still be possible for transactions that do not involve FICC direct members (e.g., trades with other indirect members or non-members). As noted above, there are a few exceptions to the US Treasury clearing mandate, including repo transactions between a firm and its affiliates provided certain conditions are met, and repo transactions with certain sovereign entities such as state and local governments, central banks and international financial institutions. However, as liquidity shifts towards the cleared space, spreads are likely to widen, adding to costs.
What is State Street doing to meet the SEC Central Clearing requirements?
State Street is closely aligned with FICC and industry working groups as the mandate unfolds to help shape and fully understand the implications for us and our clients. We are updating our offering in alignment with FICC to ensure that our client’s activity meets the mandate deadlines – and that clients have access to the new access model optionality associated with the mandate.
Who should I reach out to with questions regarding the SEC Central Clearing Mandate?
For more information, please contact: