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What the New Treasury Clearing Timeline Means for Markets

An Update on the SEC’s Compliance Extension for the US Treasury Clearing Mandate

In this episode of The SIFMA Podcast, SIFMA’s Chief Operating Officer, Joseph Seidel, sits down with Robert Toomey, the head of SIFMA’s capital markets group, William Thum, managing director in SIFMA’s Asset Management Group, and Stephen Byron, the head of SIFMA’s operations and technology group, to discuss the recent compliance extension from the U.S. Securities and Exchange Commission for its Treasury Clearing rule and SIFMA’s work on behalf of the industry to implement the mandate set out in the rule.

Note: For those entities that may be impacted by the changes to FICC rules regarding the separation and segregation of accounts for customer activity from accounts for proprietary activity, please be sure to reach out directly to FICC to understand how FICC is implementing the changes and what your obligations or requirements might be.  Please see the FICC Important Notice at https://www.dtcc.com/-/media/Files/pdf/2025/2/26/GOV1909-25.pdf.

Transcript

Edited for clarity

Joseph Seidel: Thanks for joining us for this episode in SIFMA’s podcast series. I’m Joe Seidel, SIFMA’s Chief Operating Officer, and I’m joined today by Robert Toomey, the head of our Capital Markets Group, Bill Thumb, Managing Director in SIFMA’s Asset Management Group, and Steve Byron, the head of SIFMA’s Ops and Tech Group. We’re here today to talk about SIFMA’s work on treasury clearing in the recent compliance extension from the SEC. Well, let’s jump right in.

The last time we sat down to talk about treasury clearing on SIFMA’s podcast was a few months ago when we had just published a new industry considerations report with the EY. That’s still a valid and valuable resource for the industry as we move ahead with preparing for the transition, but much more has happened. Rob, can you bring us up to speed?

Robert Toomey: Sure, thanks Joe. after the EY report and the SIFMA and EY report, a lot continues to happen and if you go look at that report a lot of the activities in there are what we have focused on. In one area in particular, we continue to focus on the development and structuring around the “Done-Away” market. Obviously, in the treasury clearing space, this needs to develop to reach the ultimate policy goals of the SEC rule. So a lot of work has been done on that, and that feeds into, and we’ll talk a little bit about it, about our documentation effort, but that feeds into the development of our documentation for “Done-Away.” And that’s a big piece of this, and that’s a big next step that we continue to work on and continue to work on with our members. But we also continue to look at and work with developing solutions to various interpretive questions. And we’ve reached out and worked with the regulators on trying to develop different approaches to the so-called mixed QCIP issue in triparty, the inter-affiliate exemption and the clearing rule, the possible double margin for investment advisors and all this. we’re being in fairly consistent contact with SEC staff on these issues and trying to, as I said, develop solutions for them.

And then we did, as everybody knows, worked with and led a number of trade associations in developing a letter to request the extension of the timeline. We thought from the beginning and from very early on that this timeline was very aggressive given the state of the market and where clearing was in the treasury market. And we thought that it was important to move ahead with some kind of extended timeline and the SEC recognized this. The SEC has extended the implementation dates and granted an extension of one year to both the cash and repo timelines, and essentially a 6-month extension to the margin segregation requirements meaning FICC is not required to enforce compliance with margin segregation until September 2025.

Joseph Seidel: So then what was the reaction from the dealer side on the extension? There is no question the industry is committed to implementing the final rule and that we support the goals of central clearing for treasuries. And we will definitely make good use of this extension. But the timeline was simply too aggressive, which we said, others in the industry said, we got support from our earliest comments on this issue, but was also echoed by others in the industry, by the Treasury Department by people on Capitol Hill. And can you also explain that in more detail?

Robert Toomey: Yeah, I think, Joe, it was, as you said, noted by many market participants, us as well as other trade associations too, that even when the rule was finally completed in December 2023, that it was an aggressive timeline, a very aggressive timeline. And why is that important? It’s important because this is the Treasury market and the Treasury market is arguably the baseline for all activity in our financial markets. And it’s very important that that any transition significant structural transition be done smoothly and without blips in the market. The association SIFMA definitely supports the ultimate goals here of increasing resiliency in the market and increasing possible capacity in the market. I think those are important goals. But you note too, we’ve got over the next few years we know for example that there will be additional net security issuance by treasury increasing the size of the market so it’s important that this be done smoothly and in a way that doesn’t disrupt the market at all.

Joseph Seidel: Clearly, there is no reason to risk disruption to this essential market to meet an arbitrary deadline, and everybody recognizes the importance of the Treasury market as the benchmark security and the backbone of the US dollar. It is also a market of great importance to investors. Bill, bring us up to speed on the asset managers’ work on Treasury clearing implementation and where we are there.

William Thum: Yeah, Joe, I think it’s a great question. I think, you know, as Rob mentioned, while we have achieved this extension, it does not mean that we are taking our pedal off the gas in terms of all the work that needs to be done to implement this clearing mandate. Rob mentioned a major issue for the buy side is the concept of double margining. In the uncleared space, the SEC has long required repos to be collateralized fully. That has resulted in a market where 102 % of securities are transferred for the cash that is delivered in the repo. It really needs to be sorted out how that collateralized fully, which is long applied to repos, actually intersects with the clearing mandate.

And we have been working with the SEC to both understand the implications of that requirement that applies in the uncleared space in the new cleared space. We need time to get that done. And the Commission needs to address that issue as well as a number of sell side issues is kind of foundational issues that will allow either this market to continue to grow and flourish or will cause significant complexities as we move forward with the clearing mandate. So for asset managers, we do need to have clarity on the rule set around repos and how that applies in the cleared markets. And then we will also need time to get the documentation in place, get the operational connectivity in place, whether we’re going to use sponsored access, the “Done-With” model or the “Done-Away” model. It’s likely that we’ll have to sign up documentation with a number of different clearing members. And that is going to take a considerable amount of time. So the extension is less an opportunity to relax and more and acknowledgement of the tremendous amount of work that still has to be done. And, you know, we all hope that with the extension, we can get it done.

Joseph Seidel: Indeed. So Steve, let’s get your views on the same points. The operations teams have a fundamental role to play in the implementation as they are building systems and developing protocols and putting policies and procedures in place. This will be a big topic at our operations conference in May, as well as upcoming AMG conference in February. What is the current state of play with the ops team and what does a longer lead time actually mean for them?

Stephen Byron: Yeah, well, thanks, Joe. mean, as we discussed in our previous podcast, the US Treasury clearing transition is more complicated than the other regulatory changes that the industry has supported over previous years, as it touches multiple areas of the firms from sort of post-trade processes through infrastructure from client onboarding through to margin through to settlement. The changes that were due to come up in March required firms in many cases to repaper clients, update their margin account structures at FIC. So the delay in the mandatory nature of the March deadline enables members additional time to meet the margin segregation requirements, to be able to complete those repapering efforts and to ensure that they have the right account structure. This should reduce the risk of trades being rejected for clearing at FIC. So firms will now be able to move when they’re ready. This is also, or will also reduce the go live risk. We will no longer have a number of firms all transitioning to a new structure around a set date. So we know that our members are working around the clock to meet the March timeframe, both from an operational and technological standpoint. So this delay will help de-risk the March implementation date and allow for an orderly transition based on individual firms’ readiness.

Secondly, I think the other thing I would point out is that the three implementation dates and stages of the US Treasury clearing rule are large technology and operational deliverables for our members. So whilst the timeline has actually moved, given the scope of the work that members may need to do to be ready for both the repo and the cash deadlines, we encourage our members to continue to work on this initiative given that they can go live when they’re ready and realize any benefits as soon as they’re live. I would also note that the new timelines will put the repo implementation day out to the summer of 2027. Firms should know that this will put this go-live day near other global regulatory implementation days with the UK and EMEA T+1 deadlines currently scheduled for later in 2027. So firms really need to be factoring that into their technology and operations change budgets and making sure that they continue to focus on U.S. treasury clearing as a priority.

Joseph Seidel: All right, thank you. So for the group, you’re all working in close coordination with members and our membership on this issue. In terms of other issues out there and, Curate, do you all think this will be enough time? And what do you think will be, you know, what we need to be watching during this extended period?

Robert Toomey: Yeah, Joe, I’ll hit that first. I think certainly this is an opportunity and it’s an opportunity to get some things at least clarified. And I think we need to evaluate those as those clarifications come through. It’ll be important because it can impact the scope. And I think we also take this extended timeline too. It’s very important and Steve was kind of alluding to this. I mean, this does have an extra and outside the United States impact and you wanna make sure that. All the institutions take the extended time and all the institutions that may be impacted by this overseas know they’re involved and know what they have to do. So I think that’s an important next step here and take this time. But I think we do have to see is the things we noted in our extension request, how those things get resolved will matter to your question about whether or not this extension is going to be sufficient. But I think, you know, given the way we asked about it, assuming that those things get resolved we can move forward and we think this is enough time for the market to transition.

Joseph Seidel: And you guys have a lot of interaction with the membership. I mean, there’s kind of a human tendency that when you get an extension, you know, you put pencils down, you kind of go out and play with your friends for a while and then come back to do the homework on the last day. So, you know, do you think the industry, you know, and intricately involved with all our working groups? I’m guessing that our membership realizes that this is an extension, but the extension is meaningful because there is really a lot to do that we couldn’t get done in the original time frame.

William Thum: Yeah, Joe, think I’ll pick that up. They’ve clearly got their sleeves rolled up. They’re applying themselves in the documentation work on the regulatory work. But the reality is, and they know it very well, we really don’t have a tried and true “Done-Away” market set up at this point we don’t have documentation or even though we’re working on it we’ve got a new clearinghouse that is put its hot in the rain and likely to have one more coming up and that’s just a tremendous amount of work that has to be done across all stakeholders in a coordinated fashion to make the clearing mandate is a success.

So I would emphasize, in my talks with the members, not only have they not taken their foot off the gas, given all the work that has to be done. So we’ve got our sleeves rolled up. We’re working with the regulators. We’re working with the new clearinghouses, working with the lawyers on the documentation. SIFMA is going to be pursuing the international aspects of it. We’re going to have to get legal opinions available to members. All these things have to happen in a well-ordered sequence and collectively to meet this. So the extra year is much welcomed, but it will be full of work.

Stephen Byron: Yeah. And if I can just build on Bill’s point there, I mean, certainly in my conversations with members, I’ve heard a number of members say that they were looking to do some sort of tactical technology deliverable in order to make the timelines. And obviously, with the timelines now moving, they are actually able to take the time and deliver a more strategic solution, which obviously is more cost-effective and likely more scalable for our members there. So I think that’s definitely a benefit.

I’d also add, as we start to work through the “Done-Away” flow, obviously that we stand ready from a SIFMA perspective to help our members work through any of the operational challenges that they see with this new flow design. Obviously, it’s new to treasuries. It’s not necessarily new to other flows, but there is certainly work that needs to be done to be able to move the sort of “Done-Away” infrastructure and “Done-Away” process over into the Treasury space. So we certainly stand ready to help our members answer any of those sort of implementation questions and work closely with them on that.

Joseph Seidel: Excellent.

William Thum: So the one thing I also wanted to point out is, you we’re grateful for the partnership with the other trade associations that joined us on this letter and its associations across the buy and sell side, each of which understands the need for this. So it really was a collective industry effort to get this extension confirmed. So grateful for those partnerships as well.

Joseph Seidel: Indeed. Any other closing thoughts from anybody? Terrific. Thank you very much for this discussion. And we certainly have a lot to do and we certainly have our nose to the grindstone to do it. Thank everybody in the audience for listening in today and to learn more about SIFMA and our work to promote effective and resilient capital markets, please visit us at www.sifma.org. Thank you again.

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