- Key insight: The Federal Reserve is considering whether it should voluntarily adhere to the Security and Exchange Commission's new rule on central clearing for Treasury security transactions.
- Expert quote: "The clearing mandate does not apply to the Federal Reserve's transactions. However, I believe the [Federal Open Market Committee] could make its open market operations more efficient and effective, and support the strength of U.S. markets more generally by centrally clearing its operations on a voluntary basis." — Federal Reserve Bank of Dallas President Lorie Logan
- Forward look: The SEC's central clearing mandate starts going into effect later this year. The Fed is exploring what it would have to do to run its open market operations though a central clearing agency.
NEW YORK — A top Federal Reserve official wants to see monetary policy conducted through an intermediary.
In prepared remarks delivered Thursday afternoon, Federal Reserve Bank of Dallas President Lori Logan said the Fed's open market desk should buy and sell Treasury securities through central clearing agencies rather than transacting with primary dealers directly.
Logan's call for central clearing at the Fed — delivered during an event on market liquidity hosted by the Federal Reserve Bank of New York — comes as broader financial markets shift their Treasury cash and repurchase agreement activity toward intermediaries in accordance with the Securities and Exchange Commission's central clearing mandate, which begins to go into effect at the end of the year.
"The clearing mandate does not apply to the Federal Reserve's transactions," Logan said. "However, I believe the [Federal Open Market Committee] could make its open market operations more efficient and effective, and support the strength of U.S. markets more generally by centrally clearing its operations on a voluntary basis."
Before taking the reins at the
Roberto Perli, the current SOMA manager, said during the same event that central clearing would offer clear benefits to both the Fed and the implementation of monetary policy. He noted that the use of intermediaries could lower the cost of using the Fed's standing repurchase agreement operations, which set the high end of the target range for the federal funds rate.
At the same time, Perli said, the potential benefits of central clearing for the Fed must be weighed against the various complications such an arrangement would present for markets and market makers.
"These impediments are of various nature, including the membership model for the central bank in a clearinghouse and related legal arrangements, potential effects on the competitive landscape that we would have by joining, as well as other legal and other considerations," he said.
Perli noted that the Fed's open market desk is exploring the systems it would need to implement such a mandate, both related to trading directly as well as various back-end functions. He said the investments needed to equip the Fed for centrally cleared transactions are "not trivial."
The SEC has been working toward mandatory central clearing in the Treasury market since 2023. Finalized in March 2024, the rule was set to go into effect at the end of last year before the agency extended the deadline for cash market transactions to the end of this year and repo market transactions to June 2027.
The shift to central clearing is aimed at
"I expect broader central clearing to strengthen the market by establishing stronger and more uniform risk management, mitigating settlement risk, freeing up space on the intermediaries' balance sheets, and increasing transparency," Logan said.
