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Wall Street is waiting for the U.S. Securities and Exchange
Commission to finalize its rules for clearing much of trading in
the $25 trillion Treasuries market, one of the world's deepest
and most liquid markets, to bolster stability and resilience.
A clearing house is backed by a default fund, ensuring that a
transaction is completed even if one side of a transaction goes
bust.
Regulators began mandating the use of clearing more widely in
derivatives markets after the global financial crisis in 2008 to
improve stability and transparency.
Regulatory reviews were prompted by stresses in Treasuries and
other parts of the market when economies went into lockdown in
March 2020, forcing central bank intervention.
"It's not just a U.S. domestic problem - we're effectively
changing the plumbing for the world's most significant financial
assets, and that feeds into dollar funding globally," Eric
Litvack, chair of the International Swaps and Derivatives
Association (ISDA), told reporters.
"It's something that you need to look at carefully and at this
stage I think we still have more questions than answers as to
how the actual process of clearing Treasury cash and Treasury
repo will play out," Litvack said.
ISDA chief executive Scott O'Malia said it was critical that
certain parts of the market don't lose access to Treasuries, or
pull away due to the new regulatory requirements.
Much will hinge on the details in the final rules that determine
who will be within scope, O'Malia said.
"I don't want to do a 'sky is falling' here, but we do want to
make sure the timetable suits the implementation challenge,"
O'Malia said.
Financial markets in the United States already face pressure on
compliance resources from pending changes to bank capital rules,
and a shift to settling U.S. share trades within one working day
next year.
O'Malia said only a small portion of repos are cleared
currently, meaning many players need hooking up to clearing
houses, and suggested this would be best phased in over time, in
the same way that margining for uncleared derivatives was over
several years.
(Reporting by Huw Jones; Editing by Chizu Nomiyama)
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