This report provides a critical analysis of the U.S. Securities and Exchange Commission’s (SEC) recent rule changes aimed at expanding the use of central clearing in the $26 trillion Treasury market. With the objective of fortifying market efficiency, competitiveness, and resilience, the SEC’s mandate affects a broad spectrum of market participants and central clearing infrastructures, particularly the Fixed Income Clearing Corporation (FICC) and its Capped Contingent Liquidity Facility (CCLF).
The report investigates the potential impacts of the SEC’s rule changes on liquidity risk management, the sizing of the CCLF, and the operational adjustments required by the FICC to accommodate increased transaction volumes. Additionally, it explores the disconnect between cleared volumes and CCLF size, considering various cost management strategies employed by members.
Through this analysis, the report aims to shed light on the complexities and challenges posed by the SEC’s initiative, and how it may potentially go into astray if risks are not properly managed.
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