New rules from the U.S. Securities Exchange Commission (SEC) will require most market participants to centrally clear cash and repo U.S. Treasuries, imposing significant changes to market structure.

Treasury cash clearing is required to go into effect by the end of 2025, and repo clearing is required to go into effect by June 30, 2026.

The rule change triggers a significant change in U.S. Treasury market structure and will have material impacts to market participants including broker-dealers, institutional investors, interdealer brokers, principal trading firms, and covered clearing agencies.

On behalf of our members, SIFMA is working to advance multiple workstreams and short-term deliverables that will set the stage for long-term implementation. These include development of market standard documentation, enhancements to market structure, further needed regulatory reforms, and an operations timeline.

Key Rule Requirements

In December 2023, the SEC mandated that secondary trading of in-scope U.S. Treasury (UST) and repo transactions be cleared via a Covered Clearing Agency (CCA). Currently, U.S. Treasury transactions are either settled bilaterally or cleared centrally through the sole CCA, DTCC’s Fixed Income Clearing Corporation (FICC).

The mandate increases the scope of transactions that are required to be cleared in both the cash market and the repo market. The compliance dates for this new mandate are:

• March 31, 2025: Covered clearing agencies (CCAs) must implement enhanced practices, including risk management, margin, and customer asset protection.
• December 31, 2025: Direct participants of CCAs must clear eligible cash secondary market transactions.
• June 30, 2026: Direct participants of CCAs must clear eligible Treasury repo transactions.

In-Scope Transactions

UST cash purchases and sales have a compliance date of December 31, 2025, for transactions 1) entered by direct participants that are interdealer brokers or 2) between clearing members and certain other firm types (e.g., registered broker-dealers, government securities broker-dealers).

UST repo and reverse repo transactions have a compliance date of June 30, 2026, for the direct participants of a UST securities CCA with the requirement to clear eligible secondary market transactions (e.g., repo or reverse repo agreements collateralized by UST securities).

CCA Considerations

CCAs in the UST market must adopt policies and procedures designed to require their members to submit in-scope transactions for clearing and take steps to facilitate access to clearing for additional market participants (e.g., pension funds, asset managers). CCAs will also be required to collect margin separately for house and customer transactions. Lastly, the rule impacts 15c3-3 reserve calculations and permits margin required and deposited with a clearing agency to be included as a debit in reserve formula calculations, subject to certain conditions.

CCA rulebook updates are due by March 18, 2024. CCA implementation of enhanced practices is required by March 31, 2025, and is expected to include risk management practices, margin practices, customer asset protection and market access expansion.

Industry Considerations Report

SIFMA partnered with Ernst & Young LLP (EY US) to publish the U.S. Treasury Central Clearing: Industry Considerations Report.

This report is designed to capture and organize the various considerations and activities market participants should evaluate while assessing and completing preparations for the upcoming  compliance dates. It is intended to be utilized as a guide by sell-side and buy-side market participants alike as they implement changes in response to new U.S. Treasury clearing requirements.

The report details the critical activities that institutions should consider as they design and implement a process for Treasury clearing. The primary objectives of the report are to:

• Provide an implementation blueprint for industry participants on implementation priorities.
• Identify the key steps to operationalize change across different clearing access models.
• Surface key issues, open questions, and gaps in market structure and provide recommendations on the path to resolution.
• Provide views on the target state transaction lifecycle from execution through margin processing, including proposed high-level transaction flows.
• Provide insights on implementation dependencies across work efforts, where possible.
• Serve as an educational resource on the rule and its implications.

The report includes input and subject-matter analysis from market participants on both the buy-side and sell-side that was gathered 1) via a survey issued to SIFMA member firms by SIFMA and EY, 2) from information workshops hosted with SIFMA member firms, and 3) from bilateral conversations with market participants.

Market Standard Documentation

To provide market efficiency, particularly as more entities come into the clearing ecosystem, SIFMA has convened representatives from both the buy- and sell-side in working groups to develop market standard documentation:

• Now Available: Market Standard Documentation for “Done-With” Model
  • 2024 SIFMA Master Treasury Securities Clearing Agreement – Done-With
  • Schedule to the 2024 SIFMA Master Treasury Securities Clearing Agreement – Done-With
  • Modules to the 2024 SIFMA Master Treasury Securities Clearing Agreement – Done-With
• 1H 2025: Market Standard Documentation for “Done-Away” Model
• 2025: Roll-out of documentation system for creation, negotiation, execution, and tracking of agreement terms

The “Done-Away” model will require changes to market structure. As part of our efforts, SIFMA’s working groups will identify those needs.

Market Structure

We are spearheading industry discussions to evaluate the path to supplement the “done-with” or sponsored clearing approach (whereby participants trade and clear through their sponsor) with the “done-away” approach (whereby participants trade with third parties and submit the trades to their clearing member for clearing).

SIFMA has convened an industry Roundtable on developing a “done-away” model.

Regulatory Reform

This is an extraordinarily complex rulemaking and significant open questions remain. For instance, the SEC gave an inter-affiliate exemption but it is not feasible to operationalize or implement. How the mandate will affect triparty repo is another area of concern. Further reforms are needed to address issues for certain market participants, including registered funds and off-shore UCITS. SIFMA also will comment on the proposed FICC rule changes.