Wall Street asks SEC to extend timeline for US Treasury market overhaul

By Davide Barbuscia

NEW YORK (Reuters) -Wall Street is asking regulators for more time to implement a rule requiring centralized Treasury clearing as banks and funds trading U.S. government bonds face a 2026 deadline.

The Securities and Exchange Commission adopted in December 2023 new rules aimed at reducing systemic risk in the $28 trillion Treasury market, the world's biggest bond market, by forcing more trades through clearing houses. The rules, which will give the agency greater visibility into the market, will be implemented in phases by June 2026.

The Securities Industry and Financial Markets Association (SIFMA) together with other trade associations sent a letter to the SEC on Friday requesting that the implementation timeline be extended by at least one year for the cash and repo clearing deadlines. The repo market is where banks and funds exchange short-term loans backed by Treasuries.

"We believe final implementation of the Clearing Rule will provide improvements for this market," SIFMA and the other signatories of the letter said.

"However, the importance of the Treasury market to the financial system and the economy, along with the expected significant issuance of Treasury securities in the coming years, argues for an implementation timeline for the Clearing Rule that allows for a smooth transition so as not to disrupt this market," the letter said.

The SEC declined to comment.

Other signatories include MFA, which represents hedge funds and other private funds, the Alternative Investment Management Association, FIA Principal Traders Group and the International Swaps and Derivatives Association.

"Association members are concerned that, without an extension, the success of the transition to central clearing will be seriously compromised and will inevitably lead to disruptions in the cash and repo markets in Treasury securities to the detriment of the financial system," said the letter.

Reuters reported last year that a request for a timeline extension was being considered, as crucial details on how mandatory central clearing would work had not been yet defined and market participants feared the remaining two years might not be sufficient to transition.

The rule originally said clearing houses would have until March 2025 to comply with provisions on risk management, protection of customer assets and access to clearance and settlement services.

Their members would have until December 2025 to begin central clearing of cash market Treasury transactions and until June 30, 2026, for repo transactions.