U.S. Treasury Market Reforms: What’s in Store for 2024?

December 19, 2023

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Cleary Gottlieb partner Deborah North and counsel Brandon Hammer hosted the webinar, “U.S. Treasury Market Reforms: What’s in Store for 2024?”

Over the past decade, the U.S. Treasury market has faced a series of unprecedented disruptions, including the “flash rally” in 2014, repo market distress in 2019, the COVID-19 shock in 2020, and the 2023 debt ceiling debate. This has prompted U.S. policy makers to consider a number of reforms to increase the resilience, liquidity, and transparency of the market. Some of these measures could fundamentally alter the way the market functions.

Among the reforms is a proposal from the SEC that would require all major U.S. banks and broker-dealers, as well as a number of foreign banks, to submit to central clearing all repos on U.S. Treasury securities and all purchases and sales of U.S. Treasury securities with dealers, hedge funds, PE funds, and prime brokerage clients. In order to comply with this change, which is expected to be finalized in Q1 2024, dealers and their clients will need to enter into new clearing arrangements, with significant pricing, liquidity, and risk implications. Unlike in other markets, there is not currently standardized documents or a singular model of clearing. Rather, market participants are afforded quite a bit of flexibility in structuring their arrangements. This flexibility creates opportunities as well as risks

Deborah and Brandon discussed the recent Treasury market developments and what they mean for funds, dealers, and other participants in the Treasury markets.