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CME Group said it will apply to clear US Treasuries, becoming the first exchange company to publicly state its ambitions to grab a lucrative slice of the world’s biggest bond market.
“It’s a no-brainer to go ahead and file the application to become a Treasury clearer,” Terry Duffy, chief executive of CME, told the Financial Times on Tuesday.
The $27tn Treasury market is facing seismic changes under new US Securities and Exchange Commission rules, which will remodel the way that trades are finalised. The regulator is forcing more Treasury trades through a clearing house in an effort to make the market more resilient after a series of crises.
Chicago-based CME is the world’s biggest futures and options exchange and one of the largest cash trading markets. CME would apply this year to clear cash Treasuries, Duffy said.
Its plans mark the start of what is expected to be a fiercely competitive battle between venues for the lucrative business of Treasury clearing. US government debt is held by nearly every big investor and central bank around the world, and is the benchmark from which many global assets are priced.
Clearing houses are a mundane but vital piece of financial market infrastructure which exist to prevent crises cascading through the system. A clearing house sits between a buyer and seller to prevent a default from washing through markets.
At present, a branch of the main clearing house the Depository Trust and Clearing Corporation, called the Fixed Income Clearing Corporation, is the only venue where Treasury trades are cleared. Treasury clearing volumes grew 31 per cent last year at FICC to an average of $7tn daily, it said on Tuesday.
Under the rules, all purchases or sales of Treasuries by broker-dealers or interdealer brokers will have to be routed through a clearing house from December 2025, while most repo trades must be cleared from June 2026.
Some traders and industry executives have questioned whether the FICC will be able to handle the massive trading volumes that are set to be funnelled its way once clearing becomes mandatory, and have been eager for competitors to enter the space.
Competition could potentially push down prices and reduce the risks of routing all the activity through one venue. CME already has a long-standing link with DTCC on offsetting margin on Treasuries trades deposited at the other’s clearing house.
“I think they’re getting themselves very well prepared to be ready for 2025 to handle the load that could be coming their way,” Duffy said of the FICC, speaking on the sidelines of the Futures Industry Association conference in Florida. He added that the existence of the FICC “doesn’t prohibit us from at least going and filing the application”.
Duffy, who has led CME as chief executive since 2016, said he expected more companies to apply to clear Treasuries. “Since the rule came out, I thought more people would be more forthcoming in saying ‘we’re going to do this’, I’m surprised they haven’t,” he said.
Jeffrey Sprecher, chief executive of rival Intercontinental Exchange, told the conference that Treasury clearing would likely end up in the hands of “one or all of the incumbents”, rather than start-up businesses. “You’re going to need some pretty well-entrenched and well-versed entities to make that next step.”
Additional reporting by Kate Duguid in New York
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