Our CEO, James Tabacchi, was recently quoted in Risk.net's "Clearers Face Heavy Lift on CME-FICC Cross-Margin Service" by Paulina Pielichata, on the concentration risk building in the US Treasury market as CME-FICC cross-margining takes shape.
Because only firms registered as both a broker-dealer and an FCM can offer the program, Tabacchi noted: "A significant part of the market is financed by broker-dealers that are not FCMs."
On the broader risk, he warned that concentration is "exploding": "You are moving spaghetti around the plate from the smallest players to the biggest ones because they are well-capitalized. I am not saying they are going to fail in UST repo, but if they fail for another reason, the disruption in UST markets will be extreme."
Tabacchi noted: “If the Fed wants to reduce its balance sheet while not getting more participation in the SRF, they should look to more frequent open market operations, which worked well in the past.”
Vega pointed to the $320 billion stablecoin market as a growing source of repo demand and noted that the regulatory environment has become more favorable for bank participation, with SLR reductions freeing up significant balance sheet capacity across the largest U.S. institutions.
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