SEC Extends Compliance Date for Mandatory Clearing of USTs
Commentary by Steven Lofchie
The SEC voted to extend the compliance dates for mandatory clearing of transactions in US Treasury Securities ("USTs").
The SEC also issued an Order providing a six-month temporary exemption from the requirement that a clearing agency for USTs segregate margin that it holds in respect of the proprietary trades of clearing members from the margin that the clearing agency holds for margin of its members' customers.
The delay provides that cash market transactions in USTs will not be subject to the clearing requirement until December 31, 2026, and that repos will not be subject to the requirement until June 30, 2027. The requirement that clearing agencies separate proprietary from customer margin will come into effect on September 30, 2025.
In a press release, SEC Acting Chairman Mark T. Uyeda said: "This one-year extension provides additional time to implement and validate operational changes. Direct participants will also have more time to implement important risk management changes to comply with U.S. Treasury covered clearing agency rules."
Commentary
No great surprise that the SEC decided to delay the effective date of the clearing mandate. The rule's details were not fully considered. Were it not for the fact that market participants have already put so much money into building the necessary systems, there would likely be a greater push to drop the requirement entirely, as the net benefits are not so obvious.
Assuming that the rule still goes forward, market participants should press for improvements. For example, the SEC should reconsider applying the mandate to transactions between parties acting outside of the United States, just because one of the parties is a member of a US clearing corporation. A lot more attention should be given to the question of how the clearing mandate interacts with Rule 15c3-3, the custodial rule applicable to broker-dealers. Likewise, the SEC and the CFTC should resolve how the final rules will apply to investment companies and FCMs.
As to timing, perhaps the extensions will be enough. But that time may be less than it seems given the necessary market technology is still in process, and that the rule's details are still a moving target. It would not be surprising if still further delay, or if a phased roll-in was necessary.
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