New York Fed official urges bond market to prepare for central clearing

By Michael S. Derby

(Reuters) – A senior New York Federal Reserve official said on Wednesday it is time for market participants to prepare for new clearing rules looming in the Treasury bond market.

Citing a new Securities and Exchange Commission rule mandating central clearing in the government bond market, Michelle Neal, who heads the New York Fed’s markets group, said: “Given the importance and The scope of this change in market structure makes it crucial for market players. engage now to identify how the SEC rule affects their businesses and develop plans to offset qualifying transactions.

“Treasury cash compensation must come into effect by the end of 2025, and pension compensation must come into effect by June 30, 2026,” Neal said in the text of a speech to be delivered in front of the ISDA/SIFMA Treasury Forum. At New York. “While these dates may seem distant today, time will pass quickly given the complexities involved. »

Neal said in his speech that the new central clearing system will have a tangible impact on the markets. “In practice, these changes are expected to result in a significant migration of Treasury repo and reverse repo to central clearing,” she said, adding that “major electronic spot trading firms will likely move to central clearing.” .

Neal also noted that the new regime also brings transparency benefits. “More transactions flowing through (central clearing platforms) would also increase the visibility of clearing and settlement flows for the official sector, providing better market oversight,” she said.

(Reporting by Michael S. Derby; Editing by Chizu Nomiyama)