Treasury Clearing Mandate: Progress Made, But Key Hurdles Remain
The Treasury Borrowing Advisory Committee ("TBAC") reported that the industry was on track to meet the SEC's mandatory central clearing deadlines, but key regulatory questions remain open and operational builds incomplete.
In its May report on the state of mandatory central clearing for U.S. Treasury securities, The TBAC explained that the SEC's landmark 2023 rule requiring central clearing of U.S. Treasury securities set deadlines of December 31, 2026 for cash Treasuries and June 30, 2027 for Treasury repo dates already extended once. The TBAC reported that the industry has made real progress, with clearing volumes rising significantly over the past year and many early implementation hurdles now behind it.
The TBAC said most firms expressed confidence about meeting the compliance deadlines - but two unresolved regulatory questions continued to create uncertainty that could prevent some participants from being ready in time: inter-affiliate exemption and extraterritorial reach.
On inter-affiliate exemptions, the issue is whether transactions between entities within the same financial group must be centrally cleared, a question with major cost and operational implications for large institutions. TBAC explained that many firms use inter-affiliate Treasury trades as part of how they manage liquidity across their global operations, and the industry argues those internal transactions should not be subject to the clearing requirement. TBAC stated that the SEC included a conditional exemption in its 2023 rulemaking, but firms say the conditions are too restrictive: the "outward-facing" requirement effectively forces firms to clear all external eligible trades to qualify for any relief on internal ones, and the definition of "affiliate" does not cover all entity types within a typical corporate structure. SIFMA filed a request for expanded exemptive relief on April 10, 2026; the SEC published it for public comment on April 17, 2026, with comments due by May 29, 2026.
On extraterritoriality, the issue concerns how the rule applies to non-U.S. participants, who are major players in the Treasury market. TBAC said that ambiguity on either front prevents firms from finalizing their implementation plans. TBAC explained that under the current rule, a transaction triggers the clearing requirement if even one counterparty is a direct FICC member - meaning trades between two non-U.S. firms conducted entirely outside the United States can still be pulled in. In comments, the Institute of International Bankers ("IIB") sought an exemption for such transactions, arguing the compliance costs are disproportionate and that non-U.S. firms may simply exit those trades rather than clear them. The Financial Services Forum ("FSF"), warned that a broad exemption could split the market and undermine Treasury liquidity. The SEC also reopened the comment period on that request on April 17, 2026, with comments due May 29, 2026.
The TBAC concluded that the industry intends to comply, but with legal documentation still under negotiation and operational infrastructure still being built, clearing may not be accessible to all participants in all regions by the time the mandates take effect. They said the SEC's engagement on the open issues was encouraging, but the window for resolution was narrowing and that the next few months will determine whether the transition to mandatory central clearing is orderly or whether the market faces another deadline reckoning.