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Abstract: 

Cross-margining of U.S. Treasury positions and interest rate futures can improve the efficiency and resilience of the U.S. Treasury market by tying margin requirements more closely to the risk of a given portfolio. However, only the largest and most sophisticated market participants have historically been able to cross-margin these positions. The principal reason for this limitation is that U.S. Treasury positions and interest rate futures are cleared at different central counterparties and subject to different regulatory regimes. Although these factors certainly present complications, the authors argue that there are well-established mechanisms that can allow customers to benefit from cross-margining without losing critical customer protections.

Keywords: Central Counterparty (“CCP”); Fixed Income Clearing Corporation (“FICC”); Chicago Mercantile Exchange (“CME”); Cross-Margining at the Clearing Member Level; Segregation and Insolvency Under SIPA and Part 190

Affiliations:  1: Cleary Gottlieb Steen & Hamilton LLP; 2: Cleary Gottlieb.