Central Clearing the U.S. Treasury Market

The market for Treasury securities represents its own kind of “taproot”—a deep and liquid market for risk-free debt that has anchored an ambitious and creative U.S. dollar economy, while also ensuring the safety and soundness of its financial and monetary system. It has more than quintupled in size over the past. This Essay considers this regulatory response. It focuses on the introduction of mandatory central clearing for most trades in U.S. Treasuries—a proposal seeking to significantly reshape the day-to-day functioning of the Treasury market. Central clearing is a well-established means by which to reduce the risk of loss associated when trading parties default. We analyze this mandate, detailing its likely advantages as well as its potential trade-offs from a public policy perspective.