Eric Mueller, Managing Director, Sydney Hassal, Managing Consultant, and Emma Wooldridge, Managing Consultant, D2 Legal Technology, write that on December 13, 2023, the SEC finalised the most significant structural change to the US Treasury market since the financial crisis: mandatory central clearing for both cash and repo transactions.
While compliance deadlines extend into 2026 for cash trades and 2027 for repos, the implications are already being felt. The institutions that begin planning now are more likely to avoid costly disruption and realise efficiency gains as the rules come into force.
Market participants are focused on the implementation timeline and key milestones; how the final rule interacts with existing regulatory frameworks, which issues remain unresolved; and what actions can be taken today.
The ticking regulatory clock
The phased compliance schedule is now set, and progress is accelerating. Most recently, the SEC approved CME Group’s CME Securities Clearing (CMESC) Inc, enabling both “done with” and “done away” clearing options for US Treasury trades.
The next major compliance milestone is December 31, 2026, when cash Treasury trades must be centrally cleared, followed by June 30, 2027, when the clearing obligation extends to term repos.
While these dates may seem distant, previous regulations, such as Reg IM and VM, demonstrate that legal documentation, onboarding and operational redesign can take longer than expected.
The Value Exchange report underscores the scale of the challenge, highlighting that 88 per cent of respondents require greater clarity on central counterparty (CCP) operating models and system changes to support US Treasury clearing. Only 47 per cent report being very confident they will meet the mandatory clearing deadline.
Clearly, many firms will need to fully re-evaluate how they trade, settle and finance US Treasury secondary market transactions.
The practical scale of impact
Mandatory clearing affects every aspect of the trade lifecycle. Many organisations have established cross-functional working groups to redesign documentation, reassess clearing access models and put governance frameworks in place for settlement and margin.
Unsurprisingly, documentation has emerged as a particular pressure point. While The Securities Industry and Financial Markets Association (SIFMA) has published the Master Treasury Securities Clearing Agreement (MTSCA) for “done with” trading, approaches across the market are diverging. Many firms are adopting Sponsored Member models and have begun repapering to avoid time pressure. However, one notable gap is the absence of a standard “done away” agreement from SIFMA, which remains highly anticipated.
Beyond documentation, decisions are becoming increasingly strategic. Firms are weighing direct, sponsored or hybrid clearing models across different desks and client groups. The recent SEC approval for CMESC introduces new dimensions to these decisions, offering alternative models and potential capital efficiencies. The subsequent filing by CME and the Fixed Income Clearing Corporation to expand cross-margining arrangements further increases both complexity and opportunity. However, the market framework remains in development. Firms cannot wait for every structural detail to be settled before progressing their own implementation plans.
Issues yet to be resolved
While elements of the clearing landscape are still evolving, regulators have provided important clarifications on several operational questions. Market participants have been clear: successful implementation of the rule leaves no room for dysfunction. Some of the most immediate concerns raised have now been addressed. Mixed-Committee on Uniform Security Identification Procedures (CUSIP) triparty repos have now been confirmed as out of scope for mandatory clearing. Agent clearing members are not required to bring client trades onto their balance sheets, and the fog appears to be lifting around cross-margining.
Rule 15c3-3a also allows customer margin held with clearing agencies to be included as a debit in the reserve formula, easing pressure on broker-dealer liquidity.
These changes and clarifications remove some of the most immediate obstacles to implementation. However, several critical issues remain unresolved, including the treatment of inter-affiliate transactions, permanent relief for Supplementary Leverage Ratio (SLR) and enhanced SLR requirements, custodial and double-margining challenges for registered funds, and coordination across jurisdictions for non-US entities. Additional uncertainty persists around capital treatment for “done away” trades, failed trade handling and the finalisation of legal opinions required for netting recognition.
If left unresolved, these issues could materially impact the economics and operational feasibility of clearing, especially for dealers and buy-side firms operating on thin margins.
Act now
Experience from previous regulatory reforms suggests that early, structured preparation is critical. Firms that appear best positioned are those that have already mapped impacts across their businesses, identified priority desks and client segments, and begun working through documentation and workflows with clearing partners. Looking ahead, three priorities stand out: establishing internal clarity around clearing models, engaging early on documentation strategy, and maintaining continuous awareness of regulatory and clearing agency updates.
The rule is final, but the ecosystem around it is still evolving. Firms that act now are more likely to avoid last-minute disruption and unintended consequences as mandatory clearing becomes a reality.
