ISDA Provides Market Feedback on SEC Proposal for Central Clearing of Treasuries

Based on an ISDA survey of an SEC proposal to require Fixed Income Clearing Corporation ("FICC") members to centrally clear repo transactions in Treasury securities, ISDA reported that market participants generally supported voluntary clearing, but few supported broad clearing mandates.

In its Comment Letter on the SEC proposal Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule with respect to U.S. Treasury Securities, ISDA said that mandated central clearing would likely result in "some participants reducing their activity or withdrawing from the market, potentially reducing liquidity." ISDA said that market participants generally supported amending the broker-dealer custody rule to provide that broker-dealer assets posted to the FICC for the purpose of clearing government securities would serve to reduce the amount of assets that would be subject to Exchange Act Rule 15c3-3 ("Customer protection-reserves and custody of securities") reserve and segregation requirements.

ISDA recommended that the SEC coordinate with the banking regulators to reconsider some of the capital requirements that discourage banks and bank holding companies (of which broker-dealers are a part) from holding U.S. government securities.

ISDA also encouraged the SEC to consider feedback that was provided by certain sell-side and buy-side trade associations, including the Managed Funds Association, SIFMA/the Institute of International Bankers and SIFMA Asset Management Group, each of which expressed significant reservations regarding the proposal (see previous coverage).