On December 13, 2023, the Securities and Exchange Commission (SEC) approved a Final Rule which will require firms to begin centrally clearing eligible trades in Treasury securities by the end of 2025 and repurchase agreement (repo) transactions by June 2026.¹ The Proposed Rule was introduced in Fall 2022 to address risks associated with market volatility and liquidity problems, and SEC Chairman Gary Gensler stated that the new SEC regulation changes will “reduce risk across a vital part of our capital markets in normal times and stress times.”² This rule is part of a package of reforms to the Treasury market that will have a significant impact.

Insights you should know about the SEC rule changes

Covered clearing agencies (CCAs) must: 

A. Adopt policies, & procedures that require members to submit specified secondary market transactions for clearing, including: 

• all repurchase and reverse repurchase agreements collateralized by US Treasury securities entered into by a member of the covered clearing agency, unless the counterparty is a state or local government or another clearing organization or the repurchase agreement is an inter-affiliate transaction
  
• all purchase and sale transactions entered into by a member of the clearing agency that is an interdealer broker (IDB)
• and all purchase and sale transactions entered into between a clearing agency member and either a registered broker dealer, a government securities broker, a government securities dealer

B. Collect and calculate margin for house and customer transactions separately

C. Maintain and update policies and procedures to facilitate access to central clearing, including for indirect participants

15c3-3(a): To offset the increased margin requirements for direct and indirect CCA participants as a result of the Final Rule, the SEC has announced changes to the customer reserve formula outlined in SEC Rule 15c3-3(a). Broker-dealers must now include customer margin required and on deposit at a CCA in the US Treasury market as a debit in the customer reserve formula, subject to certain conditions, thereby freeing up the broker-dealer’s cash and securities to meet their margin obligations at the CCA.

Exemptions: While the SEC is implementing the Final Rule to increase the volume of Treasurys clearing and settling via central netting and novation, there will be a number of exemptions offered for transactions in which the counterparty is a central bank, sovereign entity, international financial institution, or natural person.

Implementation deadlines: These amendments will be phased and go into effect pursuant to the following dates:

• March 31, 2025: Changes regarding the separation of house and customer margin, the broker-dealer customer protection rule (15c3-3(a)), and access to central clearing required
• December 31, 2025: Submit eligible purchase and sale transactions
• June 30, 2026: Submit eligible repurchase and reverse repurchase agreements collateralized by US Treasury securities

Deloitte can help you get ahead of the curve

Making substantial changes to business practices and adopting supporting technology could be necessary in meeting new deadlines. Equipped with cutting-edge digital capabilities and real, hands-on industry experience, Deloitte can help you adjust your existing business strategy to better align with regulatory updates.