U.S. SEC to propose Treasury market clearing reforms to address resilience fears

The $24 trillion Treasury market, the largest bond market in the world and a benchmark for dollar assets throughout the world, is slated to get draft regulations from the U.S. Securities and Exchange Commission (SEC) on Wednesday.

Most notably, Treasury market liquidity virtually vanished in March 2020 as investor panic about the COVID-19 epidemic spread, forcing the Federal Reserve to support the market. The SEC and other American authorities have been looking for improvements to increase the market’s resilience since 2020. The SEC’s five commissioners will vote on the revisions during a public hearing on Wednesday at roughly 10:00 a.m. EDT (1400 a.m. GMT).

Without going into further detail, the SEC notification stated that the agency will be considering changes to several clearing regulations for participants in the Treasury market. Sending transactions to a clearing house for central clearing necessitates that both counterparties provide collateral to ensure that the trade will go through even if one party defaults. A 2021 Treasury Department study makes estimates that just 13% of Treasury cash transactions are centrally cleared. Gary Gensler, the chair of the SEC, has pushed for the expansion of centralized clearing of Treasury securities on the grounds that it improves market resilience by injecting more money into the system when conditions are difficult.