DTCC & BNY launch new Collateral-in-Lieu repo service

DTCC's Fixed Income Clearing Corporation and BNY have launched a Collateral-in-Lieu service for cleared repo trading, and BNY Securities Finance and Federated Hermes have completed the first trade on the set-up.

The new service sits within FICC's Sponsored General Collateral offering and operates through BNY's Global Collateral Platform. The firms said the arrangement uses BNY's triparty infrastructure for collateral management and settlement.

Repo transactions form a core part of the US Treasury market plumbing. Regulators have pushed for more central clearing in the market, with new requirements set to phase in from the end of 2026 into 2027.

How it works

DTCC described the service as a change to how margin and related protections apply under its cleared repo model for sponsored activity. The service keeps the haircut that dealers typically post to money market funds and other cash investors in triparty.

It also introduces a central counterparty lien that applies in place of a sponsor guaranty and margin posting to the central counterparty in most circumstances, according to the companies. They said the approach removes double-margining for some sponsored members and simplifies operational steps for participants while retaining the triparty structure.

FICC said the service supports both "done-away" and "done-with" trade execution styles. Market participants use those approaches to decide whether trades execute directly between counterparties or via an intermediary arrangement, depending on the trading workflow and platform used.

First transaction

The first repo trade on the service involved BNY Securities Finance and Federated Hermes. Federated Hermes acted as the cash provider, according to the announcement.

"We are pleased to officially launch our Collateral-in-Lieu service on BNY's Global Collateral Platform and congratulate BNY Securities Finance and Federated Hermes on completing the first repo trade," said Laura Klimpel, Managing Director, Head of DTCC's Fixed Income and Financing Solutions.

"This important milestone underscores our commitment to delivering innovative solutions that enhance margin and capital efficiency for all types of firms, to addressing issues within the industry and to supporting firms as they work towards regulatory compliance," said Klimpel.

Clearing shift

US regulators have pointed to central clearing as a way to reduce counterparty credit risk and improve transparency in the Treasury market. Market participants have also focused on the operational and funding impacts of clearing, including margin costs and collateral management.

DTCC said the Collateral-in-Lieu structure reduces duplicative margin requirements for sponsors and their clients. It said it builds on existing sponsored service processes and legal agreements.

BNY framed the initiative as a route to broader take-up of cleared repo in advance of the regulatory deadlines. It also positioned its Global Collateral Platform as a large pool for Treasury securities financing activity.

"Collateral-in-Lieu represents a major step forward in the path to central clearing by introducing a margin and capital efficient means to clear repo transactions leveraging BNY's Global Collateral Platform, the largest single liquidity pool for Treasury securities financing," said Nate Wuerffel, BNY's Head of Market Structure and Product Leader for the Global Collateral Platform.

"This is the first of many trades that will help expand cleared repo activity ahead of the mandatory clearing deadline," said Wuerffel.

Buy-side access

Market structure changes in the Treasury repo market have drawn attention from asset managers and cash investors, including money market funds and liquidity managers. Firms have looked for ways to access cleared repo while keeping existing collateral and settlement practices.

"Federated Hermes is pleased to collaborate with BNY Securities Finance to be the first cash provider to execute a transaction on FICC's Collateral-in-Lieu service," said Susan Hill, CFA, senior portfolio manager and head of the Government Liquidity Group at Federated Hermes.

"This solution expands our access to cleared repo, helping us to deliver value to clients while meeting evolving regulatory requirements. Collateral-in-Lieu reflects our commitment to ongoing innovation and the advancement of resilient market structure," said Hill.

BNY also linked the service to capacity for client activity as mandatory clearing expands. The bank said it expects broader participation as more firms evaluate the economics of clearing and the operational steps involved in triparty settlement.

"We're proud to work with DTCC, BNY's Global Collateral Platform and Federated Hermes to execute the first repo trade in Collateral-in-Lieu," said Nehal Udeshi, BNY's Head of Securities Finance.

"This solution creates greater capacity for us to support client activity and is critical as the market scales toward mandatory clearing. It also reflects our BNY approach - bringing together capabilities across the company to deliver seamless, integrated solutions for our clients. We see Collateral-in-Lieu as an important enabler of broad participation, supporting client access and a more resilient cleared repo market," said Udeshi.

DTCC said it expects adoption of the Collateral-in-Lieu service to increase in the coming months as the industry prepares for full implementation of the SEC's Treasury clearing requirements at the end of 2026 and in June 2027.