SEC Treasury Clearing Rule
Are you prepared to navigate the new SEC treasury clearing rule?
The U.S. Securities Exchange Commission (SEC) recently adopted a landmark final rule that will require much of the $26 trillion U.S. Treasury market to engage in central clearing. These complex regulations are on track to become fully effective by June 2026 and represent the most significant regulatory overhaul the world’s largest bond market has seen in decades.
In this article:
- Understanding the SEC Treasury Clearing Rule
- Axiom: Your Partner in SEC Compliance
- SEC Treasury Clearing Rule FAQs
- Regulatory & Compliance Lawyers for Financial Services
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Understanding the SEC Treasury Clearing Rule
The U.S. Treasury market plays a critical role in the national and global economy, acting as an investment, collateral, and hedging vehicle for investors worldwide, a risk-free benchmark for other financial instruments, and a means of implementing the Federal Reserve’s monetary policy.
The new SEC treasury clearing rule is intended to reduce systemic risk by preventing failed trades from spreading through the market. Once the regulations are fully implemented, members of any Treasury market-covered clearing agency, such as the FICC, will be required to centrally clear all:
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Repo and reverse repo transactions.
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Purchase and sale transactions with registered broker-dealers and government securities dealers.
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Purchase and sale transactions when acting as an interdealer broker.
Covered clearing agencies must make risk management and access-related adjustments by March 31, 2025. Their members will have until December 31, 2025 to begin central clearing cash market Treasury transactions, and until June 30, 2026 to start clearing repo transactions.
Axiom: Your Partner in SEC Compliance
Mandatory central clearing will place a considerable compliance burden on hedge funds, investment advisors, broker-dealers, and other market participants, forcing them to absorb substantial additional legal costs at a time when many are already under pressure to reduce expenses.
Axiom can help.
Founded over 20 years ago to meet the unique resourcing needs of modern legal departments, we’re committed to helping our clients control costs, achieve efficiency, and remain agile in the face of changing market conditions. With access to an extensive global network of high-caliber legal professionals, Axiom can connect your organization with one or more regulatory and compliance attorneys with the extensive repo experience and deep understanding of clearing mechanics today’s rapidly evolving regulatory landscape demands.
- Regulatory Compliance: Provide comprehensive, law-firm level guidance on interpreting and adhering to the finalized SEC treasury clearing rule.
- Training and Education: Playbook creation to leverage when educating staff involved in covered transactions.
- Implementation Support: Assist with the practical implementation of the rule's requirements.
- Negotiation Support: Assist with negotiation of relevant documents and amendments.
Partnering with Axiom means never having to compromise your highest standards.
Our deep bench of legal talent allows us to craft flexible, bespoke solutions that align with each client’s unique needs, culture, and goals. You can engage an Axiom lawyer for as long as they're needed on a full or part-time basis, either onsite or from a remote location. While your team will be responsible for supervising their work, we’ll partner with you throughout the onboarding process to ensure they’re fully meeting your expectations from day one.
SEC Treasury Clearing Rule FAQ
The SEC Treasury Clearing Rule is a regulatory framework established by the Securities and Exchange Commission (SEC) to govern the clearing process of U.S. Treasury securities. Its purpose is to enhance the efficiency, transparency, and stability of the financial markets by setting standards for the clearance and settlement of treasury transactions.
The SEC Treasury Clearing Rule impacts a wide range of participants in the financial markets, including:
- Clearing agencies registered with the SEC
- Financial institutions engaged in buying, selling, or clearing Treasury securities
- Institutional and retail investors in Treasury securities
- Broker-dealers and trading platforms that facilitate transactions in Treasury securities
While the specific requirements of the SEC Treasury Clearing Rule can vary, they generally include:
- Enhanced risk management practices for clearing agencies
- Increased transparency in the clearing and settlement process
- Standards for operational reliability and cybersecurity
- Requirements for the treatment of customer securities and funds
The SEC Treasury Clearing Rule aims to strengthen the infrastructure of the Treasury market by reducing systemic risk, improving operational resilience, and increasing transparency. These measures are intended to foster investor confidence, ensure fair and orderly markets, and protect against financial instability.
Non-compliance with the SEC Treasury Clearing Rule can result in a range of penalties, including fines, censures, or restrictions on activities. The severity of the penalties typically depends on the nature and extent of the violation.
International financial institutions and investors that engage in transactions involving U.S. Treasury securities may be subject to the rule's requirements, especially if they use U.S. clearing agencies or participate directly in U.S. markets. These entities must ensure compliance with the rule's standards, including risk management and operational resilience, even if they are based outside the United States.
Compliance is required for businesses and financial firms engaged in transactions involving U.S. Treasury securities. Like any regulatory framework, compliance with the SEC Treasury Clearing Rule requires a comprehensive approach that encompasses understanding the rule's requirements, assessing current practices, and implementing necessary changes.
If your organization needs assistance with compliance, Axiom can help.
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If your organization requires assistance navigating the complexities of the new SEC treasury clearing rule, we’re ready to help. Axiom’s financial services lawyers and regulatory compliance lawyers have deep experience in finance, regulations, compliance, securities, and more.