SEC Commissioner Touts Recent Agency Actions to Facilitate Clearing of US Govs
Commentary by Steven Lofchie and Sebastian Souchet
SEC Commissioner Mark Uyeda summarized recent SEC regulatory actions designed to facilitate the transition to central clearing for government bonds.
In a public statement, Mr. Uyeda underscored SEC steps to (i) approve new clearing services, (ii) expand cross margining and to increase competition and capacity for Treasury securities.
Mr. Uyeda emphasized the Commission's ongoing efforts to implement the mandate for clearing secondary market transactions. He highlighted a recently approved "Collateral-in-Lieu" service offered by the Fixed Income Clearing Corporation. Mr. Uyeda explained that this new service allows the clearing corporation to take a lien on underlying collateral instead of charging margin. He said this change addresses "double margining" concerns, which previously increased costs and decreased the ability of members to provide settlement services.
Mr. Uyeda also highlighted a proposed rule change to expand cross-margining agreements. He noted that while current arrangements are limited to proprietary positions, the new proposal would extend cross-margining to customers of the clearing members.
Mr. Uyeda also noted agency approval of an application by CME Securities Clearing Inc. to register as a clearing agency. He said this registration expands clearing capacity and provides competitive options for market participants.
Commentary
An important to-do still in the SEC's court is responding to SIFMA's request for some relief as to the Rule 15c3-3 collateral segregation requirements. As originally approved by the SEC, the Rule 15c3-3 requirements for clearing of US Govs are overly complicated and create a substantial drain on broker-dealer liquidity.
Given the importance of the US Government securities markets, it is surprising how little consideration seems to have been given to the operational complexity and costs of mandated central clearing. Given that the new SEC has determined to move forward with the mandate, it is all the better that the SEC is doing what it can to lessen the complexity and costs. But it is important that the SEC keep a close eye on implementation, including as to the impact of the mandate on transactions effected outside the United States.
Commentary
Commissioner Uyeda's statement acknowledges that SEC staff continues to consider issues relating to (i) "[e]xpan[sion] of the interaffiliate exemption to include cash transactions and to allow for internal liquidity and collateral management" and (ii) "[c]larifying the extraterritorial scope of the Treasury Clearing rule." Market participants have repeatedly emphasized that regulatory clarity around these particular issues is critical for their implementation of the Treasury clearing mandate's requirements to progress and meet the SEC's December 2026 and June 2027 compliance dates.
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