December 23, 2022

Vanessa A. Countryman
Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090

Re: Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule with Respect to U.S. Treasury Securities (File No. S7–23–22)1

Dear Ms. Countryman:

The Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG”)2 appreciates the opportunity to provide comments to the Securities and Exchange Commission (the “Commission”) on its proposed rule regarding Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule with Respect to U.S. Treasury Securities (the “Proposed Rule”).

Introduction

SIFMA AMG strongly supports the Commission’s objective of increasing the resilience and capacity of the market in U.S. Treasury securities. We also share the Commission’s concerns about maintaining adequate liquidity and the potential for future dislocations and disruptions in this market to negatively impact investors. Our members are active participants in the U.S. Treasury markets and we have a strong interest in promoting stability and ensuring that any proposed reforms will protect the interests of the investor community.

As outlined in greater detail below, we believe that the Proposed Rule, if implemented without first requiring certain enhancements to the current market infrastructure and time for cleared liquidity to build, could inadvertently reduce market liquidity while at the same time exposing market participants to additional credit exposures and risks. While we know it is not the Commission’s intention, we are concerned the Proposed Rule, absent our recommended changes, will only create costs and not create capacity. Our concerns are magnified by the absence of evidence and data on how the Proposed Rule will achieve the broad and deep market participation that the Commission is seeking to promote. Given the domestic and global importance of the U.S. Treasury market, we believe that any proposed reforms of this magnitude should be based on evidence showing how increased central clearing will promote greater transparency, stability and liquidity. We have seen in other markets, such as the over-the-counter derivatives market, how carefully calibrated central clearing mandates can reduce systemic risk while also promoting market liquidity. However, it is unclear how the broad clearing requirement contemplated in the Proposed Rule will address the challenges facing the U.S. Treasury and Repurchase Agreement (“Repo”) market, particularly given that the only currently available clearing house (Fixed Income Clearing Corporation (“FICC”)) would have to undertake significant work before it is ready to meet and fulfil the proposed new requirements.

1 SEC Release No. 34-95763 (September 14, 2022), 87 Fed. Reg. 64610 (October 25, 2022).

2 SIFMA AMG brings the asset management community together to provide views on U.S. and global policy and to create industry best practices. SIFMA AMG’s members represent U.S. and global asset management firms whose combined assets under management exceed $45 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.