In the Market-Treasury market braces for seismic SEC rule
By Paritosh Bansal
(Reuters) -Treasury market participants expect U.S. regulators to soon finalize a major rule aimed at reining in debt-fueled bets by hedge funds and bolstering financial stability. They worry it could also reshape the industry and create new problems.
The U.S. Securities and Exchange Commission rule, which was first proposed in September last year, would force much more of the trading in the $25 trillion Treasuries market, including a market for short-term financing called repurchase agreements (repo), to central clearing. A central clearer acts as the buyer to every seller, and seller to every buyer.
Market participants widely expect the SEC to finalize the rule within weeks, perhaps as soon as mid-November, according to trade group SIFMA and half a dozen banking and hedge fund industry sources.
But crucial details are unclear, including whether the SEC would want the industry to shift to central clearing in one go or allow it to do so in phases, and how much time the industry would have to implement it, the sources said.
The rule would come as other regulations in recent years have seen banks pull back as intermediaries from the Treasury market, causing some of the issues that regulators are trying to fix. The industry fears central clearing, if not done right, could undermine that goal: it will increase costs, which would risk more traders withdrawing.
How it will shape the industry is not fully understood. In recent months, for example, JPMorgan Chase (NYSE:JPM) has reduced its position in the section of the repo market where the SEC wants banks to do more business, financial statements show. But custody banks such as Bank of New York Mellon (NYSE:BK) and State Street (NYSE:STT) are doing a lot
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