FIA Recommends SEC Exempt FCMs from Mandated Clearing of Treasury Repo
FIA urged the SEC to exclude futures commission merchants ("FCMs") from its proposed requirement to centrally clear transactions in Treasury securities.
In its Comment Letter, FIA asserted that most FCMs could be subject to the SEC's clearing requirement as currently proposed, because the majority of FCMs are dually registered with the SEC as broker-dealers. FIA said that the SEC's proposal conflicts with CFTC requirements "to provide for the comprehensive protection of customer funds" and would "interfere with core FCM risk management activities."
Further, FIA argued that the proposal would effectively prohibit FCMs from entering into Treasury security transactions because the Fixed Income Clearing Corporation ("FICC") is not a permitted custodian under CFTC Rule 1.25 ("Investment of customer funds"). Additionally, FIA said that FICC would likely be deemed a depository under CFTC rules, but it is not a CFTC permitted depository.
FIA warned that, without a clear exemption, FCMs would lose access to liquidity. FIA also said that the exemption should also apply to counterparties in FCM transactions to avoid any ambiguity.
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