Hedge funds would be impacted by the US Securities and Exchange Commission’s (SEC) new proposed draft rules on the use of central clearing in the $24 trillion Treasury market aimed at boosting its resilience, according to a report by Bloomberg.
Hedge funds would be impacted by the US Securities and Exchange Commission’s (SEC) new proposed draft rules on the use of central clearing in the $24 trillion Treasury market aimed at boosting its resilience, according to a report by Bloomberg.
The proposals, which would apply to cash Treasury and repurchase agreements traded by a range of firms including broker dealers as well as hedge funds, are in response to regulatory concerns about the market’s ability to function in times of stress following a series of liquidity issues, most notably in March 202O when the Federal Reserve was forced to prop up the market as pandemic panic set in.
While the proposed changes stop short of introducing a general clearing mandate, the draft rules impose new regulations on clearing houses that would require their members – typically big banks and trading firms – to push trades from clients including hedge funds, broker dealers, and principal trading firms through the clearing house. These clients, who do not typically clear their trades, have accounted for an increasing proportion of the market in the past ten years.
The draft rules would also alter the rules relating to how clearing house members treat their client margin, requiring it to be passed on the clearing house.
The draft rules are now subject to industry feedback having been approved by all five of the SEC’s commissioners.
