The Securities and Exchange Commission extended the compliance dates for Rule 17ad-22(e)(18)(iv)(A) and (B) under the Securities Exchange Act by one year to Dec. 31, 2026, for eligible cash market transactions, and June 30, 2027, for eligible repo market transactions. Under the rule, a covered clearing agency that provides central counterparty services for U.S. Treasury securities must establish, implement, maintain, and enforce written policies and procedures reasonably designed to require that every direct participant of the covered clearing agency submit for clearance and settlement all eligible secondary market transactions in U.S. Treasury securities to which it is a counterparty. The rule also requires a covered clearing agency to identify and monitor its direct participants’ submissions of transactions for clearing, including how the covered clearing agency would address a failure to submit transactions.

The Commission also issued a temporary exemption regarding Exchange Act Rule 17ad-22(e)(6)(i). This rule requires that covered clearing agencies have written policies and procedures reasonably designed to calculate, collect, and hold margin amounts from a direct participant for its proprietary positions in U.S. Treasury securities separately and independently from margin calculated and collected from that direct participant in connection with U.S. Treasury securities transactions by an indirect participant that relies on the services provided by the direct participant to access the U.S. Treasury securities covered clearing agency’s payment, clearing, or settlement facilities. Under this temporary exemption, a U.S. Treasury securities covered clearing agency is not required to enforce its written policies and procedures regarding Rule 17ad-22(e)(6)(i) until Sept. 30, 2025, instead of the original March 31, 2025, compliance date.

“The U.S. Treasury market is a critical piece of the global financial system. New rules must be implemented properly, and any operational issues must be addressed,” said SEC Acting Chairman Mark T. Uyeda. “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. The Commission stands ready to engage with market participants on issues associated with implementation.”

The extension will provide additional time for further engagement on compliance, operational, and interpretive questions, and facilitate an orderly implementation of the rules. The temporary exemption allows covered clearing agencies not to enforce policies and procedures established pursuant to Rule 17ad-22(e)(6)(i) against any market participants currently clearing indirect participant activity that are not ready to comply with such policies and procedures, but it does not affect the ability of a covered clearing agency to implement such policies and procedures for those that are prepared to comply. If a direct participant of a U.S. Treasury covered clearing agency determines to offer certain access models or segregated margin accounts, the covered clearing agency would be obligated to enforce those rules regarding such models or accounts against the relevant participant, and the direct participant must comply with those rules.

Source: SEC

SIFMA Statement On SEC Extension Of Compliance Dates For Treasury Clearing

SIFMA issued the following statement from Kenneth E. Bentsen, Jr., president and CEO, on the Securities and Exchange Commission’s (SEC) extension of the compliance dates for Treasury clearing:

“SIFMA commends Acting Chairman Uyeda and the Commission for taking the step to extend the implementation date for mandated central clearing of Treasury securities and repurchase agreements. Given the importance of the Treasury market to the financial system and the economy, along with the expected significant issuance of Treasury securities in the coming years, it is essential that the implementation timeline for the clearing rules allows for a smooth transition so as not to disrupt this market.

For the past year, we have been working with our members, both buy side and sell side, and other market participants to develop standardized documentation, policies and procedures to facilitate the transition to mandated central clearing.

While we have seen continued uptick in cleared cash and repo Treasuries, market participants have become increasingly concerned that the original implementation dates were overly aggressive and would add unnecessary risk to the nation’s and world’s most important asset market.

Further, as we have documented over the past year, there remains the need for critical regulatory guidance to facilitate the transition in total. While the action by the Commission is the most prudent course, no one should interpret this as the industry and the market stepping back from central clearing. The industry will continue to plow forward with our work to accomplish the mandate set out in the rule.”

Source: SIFMA

A DTCC spokesperson said:

“FICC appreciates the regulatory clarity around the US Treasury clearing mandate deadlines. Even with these changes to the various deadlines, we are ready to launch our enhanced access models and segregated customer margin capabilities in March, and will proceed with offering those services to our clients as and when they are ready to use them. We will also work closely with our clients to address any challenges that drove the request for an extension.

FICC remains committed to continually delivering our clients best-in-class central clearing solutions that enable greater efficiency and liquidity, promote transparency and competition, and improve the safety and soundness of the US Treasury market.”

Source: DTCC

ISDA: A Welcome Extension on US Treasury Clearing

ISDA Chief Executive Officer Scott O’Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA’s long-held commitment to making the market safer and more efficient.

The US Securities and Exchange Commission (SEC) announced it would delay the implementation of mandatory clearing for US Treasury securities by one year. That means eligible cash transactions will now need to be cleared by December 31, 2026, with repos following from June 30, 2027. This is a very welcome extension that ISDA and other industry groups had been advocating for and we’d like to thank the SEC for taking this crucial step. But it’s important to bear in mind that this is the absolute minimum extension that is necessary – several critical operational, regulatory and legal issues need to be resolved, and this will take time.

In granting the extension, the SEC recognized that the US Treasury market is a critical component of the global financial system. With outstanding issuance of nearly $30 trillion, it’s the world’s most systemically important market, and its deep liquidity and resilience attracts investors around the world. It underpins the secured dollar funding market globally and serves as collateral for a significant volume of derivatives transactions.

The need for an extension was never about avoiding these reforms, but rather about making sure there is sufficient time to complete the necessary preparations in a way that protects the integrity of this vital market. We know from our experience in derivatives clearing and margining of non-cleared derivatives that these things take time, particularly given the global reach of the rules. There are no short cuts.

In fact, significant progress has been made to prepare for clearing. The Fixed Income Clearing Corporation (FICC) has published proposed changes to its rule book, while CME Group has published proposals for a new clearing service. ICE has also announced it will launch a Treasury clearing service. The Securities Industry and Financial Markets Association is leading an industry group to develop appropriate client documentation and is making good progress, but this documentation needs to reflect the various clearing models and rule books that are still being developed.

Once finalized, dealers will then need to execute the new documents with thousands of counterparties, as well as obtain netting opinions to ensure efficient capital treatment. This will be a huge amount of work that was at risk of being rushed within the original time frame.

The additional time also provides an opportunity for policymakers to address important regulatory and capital issues that could hinder the efficient implementation of Treasury clearing. For example, FICC and CME Group offer cross-margining at the clearing-member level to enable initial margin efficiencies from offsetting trades in a portfolio of cash, repo and futures transactions. These firms have announced their intention to extend cross-margining to client transactions, subject to approval by the SEC and the Commodity Futures Trading Commission.  But there is no recognition in the proposed US capital framework for corresponding cross-product netting across derivatives and repo trades. Unless this is resolved, it will constrain bank balance sheets and limit their ability to offer US Treasury clearing to their clients.

Another issue that needs to be addressed is the US supplementary leverage ratio, which acts as a non-risk-sensitive binding constraint on banks that can impede their ability to act as intermediaries, including their capacity to offer client clearing. Federal Reserve chair Jerome Powell recently acknowledged in testimony to the House Committee on Financial Services that changes are necessary, so we would urge prudential regulators to start working on proposals without delay.

Adjustments are also needed to the Basel III endgame rules and the surcharge for global systemically important banks to avoid punitive and unnecessary increases in capital for client clearing businesses.

We now have 22 months until the first clearing mandate will be introduced. This will be a transformational change to a systemically important market, so we thank the SEC for taking this step and granting the additional time. Now the hard work must continue. Issues like cross-product netting and the SLR must be addressed in quick order to give clearing the best chance of success and to maintain the depth and liquidity of the US Treasury market. Given its importance, we must do this right.

Source: ISDA

MFA issued the following statement in response to the U.S. Securities and Exchange Commission (SEC) delaying the compliance deadlines for the Treasury Clearing Rules.

“Delaying the compliance dates for the Treasury Clearing Rules will prevent disruptions to Treasury markets—the foundation of the global financial system. MFA supports efforts to make Treasury markets more resilient, but the implementation timeline for the rules was needlessly rushed. The infrastructure needed for mandatory clearing is not ready. MFA appreciates the SEC providing an extension to allow for a smooth transition to mandatory clearing and will continue to work with SEC and FICC to ensure market participants have expanded access to clearing services.” – Bryan Corbett, MFA President and CEO

Source: MFA