Typically, bigger banks clearing on automated platforms make up the bulk of Fixed Income Clearing Corporation membership; trades executed between FICC members on BrokerTec, one of the largest inter dealer venues for Treasuries, return to the clearing house to improve their chances of being finalised.
As high-frequency trading has gradually replaced human dealers, clearing has not been used to complete trades between non-FICC members and questions have been raised by the Treasury with regard to security of the trades.
Clearing for the firms is taken care of by third party brokers regarding trades between non-members and large bank members of the FICC. Sceptics of the system will start to wear thin sooner rather than later.
Developing central clearing among high-frequency firms may help the market, according to Daleep Singh at the US Treasury.
As reported by the Financial Times online, Mr Singh said at a New York conference last week:
"Increased participation in centralised clearing for cash treasuries could have the beneficial effect of reducing the aggregate amount of counterparty and credit risk in the system."
"On the other hand, as some note, if the increased costs of central clearing drive certain liquidity providers out of the market, such as the high-volume, low-margin market making activities conducted by PTFs, it could reduce efficiency and resilience in the market," Mr Singh added.
Earlier this year the Securities and Exchange Commission received an application from the FICC to put up its clearing fees, citing a drop in dollar values of transactions as part of the reason.
More recently, the US Treasury asked for more information on the evolution of the market structure, adding momentum to the issue.