The US Securities and Exchange Commission (SEC) finalized its expanded mandate for central clearing in the US Treasury market in December 2023. It increases the scope of transactions that are required to be cleared in both the cash market and the repo market. The compliance dates for this new mandate are:
- March 31, 2025: Covered clearing agencies (CCAs) must implement enhanced practices, including risk management, margin, and customer asset protection.
- December 31, 2025: Direct participants of CCAs must clear eligible cash secondary market transactions.
- June 30, 2026: Direct participants of CCAs must clear eligible Treasury repo transactions.
The Securities Industry and Financial Markets Association (SIFMA) is working with the industry to help prepare for the transition. SIFMA wrote: “The rule’s timeline for implementation is aggressive, and as we near the first deadline, there are several significant open questions requiring formal guidance from regulators and other market participants to ensure a smooth transition to avoid unnecessary disruption in the Treasury market. We are engaging with the regulators and other relevant industry bodies to encourage them to address these issues.”
An immediate response is needed on the following:
#1: The SEC needs to eliminate double margining for investment managers, as it risks reduced trading and liquidity.
#2: The SEC should clarify that mixed CUSIP triparty repos are not subject to clearing.
#3: The SEC should revise the existing inter-affiliate exemption to eliminate the conditions decreasing its utility.
#4: Bank regulators need to adjust capital standards to accommodate repos.
#5: The FICC and its members should clarify documentation requirements to allow firms to focus on clearing changes rather than administrative burdens.