Wall Street Jittery on Tight Deadline for Centralized Treasury Clearing

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The Securities Industry and Financial Markets Association (SIFMA) is considering requesting an extension from regulators for implementing a new rule that mandates centralized clearing for Treasury trades. This rule, adopted by the Securities and Exchange Commission (SEC) in December, is intended to reduce systemic risk in the $27 trillion Treasury market by routing more trades through clearing houses. The current deadline for full implementation is set for June 2026, but crucial operational details are still undefined, raising concerns about the feasibility of meeting this deadline.

William Thum, managing director for SIFMA’s asset management group, indicated that the initial assessment suggested a six-year timeframe for this transition. Consequently, SIFMA may need to ask the SEC for additional time to ensure a smooth transition. This sentiment was shared at the ISDA/SIFMA Treasury Forum in New York.

One of the major challenges lies in adapting the clearing processes for the repo market, where banks and funds exchange short-term loans backed by Treasuries. Currently, these trades are cleared through the Fixed Income Clearing Corporation (FICC) or directly between counterparties. The new rules aim to centralize these transactions through clearing houses. However, there are significant concerns regarding the integration of “done-away” trades, which are executed outside the sponsoring member framework, into the central clearing system. This process is more costly and requires changes to the current FICC access model.

Trade groups and market participants have voiced concerns that the new clearing mandate could limit trading partners for non-FICC members and harm Treasury liquidity. The Managed Funds Association (MFA), representing hedge funds, emphasized these issues in an April statement. Similarly, Jonah Platt from Citadel Securities highlighted potential “capacity issues” without changes to the current bundling of execution and clearing services. Nathaniel Wuerffel of BNY Mellon added that successful implementation of central clearing would require the development of models accommodating done-away trades.

SIFMA plans to continue working closely with the SEC to monitor and report on the transition’s progress. Thum expressed confidence that it will become apparent that the remaining two years will not suffice for a complete and effective transition.