Trade Associations Call on SEC to Delay Deadlines for Treasury Clearing Mandate
Commentary by Steven Lofchie
SIFMA, SIFMA AMG, ISDA, the Managed Funds Association, the Futures Industry Association, FIA Principal Traders Group, the Alternative Investment Management Association and the Institute of International Bankers (collectively, "associations") urged the SEC to delay the implementation of the "Clearing Rule" on US Treasury securities. The rule mandates the clearing of cash transactions and repurchase agreements ("repos") involving US Treasury securities.
In their letter to SEC Acting Chair Uyeda, the associations called for a "minimum" 12-month extension to provide additional time for the resolution of critical issues, stating that the current timeline "will not allow for critical issues to be resolved and adequate time for all market participants to transition into cleared Treasury markets." The associations emphasized that unresolved issues include "SEC rule clarifications with respect to the ability of firms to pre-fund customer segregated margin with USD (and not only UST)," the treatment of "mixed CUSIP tri-party transactions" and "the overall extraterritorial scope of the rule."
The associations also highlighted the complexity of implementing the rule, comparing the timeline unfavorably to the LIBOR transition and uncleared margin rules, and underscored that "significant efforts" are still required to develop market structures, legal documentation and operational models to avoid market disruptions.
Commentary
The SEC should agree to a reasonable delay of at least a year. Otherwise, if (or when) the market for US Governments struggles, the current SEC would take the blame for a failure created by its predecessor.
The most significant aspect of the request is that the associations ask only for a delay of the implementation of the clearing rule, not for its reversal. Perhaps this demonstrates one attitude toward rulemaking: even if a rule is of uncertain value, once enough resources have been put into implementation, going backwards is worse than getting on with it. That said, there are significant questions about the clearing rule as to scope—particularly as to non-US transactions.
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