The groundbreaking mandate requiring central clearing for a significant portion of US Treasury securities transactions will start by the end of the year. This regulation, aimed at enhancing transparency and reducing systemic risk, will have wide-ranging implications for global participants, including asset managers, hedge funds and pension funds in the Asia-Pacific region.

The mandate requires eligible transactions – including cash trades and repos involving US treasury securities – to be cleared through the Fixed Income Clearing Corporation ( FICC ). By December 31 2026, cash transactions must comply, while repo transactions will follow by June 30 2027. The US Securities and Exchange Commission ( SEC ) had previously provided a one-year extension to the original extension compliance deadlines in February 2025 to allow market participants additional time to prepare for the operational changes and address interpretive questions related to the rule.

For Asia-Pacific and other global investors, the mandate’s impact is extensive, as all trades involving FICC members must comply, regardless of jurisdiction. Participants must prepare by selecting appropriate access models, ensuring operational readiness and addressing associated costs to remain competitive.

Despite these challenges, the mandate offers benefits such as reduced counterparty risk and improved market transparency, fostering greater confidence and participation in the US treasury market from Asia-Pacific and other international investors.

Understanding SEC mandate: Key requirements

The SEC’s mandate applies to secondary market transactions involving US Treasury securities where at least one counterparty is a direct FICC member. While sovereign entities, central banks, affiliates and certain international financial institutions are exempt, the regulation broadly impacts both sell- and buy-side participants.

For sell-side firms, such as major banks and broker-dealers, becoming direct FICC members is mandatory. Buy-side participants, including Asia-Pacific asset managers, are not required to join directly but must access clearing indirectly through models like the Sponsored Membership Programme or the Agent Clearing Service.

This shift will significantly reduce uncleared bilateral trading, consolidating liquidity in centrally cleared markets. However, it will also introduce operational complexities, increased costs and margin requirements, particularly for international investors.

Market impact, projections

Cleared volumes in the US treasury market are expected to increase significantly.  A July 2025 Federal Reserve piece suggested that the overall centrally cleared repo market stood at around US$3.5 trillion in 2024, while the non-centrally cleared market was almost US$7 trillion. This shift will move previously uncleared bilateral transactions into the centrally cleared space, increasing activity for the FICC.

The US treasury market, valued at US$30 trillion in 2025, is projected to grow to US$50 trillion by 2030, driven by rising government deficits and increased issuance. The mandate will manage systemic risks by ensuring more transactions are centrally cleared, concentrating liquidity in the cleared space and reducing uncleared bilateral trading.

Non-cleared transactions will face higher costs, incentivizing central clearing adoption. High-quality liquid assets will need to be posted as margin to the FICC, with estimates that this incremental need could exceed US$40 billion, initially burdening the sell-side but eventually impacting the buy-side through pricing and financing costs.

Benefits, risks for Asia-Pacific investors

The mandate introduces standardized reporting and risk management practices, giving Asia-Pacific investors greater visibility into market conditions and counterparties’ creditworthiness. Central clearing through the FICC reduces counterparty risk by making the FICC the central counterparty for all trades, ensuring that even if one party defaults, the risk is mutualized and managed through the FICC’s robust risk framework.

Asia-Pacific investors, especially those trading with US counterparties, benefit from the enhanced security and reliability of cleared transactions. However, central clearing requires margin contributions ( initial and variation margin ) to be posted to the FICC, potentially increasing trading costs for Asia-Pacific investors. They will also need to update their legal documentation, such as adopting the Master Treasury Securities Clearing Agreement, to comply with the new clearing requirements.

Access models for clearing

Asia-Pacific investors can choose between direct membership and indirect access models to comply with the mandate.

Direct membership is designed for larger institutions, such as major banks and broker-dealers, that meet the FICC’s stringent eligibility criteria. While this option provides full control over clearing operations and potential cost savings through balance sheet netting, it involves significant resource commitments, including contributions to the FICC’s clearing fund, system connectivity and risk management requirements.

The Sponsored Membership Programme, widely used by buy-side firms, allows trades to be cleared through a sponsoring direct member. This model reduces operational burdens, as the sponsor handles clearing requirements and guarantees client performance to the FICC.

For Asia-Pacific investors, choosing the right sponsor is critical. Key considerations include:

• Capacity and flexibility – Ensuring the sponsor can accommodate trading volumes and patterns.
• Creditworthiness – Evaluating the sponsor’s financial stability to mitigate pre-novation risks.
• Operational expertise – Selecting sponsors with deep knowledge of FICC processes and extensive experience managing large transaction volumes.
• Regional coverage – Prioritizing sponsors with local trading desks and operational support in Asia-Pacific time zones for efficient communication and timely trade affirmation.

The Agent Clearing Service is another indirect access model. It provides additional flexibility, particularly for smaller participants, allowing them to clear transactions through an agent while minimizing operational and capital burdens.

Additionally, Asia-Pacific investors could also consider choosing between done-with and done-away clearing models. The former clearing combines trade execution and clearing, so investors trade with the same counterparty that sponsors them into central clearing. The latter works differently – investors execute with one counterparty but use another for clearing. Comparatively, while a single counterparty relationship can be operationally simpler under a done-with model, a done-away model offers greater flexibility to broader dealer liquidity and trading relationships.

Preparing for mandate: Strategic recommendations

The move to central clearing introduces substantial cost implications for Asia-Pacific investors. One major concern is the requirement to post initial margin and variation margin to the FICC. These margins, based on the FICC’s stress-testing methodologies, could create a significant liquidity drag. Asia-Pacific investors must ensure they have sufficient liquid assets to meet these requirements without disrupting their broader investment strategies.

Additionally, the mandate is expected to reduce liquidity in the uncleared over-the-counter market, leading to widening spreads and higher funding costs. As liquidity consolidates within the cleared market, Asia-Pacific investors must prepare for higher transaction costs and explore opportunities to offset these through balance sheet netting or cross-margining benefits. For example, the FICC’s collaboration with the CME on cross-product margining is advantageous for investors engaged in futures and repo arbitrage strategies.

Preparing for the operational changes required by the clearing mandate involves a comprehensive review of internal processes, technology infrastructure and personnel training. Key steps include assessing current trading workflows, ensuring that necessary agreements like the Master Treasury Securities Clearing Agreement are in place, and updating trade lifecycle processes to accommodate the clearing process.

Asia-Pacific investors must connect with the FICC’s systems for trade submission, margin processing and reporting. They should integrate clearing systems for seamless interfacing, implement robust real-time margin management systems and leverage execution platforms for done-away trading, enabling execution with multiple counterparties through a single sponsor or agent.

Conclusion

The SEC’s central clearing mandate marks a pivotal shift in the structure of the US treasury market. While it introduces challenges related to costs, liquidity and operations, it also enhances transparency, reduces counterparty risk and fosters market stability.

For Asia-Pacific investors, preparing for this mandate is essential to remain competitive in the evolving US Treasury market. By understanding the requirements, selecting appropriate access models, and ensuring operational readiness, investors can navigate these changes with confidence. Proactive preparation will not only ensure compliance but also position Asia-Pacific investors to thrive in the new era of central clearing.

Richard Gallagher is the head of financing solutions sales and client management for Asia-Pacific at State Street.