This OnPoint is intended to provide buy-side participants in the Treasury repo markets:
- An overview of the recent SEC action to extend the compliance dates for rules requiring submission for central clearing of certain Treasury repo transactions.
- An overview of the temporary exemption providing relief to FICC (and potentially other covered clearing agencies) from enforcing policies and procedures implementing a requirement on their members to separately and independently calculate, collect and hold margin posted by an indirect participant.
- A high-level summary of the Treasury Repo Transaction clearing and related requirements and implementation thereof to date by FICC, including the trade submission requirement and its implications for market participants.
- A detailed description of the FICC margin separation and margin calculation methodologies and other related provisions of FICC's rulebook, which buy-side participants can use to assess alternative arrangements for margining their cleared Treasury repo transactions.
The Appendix to this OnPoint provides further explanation of the scope of the transactions covered by the SEC Treasury Repo Transaction clearing and related requirements, a description of relevant FICC indirect participant access models and the conditions of the SEC's no-action relief granted to registered funds in connection with posting margin to FICC.
Summary of Extension and Temporary Exemption
Extension of Compliance Dates for U.S. Treasury Security Clearing Requirement
On December 13, 2023, the U.S. Securities and Exchange Commission adopted amendments to a rule under the Securities Exchange Act of 1934 that require that any covered clearing agency providing central counterparty services for U.S. Treasury securities (a "Treasury CCA"):
- Require its direct participants to submit certain secondary cash market transactions in U.S. Treasury securities ("Cash Market Transactions") and certain repurchase agreement transactions in U.S. Treasury securities ("Treasury Repo Transactions") for clearance and settlement with the Treasury CCA.
- Monitor its direct participants' submission of such transactions for clearing, including how the Treasury CCA would address a failure to submit transactions that are required to be cleared (collectively, the "Trade Submission Requirement").1
On February 25, 2025, the SEC adopted a final rule extending the compliance dates for these requirements by one year, to December 31, 2026, for Cash Market Transactions, and June 30, 2027, for Treasury Repo Transactions.2 On February 26, 2025, it appears that the Fixed Income Clearing Corporation ("FICC") withdrew its proposed amendments to the FICC rulebook that would implement the Trade Submission Requirement.
Details on the Trade Submission Requirement and how it applies indirectly to certain U.S. Treasury security market participants, such as registered funds, are provided under More Detail on the Treasury Clearing Trade Submission and CCA Access Requirements below.
Temporary Exemption for Treasury CCA Enforcement of Margin Separation
Also on December 13, 2023, the SEC adopted amendments to a rule under the Exchange Act that require any Treasury CCA to have and enforce written policies and procedures reasonably designed to separately and independently calculate, collect and hold (i) margin amounts from a direct participant for its proprietary positions in U.S. Treasury securities from (ii) margin calculated and collected from such direct participant in connection with U.S. Treasury securities transactions by an indirect participant that relies on the services provided by such direct participant to access the covered clearing agency's payment, clearing or settlement facilities through such direct participant.3
On February 25, 2025, the SEC issued an order granting a temporary exemption from the requirement that a Treasury CCA enforce such policies and procedures for six months, until September 30, 2025.4 FICC's amendments to the FICC rulebook implementing the margin separation requirements will take effect March 24, 2025.5
Details on the Margin Separation Requirement (as defined below) and FICC's implementation are provided under Details on the Margin Separation Requirement and Segregated Account Conditions below.
Compliance Dates for Segregated Account Conditions and Access Requirement
A Treasury CCA continues to be required to comply with the Segregated Account Conditions (as defined below) and the Access Requirement (as defined below) by March 31, 2025.
The SEC did not extend the compliance date or issue any temporary exemption for the amendments to Rule 15c3-3 and Rule 15c3-3a under the Exchange Act, which permit broker-dealers to include margin required and on deposit with Treasury CCAs as a debit in the reserve formulas for accounts of customers and proprietary accounts of brokerdealers subject to certain conditions. These conditions include requirements that (i) the Treasury CCA adopt rules designed to protect and segregate customer margin from any other account of the broker-dealer at the Treasury CCA, and (ii) the Treasury CCA and broker-dealer are in compliance with such rules (the "Segregated Account Conditions").
Details on the Segregated Account Conditions and FICC's implementation are provided under Details on the Margin Separation Requirement and Segregated Account Conditions below.
The SEC did not extend the compliance date or issue any exemption for related amendments to a rule under the Exchange Act that require a Treasury CCA to have participation criteria that ensure the Treasury CCA has appropriate means to facilitate access to clearance and settlement services of all eligible secondary market transactions in U.S. Treasury securities, including those of indirect participants (the "Access Requirement").
FICC's amendments to the FICC rulebook implementing the Access Requirement will take effect March 24, 2025.6
Details on this Access Requirement and FICC's implementation are provided under More Detail on the Treasury Clearing Trade Submission and CCA Access Requirements below.
Background on Treasury CCAs
Rule 17ad-22 under the Exchange Act sets out standards for registered clearing agencies. Rule 17ad-22 applies heightened requirements to a "registered clearing agency that provides the services of a central counterparty or central securities depository" ("covered clearing agency").7 Further distinct requirements apply under Rule 17ad-22 when the clearing agency provides central counterparty services for U.S. Treasury securities as a Treasury CCA.
FICC, through its Government Securities Division ("GSD"), provides central counterparty services for cash purchases and sales of U.S. Treasury securities as well as repurchase and reverse repurchase agreement ("repo") transactions. As of the date of this publication, FICC is the only registered clearing agency that provides central counterparty services for U.S. Treasury securities.8
Details on the Treasury Clearing Trade Submission and CCA Access Requirements
Effective March 18, 2024, amendments to Rule 17ad-22(e)(18)(iv) under the Exchange Act require that any Treasury CCA establish, implement, maintain and enforce written policies and procedures reasonably designed to establish objective, risk-based and publicly disclosed criteria for participation, which:
- Require that any direct participant of the Treasury CCA submit for clearance and settlement all of the eligible secondary market transactions (as described under Appendix – Eligible Secondary Market Transactions) to which such direct participant is a counterparty;
- Identify and monitor its direct participants' submission of eligible secondary market transactions for clearing, including how the Treasury CCA would address a failure to submit transactions (as defined previously, the "Trade Submission Requirement"); and
- Ensure that the Treasury CCA has appropriate means to facilitate access to clearance and settlement services of all eligible secondary market transactions in U.S. Treasury securities, including those of indirect participants (as defined previously, the "Access Requirement").
The compliance dates for the Trade Submission Requirement with respect to Cash Market Transactions and Treasury Repo Transactions are now extended from December 31, 2025, to December 31, 2026, and from June 30, 2026, to June 30, 2027, respectively.
The compliance date for the Access Requirement remains March 31, 2025.
FICC Implementation: FICC Trade Submission Rules and FICC Access Rules
On June 12, 2024, FICC filed proposed amendments to the FICC rulebook to implement the Trade Submission Requirement (the "FICC Trade Submission Rules").9 On September 24, 2024, FICC filed a partial amendment to make clarifications and corrections to the proposed FICC Trade Submission Rules.10 On December 11, 2024, finding it appropriate to designate a longer period within which to take action on the proposed rule change, the SEC designated February 26, 2025 as the date by which the SEC should either approve or disapprove the FICC Trade Submission Rules. On February 26, 2025, following the extension of the compliance dates applicable to the Trade Submission Requirement, it appears that FICC withdrew the FICC Trade Submission Rules.
The compliance date for the Access Requirement remains March 31, 2025. On March 11, 2024, FICC filed proposed amendments to the FICC rulebook to implement the Access requirement (the "FICC Access Rules").11 On March 19, FICC filed a partial amendment to make clarifications and corrections to the FICC Access Rules. On November 21,
2024, the SEC approved the FICC Access Rules.12 In a February 26, 2025, notice, FICC announced that the FICC Access Rules will take effect March 24, 2025.13
Details on the Margin Separation Requirement and Segregated Account Conditions
Rule 17ad-22(e)(6)(i) requires that any Treasury CCA establish, implement, maintain and enforce written policies and procedures reasonably designed for the Treasury CCA to cover its credit exposures to its participants by establishing a risk-based margin system which, at a minimum, must consider and produce "margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market."
Effective March 18, 2024, amendments to Rule 17ad-22(e)(6)(i) require that, for a Treasury CCA, the risk-based margin system must be reasonably designed to separately and independently calculate, collect and hold (i) margin amounts from a direct participant for its proprietary positions in U.S. Treasury securities from (ii) margin calculated and collected from such direct participant in connection with U.S. Treasury securities transactions by an indirect participant that relies on the services provided by such direct participant to access the covered clearing agency's payment, clearing, or settlement facilities through such direct participant (as defined previously, the "Margin Separation Requirement").
The SEC has provided a temporary exemption to Treasury CCAs from the enforcement of any written policies or procedures regarding the Margin Separation Requirement for six months until September 30, 2025.
At the same time that the SEC adopted the Treasury CCA requirements under the Exchange Act discussed above, the SEC adopted related amendments to Rule 15c3-3 and Rule 15c3-3a under the Exchange Act. These amendments permit broker-dealers to include margin required and on deposit with a Treasury CCA as a debit in the reserve formulas for accounts of customers and proprietary accounts of broker-dealers subject to certain conditions (as defined previously, the "Segregated Account Conditions").14
Registered Fund Participation in FICC Sponsored Service
In the Treasury Clearing Rule Adopting Release, the SEC issued time-limited no-action relief related to a registered fund's participation in FICC's Sponsored Service (see Appendix – Submission to FICC for Clearance and Settlement and Access Models). The SEC took the position that, for a period of five years beginning on March 18, 2024, if a registered fund's cash or securities are placed and maintained in the custody of FICC or the fund's sponsoring member for purposes of meeting FICC's margin deposit requirements that may be imposed for eligible secondary market transactions in connection with the fund's participation in the FICC Sponsored Service, it would not provide a basis for enforcement action under Section 17(f) of the 1940 Act so long as the provision of margin is consistent with certain conditions (the "Registered Fund FICC Sponsored Service No-Action Relief"). The Registered Fund FICC Sponsored Service No-Action Relief requires that the agreement between the registered fund and its sponsoring member include specific terms that do not exist in current sponsoring member agreements.
Details on the Registered Fund FICC Sponsored Service No-Action Relief conditions are provided in the Appendix – Registered Fund FICC Sponsored Service No-Action Relief.
FICC Implementation: FICC Margin Separation and Segregation Rules
Beginning March 31, 2025, if a Treasury CCA determines to offer certain access models or segregated margin accounts, the Treasury CCA would be obligated to enforce those rules regarding such models or accounts against the relevant participant, and the direct participant must comply with those rules.
On March 14, 2024, FICC filed proposed amendments to the FICC rulebook to implement the Margin Separation Requirement and the Segregated Account Conditions (the "FICC Margin Separation and Segregation Rules").15 On October 25, 2024, FICC filed a partial amendment to the proposed FICC Margin Separation and Segregation Rules.16 On November 21, 2024, the SEC issued a notice of no objection to the FICC Margin Separation and Segregation Rules.17 On November 22, 2024, the SEC staff stated that "FICC's rules, as currently amended, would allow a registered fund's margin to be posted at FICC consistent with the [Registered Fund FICC Sponsored Service NoAction Relief]. The staff's view applies equally to tri-party and bilateral repurchase agreement transactions."18 In a February 26, 2025, notice, FICC announced that these changes will take effect March 24, 2025.19
Effective March 24, 2025, the FICC Margin Separation and Segregation Rules provide for the separate and independent calculation, collection and holding of (i) margin deposited by a Netting Member (as described under Appendix – Direct vs. Indirect Participants) to support the Netting Member's proprietary transactions and (ii) margin deposited by a Netting Member to support the transactions of an indirect participant under either the Sponsored Service or the Agent Clearing Service (see Appendix – Submission to FICC for Clearance and Settlement and Access Models).
Under the FICC Margin Separation and Segregation Rules, in determining a Netting Member's margin requirement under FICC's amended GSD rulebook (the "GSD Rulebook"), FICC does not net the indirect participant transactions against a Netting Member's proprietary transactions.20 A FICC Netting Member's margin requirement is determined with respect to each of its "Margin Portfolios" separately. The separate calculation of proprietary and customer margin is accomplished by provisions in the GSD Rulebook providing that a Margin Portfolio may only include Accounts of the same type (e.g., a Margin Portfolio containing Dealer Accounts may contain only Dealer Accounts).
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Footnotes
1. Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule With Respect to U.S. Treasury Securities, Exchange Act Rel. 99149, 89 Fed. Reg. 2714 (Jan. 16, 2024) (the "Treasury Clearing Rule Adopting Release").
2. Extension of Compliance Dates for Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule With Respect to U.S. Treasury Securities, Exchange Act Rel. 102487, 90 Fed. Reg 11134 (Mar. 4, 2025).
3. See Treasury Clearing Rule Adopting Release, supra note 1.
4. Order Granting Temporary Exemptive Relief, Pursuant to Sections 17A and 36(a) of the Securities Exchange Act of 1934, from Certain Aspects of Rule 17ad-22(e)(6)(i) and Section 19(g)(1) of the Securities Exchange Act of 1934, Exchange Act Rel. 102486, 90 Fed. Reg. 11079 (Mar. 3, 2025).
5 .Important Notice, "March 24, 2025: Implementation of Certain Treasury Clearing Rule Changes," DTCC, Fixed Income Clearing Corporation (Feb. 26, 2025) (the "FICC Implementation Notice"); see also Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change, as Modified by Partial Amendment No. 1, to Modify the GSD Rules (i) Regarding the Separate Calculation, Collection and Holding of Margin for Proprietary Transactions and That for Indirect Participant Transactions, and (ii) to Address the Conditions of Note H to Rule 15c3-3a, Exchange Act Rel. 101695, 89 Fed. Reg. (Nov. 27, 2024) (the "Margin Separation and Segregation Approval").
6. See FICC Implementation Notice, supra note 5.
7. Rule 17ad-22(a) (definition of "covered clearing agency"). A central counterparty is "a clearing agency that interposes itself between the counterparties to securities transactions, acting functionally as the buyer to every seller and the seller to every buyer. Rule 17ad-22(a) (definition of "central counterparty").
8. On December 13, 2024, CME Securities, Inc., applied to register as a clearing agency to provide central counterparty services to market participants for their secondary cash market transactions in U.S. Treasury securities and transactions in repurchase and reverse repurchase agreements involving U.S. Treasury securities. See CME Securities Clearing, Inc.; Notice of Filing of an Application for Registration as a Clearing Agency Under Section 17A of the Securities Exchange Act of 1934, Exchange Act Rel. 102200, 90 Fed. Reg 7713 (Jan. 22, 2025).
ICE Clear Credit, LLC, a covered clearing agency, has also announced plans to expand its offering of central counterparty services to U.S. Treasury securities cash market and repurchase agreement transactions. See Press Release, Investor Relations – Intercontinental Exchange, ICE to Launch Treasury Clearing Service to Increase Transparency and Enhance Resilience in the U.S. Treasury Market (Jun. 24, 2024).
9. Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Modify the GSD Rules Relating to the Adoption of a Trade Submission Requirement, Exchange Act Rel. 100417, 89 Fed. Reg. 54602 (July 1, 2024) (withdrawn Feb. 26, 2025).
10. Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Partial Amendment No. 1 to Proposed Rule Change To Modify the GSD Rules Relating to the Adoption of a Trade Submission Requirement, Exchange Act Rel. 101340, 89 Fed. Reg. 84211 (Oct. 21, 2024) (withdrawn Feb. 26, 2025).
11. Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change, as Modified by Partial Amendment No. 1, To Modify the GSD Rules To Facilitate Access to Clearance and Settlement Services of All Eligible Secondary Market Transactions in U.S. Treasury Securities, Exchange Act Rel. 99817, 89 Fed. Reg. 21362 (Mar. 27, 2024).
12. Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Modify the GSD Rules To Facilitate Access to Clearance and Settlement of All Eligible Secondary Market Transactions in U.S. Treasury Securities, Exchange Act Rel. 101694, 89 Fed. Reg. 93784 (Nov. 27, 2024), .
13. See FICC Implementation Notice, supra note 5.
14. These conditions include, among other things, that the Treasury CCA's rules require that: (1) margin must be calculated separately for each customer and the broker-dealer must deliver that amount of margin for each customer on a gross basis; (2) the margin must be held in an account of the broker-dealer at the Treasury CCA that is segregated from any other account of the broker-dealer at the Treasury CCA and that is, among other things, used exclusively to clear, settle, novate and margin U.S. Treasury securities transactions of the customers of the broker-dealer; and (3) the Treasury CCA has systems, controls, policies and procedures to return the assets to the broker-dealer that are no longer needed to meet current margin requirements resulting from positions in U.S. Treasury securities of the customers of the broker-dealer.
15. Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Proposed Rule Change To Modify the GSD Rules (i) Regarding the Separate Calculation, Collection and Holding of Margin for Proprietary Transactions and That for Indirect Participant Transactions, and (ii) To Address the Conditions of Note H to Rule 15c3–3a, Exchange Act Rel. 99844, 89 Fed. Reg. 21603 (Mar. 28, 2024).
16. Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of Filing of Partial Amendment No. 1 to Proposed Rule Change To Modify the GSD Rules (i) Regarding the Separate Calculation, Collection and Holding of Margin for Proprietary Transactions and That for Indirect Participant Transactions, and (ii) To Address the Conditions of Note H to Rule 15c3–3a, Exchange Act Rel. 101454, 89 Fed. Reg. 87441 (Nov. 1, 2024).
17. Self-Regulatory Organizations; Fixed Income Clearing Corporation; Notice of No Objection to Advance Notice, as Modified by Partial Amendment No. 1, to Modify the GSD Rules (i) Regarding the Separate Calculation, Collection and Holding of Margin for Proprietary Transactions and That for Indirect Participant Transactions, and (ii) to Address the Conditions of Note H to Rule 15c3-3a, Exchange Act Rel. 101675, 89 Fed. Reg. 93735 (Nov. 27, 2024).
18. SEC, Division of Investment Management, IM Staff Statement on FICC Registered Fund Margin Framework, (Nov. 22, 2024).
19. See FICC Implementation Notice, supra note 5.
20. See FICC GSD Rulebook, Rule 4.
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