SIFMA along with Ernst & Young published a report on the Securities and Exchange Commission’s (SEC) upcoming Treasury Clearing Rule.
The report, titled “U.S. Treasury and Repo Clearing Done-Away Model Design Considerations,” provides a guideline and framework for baseline U.S. Treasury done-away clearing requirements under the SEC’s upcoming Treasury Clearing Rule.
Done-away Treasury clearing refers to the process in which trades executed by an external broker are centrally cleared through a firm’s designated clearing provider rather than the executing broker.
The report features four main objectives:
- Outline the desired done-away flows for different execution paths as defined by market participants;
- Describe roles and responsibilities of market participants, covered clearing agencies (CCAs), trading venues, and other technology platforms across the trade lifecycle;
- Identify the core capabilities and data requirements need to be established to enable the desired done-away flows; and
- Indicate proposed owners for developing and implementing the defined core capabilities.
“As we approach the effective date for central clearing of U.S. Treasury securities, SIFMA is working to support the industry with the transition to ensure there is as little disruption as possible to this important market,” Joe Seidel, SIFMA chief operating officer, said. “This report, in conjunction with our other efforts, is designed to help firms with their steps to preparedness. Treasuries play a key role in both the U.S. and world economies and SIFMA is supportive of efforts to make the market more resilient, while at the same time we recognize the need to ensure liquidity is not negatively impacted.”
Clearing transactions involves a clearing agency stepping in between a buyer and seller to handle certain elements of transaction processing. In December 2023, the SEC approved a final rule which mandates the clearing of certain eligible secondary market transactions in U.S. Treasury securities. The rule will significantly impact broker-dealers, institutional investors, asset managers, hedge funds, inter-dealer brokers, principal trading firms, banks, and covered clearing agencies (CCAs). The first compliance date is December 31, 2026, for eligible cash market transactions, and June 30, 2027, for eligible repo market transactions.
“As the effective date for central clearing of U.S. Treasury securities approaches, the industry faces a critical transition that must be managed carefully to avoid disruption,” Neal Ullman, managing director, Financial Services Consulting, EY, said. “This report provides key design considerations for implementing a done-away model to help prepare for compliance, while reinforcing the importance of maintaining market stability and liquidity.”
SIFMA highlighted eight industry challenges related to designing a controlled and resilient U.S. Treasury Clearing done-away model. The challenges include supporting data capabilities, pre-trade limit checks for various execution paths, operational flows and submission to CCAs, and bunched orders/allocations.