U.S. Treasury market opens cross-margining to customers, lowering capital costs for dual-position traders

Certain customers who hold both cash and futures Treasury positions will now face lower capital costs and improved operational efficiency. The Securities and Exchange Commission issued a conditional exemptive order permitting customer cross-margining of cash market positions in U.S. Treasury securities and futures positions in U.S. Treasury securities. The order applies to broker-dealers dually registered as futures commission merchants with the CFTC and joint clearing members of a registered clearing agency and a registered derivatives clearing organization. Customers of these dually registered broker-dealers can now offset margin requirements between cash Treasuries cleared by FICC and futures cleared by CME. This reduces the total margin capital required to hold offsetting positions in cash and futures Treasuries. The SEC approved a rule change by the Fixed Income Clearing Corporation to enter into a Cross-Margining Agreement with the Chicago Mercantile Exchange Inc. that incorporates the arrangement into FICC rules. Prior to this change, only clearing members could cross-margin U.S. Treasury cash and futures positions.