Wall Street Urges SEC to Extend US Treasury Market Overhaul Timeline

Wall Street is calling on the Securities and Exchange Commission (SEC) to extend the timeline for implementing new rules aimed at bolstering the resilience of the $26 trillion U.S. Treasury market. The industry argues that the current June 2026 deadline may not provide enough time for market participants to transition to the new centralized clearing requirements.

The SEC adopted the new rules in December 2023, with the goal of reducing systemic risk and increasing regulatory visibility in the Treasury market. The rules require covered clearing agencies to establish policies and procedures for centralizing the clearing and settlement of specified secondary market transactions in U.S. Treasury securities. However, market participants, including the Securities Industry and Financial Markets Association (SIFMA), have expressed concerns about the feasibility of meeting the deadline.

One of the main challenges facing market participants is the lack of clarity on how mandatory central clearing will work in practice. Crucial details on the new system are still not defined, making it difficult for market participants to plan and prepare for the transition. Additionally, the transition timeline concerns market participants, with some estimating that the change could take up to six years to complete.

Another hurdle is the need to expand central clearing to the repo market, where banks and funds exchange short-term loans backed by Treasuries. Currently, trades are cleared through the Fixed Income Clearing Corporation (FICC) or directly between counterparties. Centralizing these bilateral transactions through clearing houses is a significant challenge that requires changes to how trades are cleared.

Market participants have also raised concerns about the potential impact of the new rules on market liquidity. The expansion of central clearing may limit trading partners available to non-FICC members, which could harm Treasury liquidity. Furthermore, central clearing of "done-away" trades, which are not executed with a sponsoring member, is more expensive and could lead to capacity issues if the practice of bundling execution and clearing services does not change.



Despite these challenges, the SEC's goals of reducing systemic risk and increasing regulatory visibility in the Treasury market are crucial for maintaining the stability and efficiency of the market. By extending the implementation timeline, regulators can help ensure that the transition to central clearing is successful and does not compromise the stability of the market.

In conclusion, Wall Street's request for an extension of the timeline for implementing the SEC's new rules on centralized Treasury clearing highlights the challenges market participants face in adapting to the new requirements. While the SEC's goals of reducing systemic risk and increasing regulatory visibility are important, it is essential to consider the practical implications of the transition and work with market participants to ensure a smooth and successful implementation.