The Securities Industry and Financial Markets Association may ask regulators for more time to implement a rule requiring centralized Treasury clearing as Wall Street faces a 2026 deadline.
The Securities and Exchange Commission in December adopted new rules aimed at reducing systemic risk in the $27 trillion Treasury market, the world’s biggest bond market, by forcing more trades through clearing houses. The rules, which will give the agency greater visibility into the market, will be implemented in phases by June 2026.
Crucial details on how mandatory central clearing will work are not yet defined, and market participants said the remaining two years may not be enough time to transition.
William Thum, managing director for the asset management group at SIFMA, said the trade association had initially told the SEC the change would take six years.
“We will ultimately have to go back, I’m fairly confident of that, and ask for more time,” he said on the sidelines of the ISDA/SIFMA Treasury Forum in New York on Wednesday.
A hurdle in expanding central clearing is the need to make changes to how trades in the repo market, where banks and funds exchange short-term loans backed by Treasuries, are cleared.
Trades currently are cleared through the Fixed Income Clearing Corporation or directly between the counterparties. The rule change is aimed at routing those bilateral transactions through central clearing.
Banks and brokers that are FICC members now tend to bundle execution and clearing for their clients in a so-called “done with” trading model, where the trade is done with a bank that uses its FICC membership to give clients access to the central clearing agency.
Central clearing of so-called “done away” trades, which are not executed with a sponsoring member, is more expensive.
To bring those trades into centralized clearing would require changes to the model for accessing FICC, market participants said.
Trade groups have expressed concerns, opens new tab over rule changes proposed by FICC to allow expanded clearing for Treasuries that, they say, do not address this issue.
“Mandating Treasury clearing without providing a market for done-away trades unnecessarily limits trading partners available to non-FICC members and harms Treasury liquidity,” MFA, which represents hedge funds, said in a statement in April.
At the Treasury forum in New York, several market participants echoed those concerns.
Jonah Platt, managing director at Citadel Securities, said there would be “capacity issues” if the practice of bundling execution and clearing services does not change.
“I personally don’t believe that central clearing can be implemented successfully without the development of done-away trading models,” said Nathaniel Wuerffel, head of market structure at BNY Mellon.
SIFMA’s Thum said the trade association will continue to work with the SEC and keep it informed of progress on the transition.
“…It will be very obvious that two years is not enough,” he said.
