SIFMA Says ACMs Act as Agents in UST Repo Clearing

In an analysis on the accounting treatment for U.S. Treasury repo transactions cleared through the Fixed Income Clearing Corporation’s ("FICC") Agent Clearing Service ("ACS"), SIFMA determined that ACMs act as agents - not principals.  As a result, SIFMA concluded that these repos should remain off the ACMs’ balance sheets. 

In the whitepaper, SIFMA said it undertook the analysis in response to the SEC rule mandating central clearing of certain UST repos. SIFMA said the key accounting question was whether an ACM should be treated as a principal or as an agent—a determination that dictates whether repos must be reported on the ACM’s balance sheet. SIFMA concluded that ACMs act solely as agents in repurchase agreement transactions cleared through the FICC's ACS. 

SIFMA stated that ACMs qualify as agents because: (i) once novated, FICC becomes the legal counterparty, not the ACM; (ii) legal opinions confirm ACMs act only in a clearing role; (iii) ACMs bear no market risk and only limited, collateralized credit risk; (iv) accounting standards show they are not the primary obligor, cannot set pricing, and earn only fixed clearing fees; and (v) their obligations to FICC for customer performance are treated as guarantees (under Accounting Standards Codification 460), not as evidence of principal status.