April 17, 2024 - In a letter filed with the Securities and Exchange Commission (SEC) today, the FIA Principal Traders Group (FIA PTG) responded to the Fixed Income Clearing Corporation’s (FICC) proposals to revise its customer clearing access models and to modify its margin segregation rules.
FIA PTG has consistently supported efforts to increase transparency, liquidity and resiliency in the Treasury market, including by transitioning more trading activity in U.S. Treasuries (both cash and repo) to central clearing. At the same time, they have identified practical steps necessary to facilitate such a transition, such as (a) fair and efficient access for indirect participants (via a customer clearing model that is agnostic to the identity of the executing counterparty) and (b) cross-margining for indirect participants. The SEC acknowledged in its clearing rule the importance of resolving both of these issues prior to implementing a clearing mandate in the Treasury market. Unfortunately, the current proposals do not adequately address either of these key issues.
In contrast to other cleared asset classes, clearing members at FICC can require customers to bundle execution and clearing by only clearing transactions executed with that clearing member (“done-with transactions”). This has led to a lack of “done-away” clearing (i.e., the clearing of customer transactions executed with other execution counterparties) under the current FICC access models, which has several negative consequences for customers and the overall market and impedes implementation of the Commission’s clearing mandate. The FICC Proposals do not improve the current status quo, as clearing members will still be permitted to require all customers to bundle execution and clearing services under each of the four customer clearing models detailed in the proposals.
Direct clearing members at FICC and CME can benefit from the cross-margining of correlated positions, which may significantly reduce overall clearing costs. However, customers cannot, which creates competitive disparities. While the SEC, the CFTC Global Markets Advisory Committee, and FICC have all expressed support for permitting customers to utilize cross-margining, FIA PTG remains concerned regarding the lack of tangible progress and the overall timeline.
FIA PTG appreciates FICC’s efforts to clarify its customer clearing access models and to provide for the segregation of customer margin. While the FICC Proposals represent an important first step, more is required to be done in order to comply with the SEC Clearing Rule.
