A clearing agency that serves as a central counterparty acts as the buyer to every seller

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FACT SHEET
Improving Risk
Management and
Increasing Clearing
in U.S. Treasuries

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 2

Why This Matters
A clearing agency that serves as a central counterparty acts as the buyer to every seller
and the seller to every buyer in a securities transaction. It can help increase the safety and
efficiency of securities trading and reduce costs. A clearing agency also mitigates the
potential for a single market participant’s failure to destabilize other market participants or
the financial system. Central clearing also addresses concerns about counterparty risk by
substituting the clearing agency’s liquidity and creditworthiness for each counterparty.
The U.S. Treasury market plays   a unique role in the U.S. and global economy, as an
investment instrument and hedging vehicle, a risk-free benchmark for other financial
instruments, and a mechanism for the Federal Reserve’s monetary policy implementation.

How the Rules Apply
The proposed amendments to Exchange Act Rule 17Ad-22 would impose requirements on
covered clearing agencies providing central counterparty services for U.S. Treasury
securities. First, a covered clearing agency would be required to have policies and
procedures designed to require its direct participants to submit for clearing all eligible
secondary market transactions.
The Securities and Exchange Commission proposed rule amendments that would:
●    Require  covered  clearing  agencies  that  provide  central  counterparty  services  for  U.S.
Treasury securities to have policies and procedures to require their direct participants to
submit for clearing certain eligible secondary market transactions;
●    Require that covered clearing agencies for U.S. Treasury securities have policies and
procedures to calculate, collect, and hold margin for their direct participants’ proprietary
transactions separately from transactions submitted on behalf of indirect participants;
●    Require  covered  clearing  agencies  for  U.S.  Treasury  securities  to  have  policies  and
procedures to ensure that they have appropriate means to facilitate access to clearance
and settlement services of all eligible secondary market transactions, including those of
indirect participants; and
●    Amend the broker-dealer customer protection rules to permit margin required and on
deposit at a covered clearing agency for U.S. Treasury securities to be included as a
debit item in the customer reserve formula, subject to certain conditions.

FACT SHEET | Improving Risk Management and Increasing Clearing in U.S. Treasuries

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 2
Eligible secondary market transactions would include:
• All repurchase and reverse repurchase agreements collateralized by U.S. Treasury
securities to which a direct participant is a counterparty;
• All purchase and sale transactions of U.S. Treasury securities for direct participants
who are acting as interdealer brokers. This occurs when the participant brings
together multiple buyers and sellers using a trading facility and is a counterparty to
both the buyer and seller in two separate transactions; and
●    All purchases and sales of U.S. Treasury securities between a direct participant
and a registered broker-dealer, government securities dealer, or government
securities broker; a hedge fund; and a levered account.
Eligible secondary market transaction would not include purchase or sale transactions or
repurchase or reverse repurchase agreements in which one counterparty is a central bank,
a sovereign entity, an international financial institution, or a natural person.
The proposal would also require covered clearing agencies to have policies and
procedures to calculate, collect, and hold margin for a direct participant’s proprietary
positions in U.S. Treasury securities separately from margin posted by that participant in
connection with U.S. Treasury securities transactions by an indirect participant.
Further, the proposal would require a covered clearing agency to have policies and
procedures to ensure that it 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, and that those policies and procedures
are reviewed by the covered clearing agency’s board of directors annually.
The proposal would amend the broker-dealer customer protection provisions in Exchange
Act Rule 15c3-3a. Currently, Rules 15c3-3 and 15c3-3a do not permit broker-dealers to
include a debit in the customer reserve formula equal to the amount of margin required and
on deposit at a covered clearing agency for U.S. Treasury securities. Therefore, increases
in the amount of margin required to be deposited at a covered clearing agency for U.S.
Treasury securities as a result of the recommended additional membership standards
would result in corresponding increases in the need to use broker-dealers’ cash and
securities to meet these requirements.
The amendment to Rule 15c3-3a would permit margin required and on deposit at a
covered clearing agency for U.S. Treasury securities to be included as a debit item in the
customer reserve formula, subject to certain conditions designed to ensure maximum
protection of a broker-dealer’s customers. This new debit item would offset credit items in
the Rule 15c3-3a formula and, thereby, free up resources that could be used to meet the
margin requirements of a covered clearing agency.

Additional Information:
The public comment period will remain open for 60 days following publication of the proposing release in the
Federal Register.

FACT SHEET 
Improving Risk 
Management and 
Increasing Clearing 
in U.S. Treasuries 

 

U.S. SECURITIES AND EXCHANGE COMMISSION  PAGE 1 OF 2 

 

 
Why This Matters 
A clearing agency that serves as a central counterparty acts as the buyer to every seller 
and the seller to every buyer in a securities transaction. It can help increase the safety and 
efficiency of securities trading and reduce costs. A clearing agency also mitigates the 
potential for a single market participant’s failure to destabilize other market participants or 
the financial system. Central clearing also addresses concerns about counterparty risk by 
substituting the clearing agency’s liquidity and creditworthiness for each counterparty. 

The U.S. Treasury market plays a unique role in the U.S. and global economy, as an 
investment instrument and hedging vehicle, a risk-free benchmark for other financial 
instruments, and a mechanism for the Federal Reserve’s monetary policy implementation.  

 

How the Rules Apply 
The proposed amendments to Exchange Act Rule 17Ad-22 would impose requirements on 
covered clearing agencies providing central counterparty services for U.S. Treasury 
securities. First, a covered clearing agency would be required to have policies and 
procedures designed to require its direct participants to submit for clearing all eligible 
secondary market transactions. 

The Securities and Exchange Commission proposed rule amendments that would:  
● Require covered clearing agencies that provide central counterparty services for U.S. 

Treasury securities to have policies and procedures to require their direct participants to 
submit for clearing certain eligible secondary market transactions; 

● Require that covered clearing agencies for U.S. Treasury securities have policies and 
procedures to calculate, collect, and hold margin for their direct participants’ proprietary 
transactions separately from transactions submitted on behalf of indirect participants; 

● Require covered clearing agencies for U.S. Treasury securities to have policies and 
procedures to ensure that they have appropriate means to facilitate access to clearance 
and settlement services of all eligible secondary market transactions, including those of 
indirect participants; and 

● Amend the broker-dealer customer protection rules to permit margin required and on 
deposit at a covered clearing agency for U.S. Treasury securities to be included as a 
debit item in the customer reserve formula, subject to certain conditions. 

 



FACT SHEET | Improving Risk Management and Increasing Clearing in U.S. Treasuries 
 

U.S. SECURITIES AND EXCHANGE COMMISSION  Page 2 of 2 

Eligible secondary market transactions would include:  

• All repurchase and reverse repurchase agreements collateralized by U.S. Treasury 
securities to which a direct participant is a counterparty; 

• All purchase and sale transactions of U.S. Treasury securities for direct participants 
who are acting as interdealer brokers. This occurs when the participant brings 
together multiple buyers and sellers using a trading facility and is a counterparty to 
both the buyer and seller in two separate transactions; and 

● All purchases and sales of U.S. Treasury securities between a direct participant 
and a registered broker-dealer, government securities dealer, or government 
securities broker; a hedge fund; and a levered account. 

Eligible secondary market transaction would not include purchase or sale transactions or 
repurchase or reverse repurchase agreements in which one counterparty is a central bank, 
a sovereign entity, an international financial institution, or a natural person.  

The proposal would also require covered clearing agencies to have policies and 
procedures to calculate, collect, and hold margin for a direct participant’s proprietary 
positions in U.S. Treasury securities separately from margin posted by that participant in 
connection with U.S. Treasury securities transactions by an indirect participant. 

Further, the proposal would require a covered clearing agency to have policies and 
procedures to ensure that it 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, and that those policies and procedures 
are reviewed by the covered clearing agency’s board of directors annually. 

The proposal would amend the broker-dealer customer protection provisions in Exchange 
Act Rule 15c3-3a. Currently, Rules 15c3-3 and 15c3-3a do not permit broker-dealers to 
include a debit in the customer reserve formula equal to the amount of margin required and 
on deposit at a covered clearing agency for U.S. Treasury securities. Therefore, increases 
in the amount of margin required to be deposited at a covered clearing agency for U.S. 
Treasury securities as a result of the recommended additional membership standards 
would result in corresponding increases in the need to use broker-dealers’ cash and 
securities to meet these requirements. 

The amendment to Rule 15c3-3a would permit margin required and on deposit at a 
covered clearing agency for U.S. Treasury securities to be included as a debit item in the 
customer reserve formula, subject to certain conditions designed to ensure maximum 
protection of a broker-dealer’s customers. This new debit item would offset credit items in 
the Rule 15c3-3a formula and, thereby, free up resources that could be used to meet the 
margin requirements of a covered clearing agency.  

 

Additional Information: 
The public comment period will remain open for 60 days following publication of the proposing release in the 
Federal Register. 


	Why This Matters
	How the Rules Apply
	Additional Information: