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ARTICLE · 03 JANUARY 2024

The SEC's Treasury Clearing Mandate

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Mandatory central clearing is coming to the US Treasury market. Citing the many virtues of clearing — mitigation of the "overall amount of counterparty credit risk," centralized default management, multilateral netting of transactions, and the potential "to unlock further improvements".

United StatesFinance and Banking
Stephen R. Morris
Stephen R. Morris
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Mandatory central clearing is coming to the US Treasury market. Citing the many virtues of clearing — mitigation of the "overall amount of counterparty credit risk,"centralized default management, multilateral netting of transactions, and the potential "to unlock further improvements"in market structure — the Securities and Exchange Commission (SEC) has adopted a suite of new rules under the Securities Exchange Act of 1934 that will require central clearing of a broad range of repo and cash market transactions in US Treasuries that currently transact bilaterally or on triparty repo platforms.

As adopted, the new clearing mandate is less comprehensive than as proposed in September 2022. That proposal had included in the definition of "eligible secondary market transactions"required to be cleared cash transactions with hedge funds and with leveraged accounts held with broker-dealers (that is, any account permissioned to borrow more than one-half of its value).

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