The staff of the Securities and Exchange Commission (the “SEC”) adopted rule changes to the Securities Exchange Act of 1934 (the “Exchange Act”) to facilitate the clearing of U.S. Treasury securities transactions (the “Treasury Clearing Rule”).[1]
The compliance date for implementing the Treasury Clearing Rule which will impact many entities is quickly approaching.
Background
The SEC stated that the U.S. Treasury market is an over $20 trillion market and among the deepest and most liquid government securities markets in the world, and the SEC must “implement the clearing mandate in a way that preserves market functioning while enhancing resilience.”
Compliance
Since 2023, the SEC has approved various rule changes and conditional exemptive relief, including extending the compliance dates[2] and permitting cross margining.[3]
In general, participants who execute cash purchase and sale transactions on U.S. Treasuries (“USTs”) or repurchase transactions of USTs will be subject to the Treasury Clearing Rule subject to certain exceptions.
The compliance date for applicable cash market transactions is December 31, 2026 and for repurchase transactions is June 30, 2027.
These dates are fast approaching, and financial institutions are busy preparing their customers for these new rules.
You should not delay in determining which of your transactions are subject to these rules. In order to avoid any inability to trade, you also need to begin the process of negotiating and executing the new clearing documentation you will need to put in place or amending existing documentation. In connection with the new documentation you will also need to consider, among other options, which margining terms for these cleared transactions will be most advantageous.
Conclusion
We will continue to monitor further developments and rule changes. If you have any questions regarding preparing for compliance with the Treasury Clearing Rule, or would like assistance in assessing how these developments may affect your business, please contact an attorney in the Investment Management Group at Seward & Kissel LLP.