Yahoo Finance ICE Aims to Clear US Treasuries as Market Regulation Expands
(Bloomberg) -- Intercontinental Exchange Inc., the market operator and parent of the New York Stock Exchange, is angling to become a central clearinghouse for US Treasuries and repurchase agreements — services required by new regulation for the world’s largest debt market.
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ICE is laying the groundwork to clear US Treasuries through its existing clearing house, ICE Clear Credit, according to Chris Edmonds, president of ICE’s fixed-income and data services. The firm is seeking regulatory approval and is in discussions with the US Securities and Exchange Commission as it prepares its application for review, he said.
An approval would transform the $27 trillion Treasury market, which has only one registered central clearinghouse. Other entities have also expressed interest in becoming central clearers for US government debt.
“We believe we can provide a compelling alternative for those seeking to have more than one option in the market,” Edmonds said in an interview. To help steer the initiative, ICE hired Paul Hamill, formerly global head of fixed-income distribution at market-making firm Citadel Securities LLC, and expects to make more hires to build the service, Edmonds said.
The move is in response to an SEC rule that requires some Treasury trades — and all transactions involving repurchase agreements — to be centrally cleared. Market participants have until the end of 2025 to meet the new clearing rules for Treasuries and by June 30, 2026, for repo transactions.
“Given the rules of the road have changed, we felt it was important for us to put forth a compelling offering and let the market take advantage of it,” Edmonds said. “Without the rule change, I don’t know if we would be going in this direction.”
Clearinghouses act as intermediaries between buyers and sellers and assume ultimate responsibility for completion of transactions. This reduces the chance of a default by one firm triggering wider losses in the financial system.
ICE Clear Credit, which handles credit derivatives, is an SEC-registered clearing agency founded in 2009. It’s also a designated systemically important financial market utility, or SIFMU, by the Financial Stability Oversight Council, and deemed a qualified central counterparty under US bank capital rules, the firm said in a release Monday.
The new Treasury clearing offering will have its own rulebook, membership, risk-management framework and risk committee, according to ICE.
“We are trying to be the least disruptive as possible,” Edmonds said, by using “an entity that is familiar and has the right registrations, and is systemically important.”
The existing clearinghouse for US Treasuries is Fixed Income Clearing Corp., a subsidiary of Depository Trust & Clearing Corp. The firm has predicted its current daily clearing activity of about $7 trillion would increase by more than $4 trillion as a result of the expanded clearing rules.
However, SEC chair Gary Gensler said earlier this month the agency was in talks with other firms seeking to become central clearinghouses. Executives at derivatives exchange CME Group Inc. have said they’re seeking regulatory approval to offer the service. LCH, the clearinghouse owned by the London Stock Exchange Group Plc, is also considering it.
“Competition is great for the market — consumers would end up benefiting from that,” ICE’s Edmonds said.
--With assistance from Alexandra Harris.
(Adds more detail from press release in eighth paragraph.)
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