CME Group and DTCC Launch Enhanced Treasury Cross-Margining Arrangement, Enabling Capital Efficiencies for Clearing Members

Rhea-AI Summary

CME Group and DTCC have launched an enhanced cross-margining arrangement, allowing eligible clearing members to cross-margin an expanded suite of products, including CME Group SOFR futures, Ultra 10-Year U.S. Treasury Note futures, and Ultra U.S. Treasury Bond futures, with FICC-cleared U.S. Treasury notes and bonds, as well as repo transactions with eligible Treasury collateral.

Insights

Financial Analyst

The enhancement of cross-margining arrangements between CME Group and DTCC represents a strategic move to bolster capital efficiency within the financial services industry. By allowing clearing members to cross-margin an expanded suite of products, firms can reduce the amount of capital required to trade and clear U.S. Treasury securities and Interest Rate futures. This can lead to a decrease in operational costs, as less capital tied up in margin requirements increases liquidity and potentially frees up resources for other investments or trading activities.

From a financial perspective, the expanded cross-margining could lead to increased trading volumes as the cost of entry is lowered for participants. This may result in heightened liquidity for the involved financial instruments, which is beneficial for the market's overall health. Moreover, the focus on Treasury securities is significant given their role as a benchmark for interest rates and their influence on other financial markets. The enhanced arrangement could also mitigate systemic risk by ensuring more efficient use of collateral, thus enhancing the resilience of the financial system.

Market Research Analyst

The implementation of the enhanced cross-margining arrangement between CME Group and DTCC is likely to impact the derivatives and Treasury markets by creating a more interconnected financial ecosystem. By incorporating products such as SOFR futures, which are based on the Secured Overnight Financing Rate, the new arrangement aligns with the broader industry transition towards alternative reference rates following the discontinuation of LIBOR. This move could accelerate the adoption of SOFR as a benchmark, influencing market dynamics and trading strategies.

Furthermore, the integration of repo transactions with Treasury collateral into the cross-margining framework may encourage more activity in the repo market, which plays a critical role in short-term funding and liquidity for financial institutions. This could have implications for the pricing and availability of short-term credit, with potential knock-on effects for broader economic activity.

Economist

The enhanced cross-margining arrangement has implications beyond immediate capital efficiency gains for market participants. By facilitating a more efficient Treasury marketplace, the arrangement may contribute to the overall stability and functioning of the financial markets. Treasuries serve as a key risk-free benchmark for a variety of economic agents and improvements in the efficiency of Treasury markets can have broad macroeconomic implications, potentially influencing the cost of government borrowing and the transmission of monetary policy.

In the long term, these changes could impact the allocation of capital across different asset classes and influence the behavior of various market participants, including institutional investors, hedge funds and banks. It is essential to monitor how these developments affect market depth, volatility and the ability of the financial system to absorb shocks, all of which are vital for economic stability.

CHICAGO and NEW YORK and LONDON and HONG KONG and SINGAPORE and SYDNEY, Jan. 23, 2024 /PRNewswire/ -- CME Group, the world's leading derivatives marketplace, and The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced their enhanced cross-margining arrangement has gone live, enabling capital efficiencies for clearing members that trade and clear both U.S. Treasury securities and CME Group Interest Rate futures.

With the new arrangement implemented, eligible clearing members of CME Group and the Government Securities Division (GSD) of DTCC's Fixed Income Clearing Corporation (FICC) can now cross-margin an expanded suite of products, including CME Group SOFR futures, Ultra 10-Year U.S. Treasury Note futures and Ultra U.S. Treasury Bond futures, with FICC-cleared U.S. Treasury notes and bonds. Repo transactions that have Treasury collateral with more than one year remaining to maturity will also be eligible for the enhanced cross-margining arrangement.

"We are continually seeking to make trading more efficient and cost effective for our clearing members," said Suzanne Sprague, CME Group Global Head of Clearing and Post-Trade Services. "By increasing capital efficiencies for our clearing members who trade both cash and futures, this new Treasury cross-margining arrangement with DTCC builds on the benefits provided through our 20-year partnership and will contribute to an even more efficient U.S. Treasury marketplace, one of the most important, actively traded markets in the world."

"We welcome the efforts by CME Group and FICC to improve the efficiency and resiliency of the overall Treasury market with this enhanced cross-margining arrangement," said Mark Wendland, Chief Operating Officer and Partner at DRW.

"We are pleased to continue to collaborate with CME Group to deliver enhancements to our cross-margining arrangement which will increase efficiency and enable capital savings opportunities for our members," said Laura Klimpel, General Manager of Fixed Income Clearing Corporation (FICC) & Head of SIFMU Business Development at DTCC. "The importance of efficient cross-margining opportunities across Treasury securities and futures activity is even more significant based on the increase in Treasury activity that will be required to be centrally cleared. We look forward to continuing to advance our offerings and capabilities to continue to deliver additional value to the industry."

Notes to Editor
To view the CME Group rule filing, click here. To view the FICC rule filing, click here.

About CME Group 
As the world's leading derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.  The company offers futures and options on futures trading through the CME Globex platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform.  In addition, it operates one of the world's leading central counterparty clearing providers, CME Clearing. 

CME Group, the Globe logo, CME, Chicago Mercantile Exchange, Globex, and E-mini are trademarks of Chicago Mercantile Exchange Inc.  CBOT and Chicago Board of Trade are trademarks of Board of Trade of the City of Chicago, Inc.  NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange, Inc.  COMEX is a trademark of Commodity Exchange, Inc. BrokerTec is a trademark of BrokerTec Americas LLC and EBS is a trademark of EBS Group LTD. The S&P 500 Index is a product of S&P Dow Jones Indices LLC ("S&P DJI"). "S&P®", "S&P 500®", "SPY®", "SPX®", US 500 and The 500 are trademarks of Standard & Poor's Financial Services LLC; Dow Jones®, DJIA® and Dow Jones Industrial Average are service and/or trademarks of Dow Jones Trademark Holdings LLC. These trademarks have been licensed for use by Chicago Mercantile Exchange Inc. Futures contracts based on the S&P 500 Index are not sponsored, endorsed, marketed, or promoted by S&P DJI, and S&P DJI makes no representation regarding the advisability of investing in such products. All other trademarks are the property of their respective owners.

About DTCC
With 50 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry. From 20 locations around the world, DTCC, through its subsidiaries, automates, centralizes, and standardizes the processing of financial transactions, mitigating risk, increasing transparency, enhancing performance and driving efficiency for thousands of broker/dealers, custodian banks and asset managers. Industry owned and governed, the firm innovates purposefully, simplifying the complexities of clearing, settlement, asset servicing, transaction processing, trade reporting and data services across asset classes and bringing increased security, enhanced resilience and soundness to financial markets. In 2022, DTCC's subsidiaries processed securities transactions valued at U.S. $2.5 quadrillion and its depository subsidiary provided custody and asset servicing for securities issues from over 150 countries and territories valued at U.S. $72 trillion. DTCC's Global Trade Repository service, through locally registered, licensed, or approved trade repositories, processes more than 17.5 billion messages annually. To learn more, please visit us at www.dtcc.com or connect with us on LinkedIn, X, YouTube, Facebook, and Instagram. 

CME-G

 

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SOURCE CME Group

FAQ

What is the enhanced cross-margining arrangement launched by CME Group and DTCC?

The enhanced cross-margining arrangement allows eligible clearing members to cross-margin an expanded suite of products, including CME Group SOFR futures, Ultra 10-Year U.S. Treasury Note futures, and Ultra U.S. Treasury Bond futures, with FICC-cleared U.S. Treasury notes and bonds, as well as repo transactions with eligible Treasury collateral.

Who are the parties involved in the cross-margining arrangement?

The parties involved in the cross-margining arrangement are CME Group and The Depository Trust & Clearing Corporation (DTCC).

What are the benefits of the cross-margining arrangement?

The cross-margining arrangement enables capital efficiencies for clearing members that trade and clear both U.S. Treasury securities and CME Group Interest Rate futures, contributing to an even more efficient U.S. Treasury marketplace.

What products are included in the cross-margining arrangement?

The cross-margining arrangement includes CME Group SOFR futures, Ultra 10-Year U.S. Treasury Note futures, Ultra U.S. Treasury Bond futures, and FICC-cleared U.S. Treasury notes and bonds, as well as repo transactions with eligible Treasury collateral.

Where can the CME Group and FICC rule filings be viewed?

The CME Group rule filing can be viewed here, and the FICC rule filing can be viewed here.