Market structure changes, such as the potential shortening of the securities settlement cycle in Europe and Asia and the expansion of the regulatory mandate to clear Treasuries in the US, will place significant pressure on firms to modernize their systems.

Consultancy Firebrand Research said in its report, Local Interests Versus Global Intentions: Predictions for 2025 and Beyond in Post-trade, that there will be much more active evaluation of post-trade infrastructure at large firms, even if spending does not materialise until the end of the year.

Firms will need to prepare for the potential shortening of the securities settlement cycle in Europe and Asia. In May 2024 the US and Canada were amongst the countries that cut securities settlement from two days after a trade, T+2, to T+1. The UK’s Accelerated Settlement Taskforce has recommended that the country move to T+1 by the end of 2027. ESMA, the European Union’s financial markets regulator, has also recommended 11 October 2027 as the optimal date for the transition to T+1 in the EU, and suggested following a coordinated approach with other jurisdictions in Europe.

The industry will also need to prepare for the 2025 and 2026 regulatory deadlines in the Security and Exchange Commission’s US Treasury Clearing rule. The rule mandates the centralized clearing of Treasury transactions between large groups of market participants, and the separation of house and customer margins.

Virginie O’Shea, founder and chief executive of Firebrand Research, said in the report that competition in clearing has been a topic of debate over recent years between those who prefer designated clearing providers and those who favour greater access and interoperability.

“These discussions will be picked up again in Europe in 2025 as the whole post-trade landscape is reviewed as part of the planning for T+1,” she added. “In the US, the planned mandate for clearing of US Treasuries will also require firms to assess their clearing operations.”

As a result, there will also be more attention and focus on liquidity, the efficiency of collateral management, and securities financing automation.

“Collateral management and securities financing technology has long lagged from an investment standpoint, but these areas will receive more attention in 2025,” O’Shea added.

Adoption of voluntary clearing

The Depository Trust & Clearing Corporation (DTCC), the US post-trade market infrastructure, said on 14 January 2025 that volumes in its Fixed Income Clearing Corporation’s (FICC) sponsored service were a record in 2024. Sponsoring members facilitate the submission of their client’s trading activity in eligible securities for novation to FICC, act as operational and administrative agents on behalf of their clients and guarantee their clients’ activity to FICC.

FICC volumes reached $2 trillion at the end of 2024, marking a new peak volume and an 83% year-over-year increase. Indirect clearing relationships also reached a record, representing a 20% growth over the same period.

Laura Klimpel, head of DTCC’s fixed income and financing solutions, said in a statement: “We anticipate continued growth in voluntary clearing in the months ahead as firms recognize the value of clearing their trading activity at FICC.”

In the predictions for 2025 from DTCC executives, Klimpel said 2024 has been a pivotal year in industry preparations for the expanded US Treasuries mandate with growth in fixed income clearing volumes. She also said FICC made significant strides in supporting done-away clearing, which allows market participants to execute trades with one firm and clear with another, which is common in other markets. Standard practice in the Treasury market is “done with” clearing, where trading counterparties have to clear trades in a bundled fashion with the same firm.

Klimpel said both of FICC’s indirect access models, the sponsored service and the agent clearing service, have been approved by the SEC and support done-away activity.

“We are also addressing remaining challenges around accounting implications – with resolution anticipated imminently – and will continue to roll out innovative products and services that create new margin and capital efficiencies for our clients,” Klimpel added.

Brian Steele, president of clearing & securities services at DTCC said in the predictions for 2025 that expansion of US Treasuries clearing is a “huge” priority.

“Driving capital and liquidity efficiencies for the industry is a keen focus area for DTCC, which is why we are doubling down to improve our solutions (i.e. cross margining arrangements, creation of default fund, etc.) and enable our clients to maximize capital while complying with mandates such as Basel III rules, etc.” he added.

Central clearing and data transparency will be most beneficial to the market according to panelists at the 2024 U.S. Treasury Market Conference who were cited by a Federal Reserve blog.

They said central clearing can help reduce counterparty risk and likely support market-making by dealers, while also smoothing a future move to all-to-all trading. Increased data transparency will allow quicker identification of problems and solutions in times of stress.

“This is potentially most necessary in the off-the-run market, where transparency is currently low,’ said the blog.

Panelists also cited the flexibility of dealer balance sheets, efforts to better support indexing and the pace of transparency reforms as other areas to watch.