A new study commissioned by Davies, a specialist professional services and technology business serving insurance and highly regulated markets, of more than 350 senior decision-makers within global financial institutions has found:_x000D_
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- 43% of firms are unfamiliar with upcoming mandatory U.S. Treasury clearing rule changes.
- Less than a third (29%) of businesses are fully aware of the SEC’s regulations requiring central clearing of U.S. Treasury transactions.
- 43% of companies express concerns about their ability to meet the 2025 clearing deadline, while 72% of firms expect the cost of mandatory clearing to be impactful.
- Only 9% of North American firms report being fully prepared, compared with only 2% of European firms.
- 36% of businesses anticipate margin requirements will increase by 25% or more.
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The research, conducted in partnership with Value Exchange, shows that, despite the looming regulatory deadline for mandatory U.S. Treasury clearing, many firms are underprepared, with 43% expressing concerns about meeting the requirements by the 2025 deadline._x000D_
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The new regulations, driven by the U.S. Securities and Exchange Commission (SEC), mandate that all eligible U.S. Treasury transactions must be cleared through a central counterparty (CCP) by 2025 (clearing will be mandatory for eligible purchasing and sale transactions from Dec. 21, 2025) and for eligible repurchase agreements and reverse repo transactions from June 30, 2026._x000D_
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While the transition to central clearing promises to reduce systemic risk, it also introduces new operational and financial burdens for firms, including increased margin requirements and technology upgrades._x000D_
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The findings reveal significant regional disparities in preparedness. In North America, only 9% of respondents report being ready, while 65% admit they will need substantial changes to their current operations. European businesses report similar challenges, with 68% recognizing the need for significant adjustments. Firms in the APAC region are less prepared, with 42% still in the early stages of understanding the requirements._x000D_
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The survey underscores that many businesses anticipate significant financial implications, with 36% expecting margin requirements to increase by 25% or more, and some even predicting rises of over 50%. These increased margin requirements, which are collateral that firms must set aside with the CCP, represent a major concern, as they could significantly affect firms’ liquidity and cash flow._x000D_
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“These results show that many firms are sleepwalking towards a painful wake-up call when mandatory central clearing comes into force,” Michael Barrett, partner of Consulting at Davies, said. “Since the deadline is so far away, firms might think they have more than enough time to make the necessary changes to their operations, but they are wrong. Now is the time to wake up and start making the sweeping changes necessary to avoid massive bottlenecking when the changes come into effect.”
