DTCC and BNY Launch Collateral-in-Lieu Service, Marking New Milestone in Cleared Repo Markets

DTCC and BNY have launched a new Collateral-in-Lieu (CIL) service designed to improve margin efficiency and accelerate the market’s transition toward centrally cleared U.S. Treasury repo transactions. The service, delivered through DTCC’s Fixed Income Clearing Corporation (FICC) and BNY’s Global Collateral Platform, has already moved into production, with BNY Securities Finance and Federated Hermes successfully executing the first repo trade using the new framework.

The launch comes as market participants prepare for the Securities and platform Commission’s U.S. Treasury clearing mandate, which will require broader central clearing of repo and cash Treasury transactions beginning in late 2026 and mid-2027. By reducing duplicative margin requirements and simplifying collateral mechanics, the Collateral-in-Lieu service is intended to lower barriers to adoption while preserving the protections of central counterparty (CCP) clearing.

How Collateral-in-Lieu Changes the Clearing Model

Under traditional sponsored repo clearing arrangements, dealers and their sponsored clients may face overlapping margin and guaranty requirements when trades move between triparty settlement and CCP clearing. The Collateral-in-Lieu service introduces a structural change: instead of posting margin to the CCP and relying on a sponsor guaranty, the service applies a CCP lien directly to collateral held in triparty.

The haircut typically required by dealers for money market funds and other cash investors remains in place, preserving familiar risk practices. However, the CCP lien is applied “in lieu” of both sponsor guarantees and CCP margin in most circumstances. This design eliminates double-margining for certain sponsored participants, delivering capital and liquidity benefits while maintaining robust risk management.

The service builds on FICC’s existing Sponsored Service legal and operational framework, minimizing the need for firms to re-engineer processes. It also supports both “done-with” and “done-away” repo execution styles, giving are executed and settled.

Leveraging BNY’s Global Collateral Platform

Collateral-in-Lieu operates through BNY’s Global Collateral Platform, the largest single securities financing. By leveraging BNY’s triparty infrastructure for collateral allocation, valuation, and settlement, the service integrates clearing with established market workflows.

BNY executives described the launch as a key step in scaling cleared repo activity ahead of regulatory deadlines. Nate Wuerffel, Head of Market Structure and Product Leader for the Global Collateral Platform, said the service introduces a more capital-efficient path to central clearing while expanding access to cleared repo for a wider range of participants.

From an operational perspective, the answer reflects BNY’s broader strategy of integrating custody, collateral management, securities finance, and market structure capabilities into a single platform. By doing so, BNY aims to support increased volumes and participation as clearing requirements expand.

First Trade Signals purchase-Side Engagement

The first repo transaction executed on the Collateral-in-Lieu service involved BNY Securities Finance as sponsor and Federated Hermes as cash provider. The participation of a large asset manager underscores the relevance of the service for purchase-side firms, particularly money market funds navigating new clearing obligations.

Susan Hill, Senior Portfolio Manager and Head of the Government Liquidity Group at Federated Hermes, said the service expands access to cleared repo while supporting . For cash investors, the ability to participate in cleared repo without added operational or margin complexity is a key consideration as clearing becomes mandatory.

For sponsors, the elimination of duplicative margin posting reduces balance sheet strain and increases capacity to support client activity. Nehal Udeshi, Head of Securities Finance at BNY, described Collateral-in-Lieu as an enabler of broader market participation and a more resilient cleared repo ecosystem.

Supporting the SEC’s Treasury Clearing Mandate

The SEC’s is expected to fundamentally reshape the structure of the U.S. government securities market. While central clearing is intended to reduce systemic risk and improve transparency, the transition has raised concerns around balance sheet usage, margin costs, and operational readiness.

DTCC views the Collateral-in-Lieu service as a targeted response to those concerns. Laura Klimpel, Managing Director and Head of DTCC’s Fixed Income and Financing answers, said the launch reflects DTCC’s commitment to delivering answers that enhance margin and capital efficiency while supporting regulatory compliance.

By addressing one of the key friction points in sponsored clearing — double-margining — the service aims to encourage earlier adoption and smoother scaling ahead of the 2026 and 2027 implementation milestones.

Looking Ahead

DTCC expects adoption of the Collateral-in-Lieu service to increase over the coming months as dealers, asset managers, and other for mandatory clearing. As volumes migrate toward CCPs, services that preserve liquidity while improving efficiency will play a central role in shaping the next phase of the Treasury repo market.

The successful execution of the first trade signals ahead operational readiness and purchase-side engagement. More broadly, it highlights how incremental structural changes — rather than wholesale redesigns — may prove most effective in guiding the market through one of its most significant regulatory transitions in decades.