SEC Central Clearing Rule Changes: Understanding the impact and ensuring readiness

By Sujoyini Mandal, Vice President, Strategy and Business Development, and Michael Gibbons, Senior Director, Professional Services

Introduction

The $26T U.S. Treasury market is about to undergo a post-trade transformation. Back in July 2010, the Securities Exchange Commission (SEC) required securities and derivatives to be centrally cleared. Then, in December 2023, the SEC adopted rule changes, expanding the existing clearing requirements to include certain secondary market transactions including most cash and repo Treasury trades. As one of the deepest, most liquid markets globally underpinning a significant portion of capital markets activity, the rule changes are designed to reduce systemic risk, enhance protection, and improve efficiency in the U.S. Treasury market. 

The changes will go into effect for Treasury trades on December 31, 2025, and for repo trades six months later on June 30, 2026. According to the rule changes, eligible transactions will be mandated to clear through a Covered Clearing Agency (CCA). The FICC (Fixed Income Clearing Corp) is currently the only CCA in the industry. However, this is likely to change. 

The SEC’s initiative seeks to fortify the U.S. Treasury market, making it more robust, efficient, and transparent. As SEC Chair Gary Gensler puts it, this move will contribute to a market that is not only deep and liquid but also resilient. Understanding the nuances of the rule changes and assessing the impact on the various industry players, including both direct and indirect participants, is expected to be a time-consuming complex process. By pursuing a thoughtful approach to adapting to the new rules with a focus on assessment, testing, and implementation, institutions can more easily navigate the evolving regulatory landscape and take advantage of the impending structural changes for their business. As market participants across the sell side, the buy side, and market utilities will be impacted, now is the time to understand, plan, and prepare for the changes. 

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