MFA has urged the Securities and Exchange Commission (SEC) to improve access to Treasury clearing by making substantive changes to the proposed Fixed Income Clearing Corporation (FICC) Treasury clearing rules in a comment letter.

The FICC rulemaking is required by the SEC Treasury Clearing Rule finalised in December.

MFA's letter states its support of the FICC’s goal of improving the resiliency of the Treasury markets by giving market participants access to a flexible range of clearing structures and enhanced customer margin protection. However, the letter notes that the proposed rules fail to accomplish these objectives.

The letter also raises concerns that the proposal’s lack of analyses will impair investor confidence and the ability of certain investors to continue trading Treasuries, which will decrease liquidity and increase volatility.

In the letter, MFA recommends that FICC: adopts additional rules to streamline and clarify its indirect access models and ensure that each model is available in practice; conducts and publishes a legal enforceability analysis covering the insolvency, resolution, or liquidation of FICC or a direct participant; provides additional information to market participants regarding the expansion of cross-margining opportunities; and amends its rules to remove impediments to firms accessing other clearing agencies that may provide Treasury clearing services.

In a statement, Bryan Corbett, President and CEO of MFA, said: “The proposed rules to provide non-FICC members access to Treasury clearing are largely cosmetic and fail to ensure all market participants have access to Treasury clearing.

“FICC needs to make significant changes to avoid disrupting Treasury markets – the foundation of the global financial system.”

MFA's letter notes that the proposed rules do not improve access to clearing for “done-away” trades (trades conducted with a party other than a FICC member that are then cleared with a FICC member). Currently, there is no market for done-away trades. Mandating Treasury clearing without providing a market for done-away trades unnecessarily limits trading partners available to non-FICC members and harms Treasury liquidity.