Despite the new SEC rules mandating central clearing for eligible Repo transactions set to come into force in June 2027, the industry retains concerns. Issues including finalized netting opinions, inter-affiliate exemptions, extraterritorial scope, cross-product netting, cross-margining and bank capital/netting rules still have to be addressed. However, this is not a reason to wait or hope for postponement.
The market is evolving rapidly, prompting the industry to embrace forthcoming changes. In addition to voicing concerns and reinforcing the need for issues to be addressed, market participants are also working with a growing number of service providers actively seeking ways to mitigate impacts and ensure all parties have a robust method to access the market.
The options now available should encourage firms to avoid a wait and see approach. Implementation requires both documentation and operational readiness and, as such, it is important that firms take steps to understand the options available and quickly decide on an initial model to minimize upheaval, avoid disruption and safeguard revenue.
Market Evolution
Service provider innovation is rapidly expanding access to clearing services. Following SEC approval in late 2025, Chicago Mercantile Exchange’s (CME) Cash trading and Repo clearing includes same day and +1 settlement for short term (less than two years) trades; and Tri-party General Collateral (GC) baskets for ten years (or less) and 30 years (or less). In April 2026, the SEC and Commodity Futures Trading Commission (CFTC) also permitted the CME and the Fixed Income Clearing Corporation (FICC) to make the existing cross-margining arrangement (House XM) available to certain customers with appropriate safeguards.
This allows members, end-user customers of dually registered broker dealers (BD) and futures commission merchants (FCM) that are common members of FICC and CME Clearing to access capital efficiencies available through offsetting risk exposures for US Treasury securities and Interest Rate futures.
Other suppliers are also working diligently to provide services specific to repo clearing that are designed to address some of the most challenging outstanding issues. For example, FICC has introduced a number of options to accommodate market participants beyond full netting members. These include the agency service for netting members trading with non-member entities (Executing Firm Customers (EFC)) and the ACS Tri-party arrangement, also allowing netting members to trade with an EFC entity.
The agent clearing service differs from the standard netting member/sponsor model because trades can be net-margined with other agent clearing member trades in the same omnibus account, if elected. This provides the potential for financial asset election rather than the need to file a financing statement to perfect the security interest.
Sponsored Model
Alternatively, firms can consider a sponsored model, an approach that avoids the additional layers of coordination, margin flow and account structure associated with agent clearing services. The ACS Tri-party and the Sponsored Collateral in Lieu services utilize a custodial intermediary to alleviate the double margining issues for entities subject to Rule 5(b)-3.
A Sponsored Done With service allows sponsored members to clear indirectly by trading with their Sponsor (a netting member of the CCA) who is the counterparty to the trade. Entities wishing to be sponsored become limited purpose members of the CCA, guaranteed by the netting member. Sponsored members are limited to the GSD services. Margin is always grossed and settlement risk is mitigated through the rules of the clearing house.
A Sponsored Done Away service is designed to allow the Sponsored member to indirectly clear trades with any netting member of the CCA that is not their sponsor. These trades are still guaranteed by their sponsored netting member and, as with Done With, margin is grossed and settlement risk is mitigated through the rules of the clearing house.
Robust Foundation
Ultimately, each firm will need to consider which model is right for them, which will be driven by decisions to optimize cost, operational efficiency and trading flexibility. Organizations will have to have a strategy in place for day one, which will require making a decision not only on the market approach model but also which sponsor partner to work with. Firms also need to recognize there is a need for more than negotiating documentation – it is also essential to model and capture the right data from these new agreements. Master agreement data owners will need to coordinate with the downstream consumers of the data (credit & collateral) to understand which data should be collected and then model the clauses to appropriately capture the required data. There is a lot of optionality in the SIFMA agreement, which means that there is a risk of capturing too much data and making it an administrative burden to capture and review the data.
As this is a new document for many institutions, there is not necessarily the same infrastructure or operating model that is in place for more established documents like ISDA, GMRAs, MRAs and MSFTAs, and the onus is on firms to develop new internal resources. This includes templates, fallback guides (including pre-approved fallbacks) and escalation processes. Without clarity in these areas, there are delays and bottlenecks. Without guidance, approvers can be unsure of the best process, without fallbacks negotiators have to escalate every point of deviation from standards, and without cemented standards, each negotiation can take a different and time-consuming path.
The market is clarifying and issues are being addressed, but with the deadline now only months away, it is vital to put the foundations in place for US Treasury Central Clearing sooner rather than later.
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Sydney Hassal and Emma Wooldridge are managing consultants at D2 Legal Technology.
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Tags: Accounting, Regulations, SEC, trading, Treasury
