SEC rule delay aimed at maintaining status quo in the $ 28.5 trillion market until end of 2026.
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SEC extends US Treasury clearing compliance deadline in bid to help firms implement necessary risk management changes
The US Securities and Exchange Commission( SEC) has officially extended the compliance dates for the Treasury clearing rule, by over a year, with changes now set to go live 31 December 2026 for cash markets and 30 June 2027 for repo. The changes in aid of bolstering risk management practices are set to significantly overhaul the $ 27 trillion market through forcing some cash Treasury and repos to be centrally cleared. Specifically, under the rule“ a covered clearing agency that provides central counterparty services for US Treasury securities must establish, implement, maintain, and enforce written policies and procedures reasonably designed to require that every direct participant of the covered clearing agency submit for clearance and settlement all eligible secondary market transactions in US Treasury securities to which it is a counterparty”. In addition, the rule further obligates covered clearing agencies to closely watch its direct participants’ transaction submissions for clearing, as well as outlining how they address failure to submit transactions. Mark Uyeda, acting chair of the SEC, explained:“ The US Treasury market is a critical piece of the global financial system. New rules must be implemented properly, and any operational issues must be addressed.“[…] The Commission stands ready to engage with market participants on issues associated with implementation.” The decision to extend follows widespread uncertainty from the industry around readiness to comply with the new rules and the potential fallout spilling over into other areas of the market. As regards the motivations of the watchdog for the extension, the regulatory body confirmed that“[ SEC ] staff has become aware, through telephonic meetings and letters, that certain market participants believe that additional time to implement [ the rule ] would be appropriate. In this regard, a group of trade associations [ requested ] that the Commission extend the compliance dates established in the adopting release by at least one year.” The decision has subsequently been made in order to allow firms more time to implement and validate operational changes, with the watchdog specifying that through this move direct participants will be best able to realise necessary risk management changes in order to effectively comply with the rules. Speaking about the impact of the change, the Fixed Income Clearing Corporation( FICC) said:“ FICC appreciates the regulatory clarity around the US Treasury clearing mandate deadlines,” adding that though it would continue with its work in this area, they would“ also work closely with our clients to address any challenges that drove the request for an extension”. Notably, a separate trade association also submitted a request for the watchdog to extend by two years for repo transactions. However, the Commission highlighted that any extension longer than one year for the compliance dates for the Trade Submission Requirement would“ entail a trade-off,” wherein some costs could be further reduced but also overflow into an additional delay of the benefits brought by the implementation of the rule.
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