SEC adopts new clearing rules in $26bn US Treasury market overhaul

investmentweek.co.uk:

The reforms are part of the US government's broader plan to tackle structural issues believed by regulators to be behind market volatility and liquidity troubles.

Yesterday (13 December), the US regulator voted four to one in favour of a proposal to enhance risk management practices for central counterparties in the market and facilitate additional clearing of US Treasury trades.

The rules mandate a notably greater share of the US Treasury cash and repo markets, particularly specific eligible secondary market transactions, to undergo central clearing by 31 December 2025 for cash transactions, and by 30 June 2026 for repo transactions.

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The reforms are part of the US government's broader plan to tackle structural issues believed by regulators to be behind market volatility and liquidity troubles, adding regulatory clarity around the scope of the clearing requirements and implementation timelines.

«The $26trn Treasury market — the deepest, most liquid market in the world — is the base upon which so much of our capital markets are built,» said SEC chair Gary Gensler. 

«Having such a significant portion of the Treasury markets uncleared — 70 to 80% of the Treasury funding market and at least 80% of the cash markets — increases system-wide risk.» 

Gensler said the final rules make changes to enhance customer clearing and broaden the scope of which transactions clearing house members must clear. 

«I am pleased to support these rules because they will help to make the Treasury market more efficient, competitive, and resilient,» he said. 

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The changes also allow broker-dealers to include