SEC adopts rule to ease clearing of Treasury transactions

The rule, approved by a 4-1 vote, “require(s) that covered clearing agencies in the U.S. Treasury market adopt policies and procedures designed to require their members to submit for clearing certain specified secondary market transactions,” the SEC said in a press release. Its aim is to increase the proportion of transactions that are centrally cleared, a figure that currently comprises about 20 percent of the market.

“Having such a significant portion of the Treasury markets uncleared … increases system-wide risk,” said SEC Chair Gary Gensler in a statement. The rule changes will “reduce risk across a vital part of our capital markets in normal times and stress times,” he said, benefitting investors, issuers, and the markets.

SEC Commissioner Hester Peirce did not support the rule, citing her concern it might be the start of “a reckless ride down the path to mandatory clearing, with no brakes or off-ramps in the event the market takes a bad turn.”

“We should take a more incremental approach—an approach that allows for course corrections or, if necessary, reversals if the effects of these recommended reforms differ from the commission’s expectations,” she said in a statement.

In response to feedback from commenters following the rule’s September 2022 proposal, the SEC narrowed the scope of Treasury cash market transactions required to be cleared to those involving an interdealer broker or broker-dealer and provided a conditional exemption for certain repurchase transactions, Gensler noted.

The rule changes will take effect across three phases, beginning with clearinghouses being required to propose and adopt rules enhancing customer clearing by March 2025. Clearinghouse members must comply with requirements to clear certain cash trades by December 2025, and they have until June 2026 to comply with requirements to clear certain repurchase and reverse repurchase transactions.