The SEC on Wednesday proposed rule changes aimed at decreasing risk in the U.S. Treasury market by increasing requirements for agencies that deal in the clearing and settlement of securities transactions.
A public comment period on the proposed rule changes will remain open for 60 days.
"The Securities and Exchange Commission plays a critical role in how the Treasury market functions, including to help ensure that these markets stay efficient, competitive, and resilient," SEC chair Gary Gensler said in a news release. "One aspect of that role is our oversight of clearinghouses for Treasury securities. While central clearing does not eliminate all risk, it certainly does lower it. In 2017, however, only 13% of Treasury cash transactions were centrally cleared. Thus, I think there is more work to be done with respect to the amount of Treasury activity that is centrally cleared. I think that these rules would reduce risk across a vital part of our capital markets in both normal and stress times."
According to an SEC fact sheet summarizing the 271-page proposal, the changes to Exchange Act Rule 17Ad-22 would:
- Require covered clearing agencies that provide central counterparty services for U.S. Treasury securities to have policies and procedures to require their direct participants to submit for clearing certain eligible secondary market transactions.
- Require that covered clearing agencies for U.S. Treasury securities have policies and procedures to calculate, collect, and hold margin for their direct participants' proprietary transactions separately from transactions submitted on behalf of indirect participants.
- Require covered clearing agencies for U.S. Treasury securities to have policies and procedures to ensure that they have appropriate means to facilitate access to clearance and settlement services of all eligible secondary market transactions, including those of indirect participants.
In addition, proposed changes to Exchange Act Rule 15c3-3a would permit broker-dealers to include margin required and on deposit at a covered clearing agency in the U.S. Treasury market as a debit item in the customer reserve formula (subject to certain conditions).
Under the SEC proposal, the following secondary market transactions would be subject to clearing:
- All repurchase and reverse repurchase agreements collateralized by U.S. Treasury securities entered into by a member of the clearing agency.
- All purchase and sale transactions entered into by a member of the clearing agency that is an interdealer broker.
- All purchase and sale transactions entered into between a clearing agency member and either a registered broker-dealer, a government securities broker, a government securities dealer, a hedge fund, or a particular type of leveraged account.
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.