SEC Proposes Treasury Clearing Mandate

September 20, 2022

On September 14, 2022, the Securities and Exchange Commission (“SEC”) proposed rules that would mandate the central clearing of a large portion of U.S. Treasury securities transactions and make other changes to the operation of the U.S. Treasury market.

In particular, the SEC proposed rules to:

  1. Require clearing agencies that provide central counterparty services for transactions in Treasury securities (“Treasury CCPs”) to mandate that their direct participants submit for clearing all eligible secondary market transactions (“ESMTs”) in Treasury securities;
  2. Require Treasury CCPs to calculate, collect, and hold margin for a direct participant’s proprietary Treasury securities transactions separately from its customers’ transactions;
  3. Require Treasury CCPs to take steps to “facilitate access” by market participants to clearance and settlement services for ESMTs; and
  4. Amend SEC Rule 15c3-3a to permit broker-dealers to include a debit in the reserve formula for customer cash and Treasury securities delivered to a Treasury CCP to meet a margin requirement with respect to such customer’s Treasury securities transactions, subject to a number of conditions.

The Proposal is the latest and most significant effort by the SEC to address concerns about the stability and resilience of the U.S. Treasury market. If finalized, it would result in a dramatic increase in the number of Treasury securities transactions submitted for clearing, as well as changes to the operation of Treasury CCPs.

Please click here to read the full alert memorandum.