Hedge funds with significant exposure to US Treasury (UST) trades are seeking an exemption from the US Securities and Exchange Commission (SEC) that would enable them to clear repo trades through their own affiliated clearing entities, according to a report by Risk.net.
The move comes as firms prepare for the SEC’s upcoming Treasuries clearing mandate, which is expected to reshape the landscape of UST trading.
The proposed exemption would allow hedge funds to execute trades through one entity and subsequently transfer them internally to another entity for central counterparty (CCP) clearing. This inter-affiliate exemption could help alleviate concerns over limited clearing capacity and provide funds with greater flexibility in meeting the new regulatory requirements.
The SEC’s Treasuries clearing mandate is aimed at bringing increased transparency and risk management to the UST market, but industry participants have raised concerns about the potential strain on existing clearing infrastructure. By leveraging their own clearing entities, hedge funds aim to mitigate operational bottlenecks while maintaining compliance with the new regulatory framework.
