The U.S. Treasury clearing system faces its biggest change in decades. The Securities and Exchange Commission (SEC) approved a central clearing mandate in December 2023 that will revolutionize U.S. Treasury securities trading and settlement. This groundbreaking regulation will require roughly $4 trillion in additional daily transactions to clear centrally.
Financial professionals must grasp this central clearing mandate's impact before March 31, 2025, when the first compliance deadline hits. The Fixed Income Clearing Corporation (FICC), currently the only clearing agency, will oversee eligible U.S. Treasury cash and repo transactions under these new rules. This initiative will improve market transparency and minimize counterparty risk in the secondary market [-3].
Let's explore what the treasury clearing mandate means for your operations. We'll examine which transactions fall under its scope and outline the essential steps you need to take before the phased implementation deadlines in 2025-2027. Our straightforward explanation will help you understand treasury central clearing, whether these changes affect you directly or indirectly.
What is the Treasury Clearing Mandate?
The SEC adopted new rules in December 2023. These rules now require central clearing for many U.S. Treasury securities transactions. This change affects both cash and repo transactions in the secondary market and represents a fundamental change in how people trade and settle Treasury securities.
Why the SEC introduced the rule
The U.S. Treasury market plays a crucial role in global finance. Outstanding securities reached nearly $29 trillion by August 2025, with daily trading volume exceeding $1 trillion. Recent years have brought major challenges to this market. The SEC found that all but one of these transactions remained uncleared - about 70-80% of the Treasury funding market and at least 80% of cash markets. This created a big risk for the entire system.
SEC Chair Gary Gensler called the U.S. Treasury market "the deepest, most liquid market in the world" and "the base upon which so much of our capital markets are built". Notwithstanding that, market disruptions showed serious weak points. The September 2019 repo market spike and March 2020 stress in cash Treasury markets needed Federal Reserve intervention.
The main goals of this mandate include:
- Lowering counterparty credit risk in secondary markets
- Reducing "contagion risk" among market participants
- Making orderly defaults more likely through required default management
- Speeding up clearing and settlement accuracy
- Building a more resilient market structure
The SEC also stressed the need to boost transparency for regulatory authorities and market participants.
The role of central clearing in market stability
Central clearing works by novating trades to a central counterparty (CCP). The CCP becomes the counterparty to every trade. This setup brings several benefits that make the Treasury market more stable.
CCPs make shared netting possible. This cuts down settlement flows and fails by balancing positions across counterparties. Such efficiency proves most valuable during market stress when higher volumes and fails benefit from centralized processing.
CCPs also use resilient and clear risk management practices. They collect margin and standardize how they handle defaults. The mandate makes risk management stronger by keeping customer margin separate from proprietary trades.
Central clearing also lets officials see clearing and settlement flows better. This improved monitoring matters because the Treasury market guides U.S. monetary policy and sets standards for other financial tools.
How it changes the current system
Right now, people either settle U.S. Treasury transactions between themselves or clear them through the Fixed Income Clearing Corporation (FICC). FICC serves as the only Covered Clearing Agency (CCA). The new rules greatly expand which transactions need central clearing.
Direct CCA participants must now clear these "eligible secondary market transactions":
- All repurchase and reverse repurchase agreements backed by U.S. Treasury securities
- All purchase and sale transactions where a clearing agency member acts as an interdealer broker
- All purchase and sale transactions between a clearing agency member and registered broker-dealers, government securities brokers, or government securities dealers
This change means business worth over $4 trillion in daily transactions will move from bilateral markets to central clearing. This represents a game-changing shift in Treasury market structure.
The timeline stretches out to ensure a smooth transition. Key dates include:
- September 30, 2025: CCAs must start using better practices, including risk management and customer protection
- December 31, 2026: Cash market transactions must comply
- June 30, 2027: Repo market transactions must comply
Other potential CCPs have shown interest as these dates approach. CME Group, Intercontinental Exchange, and LCH Group might enter the Treasury clearing market. This could end FICC's current monopoly.
Which transactions and entities are affected?
Treasury clearing mandate requirements create a complex web that covers transactions and market participants of all types. Market players must understand which activities need compliance planning under this rule.
Cash market vs repo market transactions
Two main categories of eligible secondary market transactions (ESMTs) fall under this mandate:
Cash market transactions mainly cover U.S. Treasury securities' purchases and sales. These transactions include:
- A direct participant acting as an interdealer broker between multiple buyers and sellers
- Trades between a direct participant and a registered broker-dealer, government securities broker, or government securities dealer
The Treasury securities' cash market has a daily trading volume of $926 billion. FICC centrally clears about 15% of the interdealer cash market. Market players have until December 31, 2026, to comply with these transactions.
The repo market mandate applies to repurchase or reverse repurchase agreements backed by U.S. Treasury securities where one party is a direct participant. This market is substantially larger with daily volumes $5.076 trillion. Central clearing happens for only $1 trillion of this total, which creates major leverage risks in bilateral trades. Repo transactions must comply by June 30, 2027.
Direct vs indirect participants
The mandate highlights a key difference between market participants:
Direct participants have membership and can access a Covered Clearing Agency's services. Netting members can self-clear trades through FICC for proprietary positions.
Indirect participants lack full FICC membership and must work through direct participants to access central clearing services. This group includes entities that need central clearing because they trade with direct participants.
Non-FICC members become in-scope for repo trades when they deal with FICC members, except for exemptions. For cash trades, non-member entities registered as U.S. broker-dealers or government securities dealers become in-scope through transactions with FICC members.
Exemptions and exclusions
Several important exemptions exist under the mandate:
Cash and repo transactions do not apply to trades with central banks, sovereign entities, international financial institutions, or natural persons.
Repo transactions have specific exclusions. State or local governments (except state retirement and pension funds) and CCPs don't need to comply. FICC clearing-ineligible transactions stay out of scope, such as open repos, repos lasting over two years, and floating rate repos.
Affiliated companies can exclude their repo transactions if the affiliated party submits all other Treasury repos. "Mixed CUSIP" triparty repos, which allocate Treasury securities as collateral after execution, don't need clearing under this rule.
Key compliance dates and what they mean
The SEC has laid out a phased timeline to implement treasury clearing mandate. The compliance dates now extend into mid-2027, giving financial institutions more time to prepare for this game-changing market shift. The original plan was set for early 2025.
March 31, 2025: CCA rule updates
The SEC moved the deadline for Covered Clearing Agencies (CCAs) from March 31, 2025 to September 30, 2025. CCAs must complete several core operational changes during this time:
- Policies to separate house and customer margin
- Better customer asset protection measures
- Broader market access protocols
This extra time lets CCAs like the Fixed Income Clearing Corporation (FICC) update their risk management and help expand market participation. CCAs don't need to enforce their written policies about margin separation until the September deadline.
December 31, 2026: Cash market compliance
The cash market transactions deadline has moved back one year to December 31, 2026 from December 31, 2025. This change affects all purchase and sale transactions by:
- Direct participants who act as interdealer brokers
- Transactions between clearing members and registered broker-dealers or government securities broker-dealers
SEC Commissioner Mark Uyeda stated that "changes to the U.S. Treasury market must be done carefully and deliberatively to avoid disruption". Regulators saw that market players needed more time to upgrade systems, standardize documents, and develop clearing access models.
June 30, 2027: Repo market compliance
The repo transactions deadline has also shifted back one year to June 30, 2027. This covers repurchase and reverse repurchase agreements backed by U.S. Treasury securities.
Market participants raised many concerns about implementation before these extensions. The regulators decided more time was needed to:
- Develop "done-away" clearing processes further
- Create standard documentation templates
- Improve onboarding procedures
- Complete operations and systems upgrades
The SEC knew that extending deadlines would delay market benefits but decided a smoother implementation would better protect market stability. Treasury professionals now have almost two extra years to adapt their operations to central clearing.
Understanding access models: Sponsored vs Agent Clearing
Market participants need to understand their clearing access options to plan for treasury clearing mandate compliance. Companies that don't want to become direct CCP members can choose between two main models.
How sponsored clearing works
The Sponsored Membership Program (SMP) stands out as the oldest indirect access model for treasury clearing. Sponsoring members act as processing agents for their clients and take on major responsibilities. These include guaranteeing sponsored members' obligations and posting margin to FICC. This program gives benefits that match direct membership - clients get access to treasury repo and cash market clearing, centralized risk management, and default management protocols. Recent data shows the program's success, with sponsored trades now making up 29.5% of total transaction volumes.
What is agent clearing?
Agent clearing resembles futures clearing where clearing members help client trades on an agency basis. Agent clearing members let their customers execute trades with multiple counterparties while sending those transactions to one clearing member. These agents take full responsibility for client transactions and provide extra services like reporting and risk monitoring. This FICC model stands alone in allowing netting across clients, which can lower margin requirements.
Done-with vs done-away clearing
Done-with clearing combines trade execution and clearing - clients trade with the same dealer that sponsors them into central clearing. This model rules today's treasury market. It gives sponsoring dealers balance sheet and capital benefits while reducing operational risk.
Done-away clearing works differently - clients execute with one broker-dealer but use another as their clearing agent. While common in derivatives markets, this approach hasn't caught on in treasury markets yet, despite its ability to boost scalability and efficiency.
Choosing the right model for your firm
Your trading patterns and counterparty relationships should guide your access model choice. Companies that mostly trade with one dealer might benefit from done-with sponsored clearing's simple operations. Those needing several trading counterparties could find agent clearing or done-away models better suited. Each option comes with unique margin efficiency opportunities and operational needs that should match your firm's treasury clearing strategy.
Operational and legal steps to prepare
Your organization needs systematic operational changes to prepare for treasury clearing compliance. These five areas need your immediate attention as implementation deadlines get closer.
Reviewing transaction eligibility
Market participants need to determine which transactions fall under the mandate. They must check if their transactions qualify as eligible secondary market transactions. "Mixed CUSIP" triparty repos—where Treasury securities are allocated as collateral after trade execution—may not need to meet clearing requirements.
Updating legal agreements
The mandate requires extensive documentation revisions. SIFMA and other industry groups are creating standardized templates for different clearing models. SIFMA has partnered with Arteria AI to build an evidence-based documentation platform that streamlines onboarding and speeds up operational integration.
Margining and collateral management
Central clearing changes how margin practices work. The SEC now lets broker-dealers pre-fund customer margin with U.S. dollars or Treasury securities. Segregated margin for proprietary and customer trades might need more overall margin requirements. This change affects liquidity and capital.
Technology and infrastructure changes
Companies must upgrade their technology infrastructure. FICC trading systems need updates to handle clearing changes. Live processing capabilities, advanced data analytics, and cloud-based platforms can turn this mandate from a compliance task into a competitive edge.
Working with clearing members
Choosing the right clearing partners is vital to success. Direct participants must choose which access models to offer clients. Indirect participants should pick clearing members based on their tech capabilities and pricing models.
Conclusion
Treasury clearing faces a crucial turning point. The SEC's mandate will revolutionize this critical market between 2025 and 2027. About $4 trillion in daily transactions will move to central clearing. These changes bring challenges but also create opportunities to improve market stability and transparency.
Financial institutions can't wait until the deadlines arrive. The extended timeline gives them room to prepare properly. Organizations should use this time to evaluate transaction eligibility and update legal documentation. They need to adjust margin practices, upgrade technology systems, and pick the right clearing partners.
Direct and indirect participants must decide on their clearing access models. Sponsored clearing comes with familiar protocols that many already know. Agent clearing could offer better netting benefits and more flexibility with counterparties. Your existing trading patterns and operational capabilities will determine the best choice.
Market stability remains the main goal of these reforms. The 2019 repo market spike and 2020 cash Treasury market stress exposed weaknesses. Central clearing aims to fix these issues through counterparty risk reduction, multilateral netting, and standardized default management.
The mandate requires major operational changes but will strengthen the world's most important financial market. Companies that prepare well won't just comply - they'll be ready for greater efficiency and resilience in the new treasury landscape of 2025 and beyond.
