SEC Seeks Comment on Request to Ease Treasury Margin Rule for Broker-Dealers
Commentary by Steven Lofchie
The SEC requested comment on proposed exemptive relief that would allow broker-dealers to calculate and deliver customer margin for cleared U.S. Treasury transactions on a net, omnibus basis rather than a gross, customer-by-customer basis.
In the notice, the SEC published an application from SIFMA seeking relief from certain conditions of Exchange Act Rule 15c3-3a ("Exhibit A - Formula for determination of customer and PAB account reserve requirements of brokers and dealers under § 240.15c3-3."). The relief would permit broker-dealers to include a debit in their customer and proprietary-account reserve computations for margin on deposit with a qualified clearing agency for cleared U.S. Treasury transactions, even if the margin collateral was delivered on a net, omnibus basis.
The SEC's 2023 Treasury clearing rules (see prior coverage) required broker-dealers to calculate and deliver customer margin separately for each customer on a gross basis before treating that margin as a debit in their reserve computation. SIFMA argued that the gross margining requirement proved operationally burdensome, requiring granular position-mapping and intraday reconciliation systems that misaligned with existing omnibus-based Treasury intermediation models.
SIFMA proposed a "lesser of" framework that would limit the permitted debit to the smallest of three amounts: the margin collected from customers, the margin required for the Treasury positions, or the total customer assets actually delivered to the clearing agency. The relief would include conditions for recordkeeping, clearing-agency rulebook compliance, and written procedures.
The SEC requested comment on whether the exemption was consistent with the public interest, whether broker-dealers could track customer-specific margin under an omnibus delivery model, and what competitive impacts the change could have on Treasury market participants.
Comments are due 30 days after publication in the Federal Register.
Commentary
The SEC should very much focus on minimizing the burdens and costs that central clearing of Treasuries imposes on broker-dealers and banks. There should be a real concern that the new requirements will discourage intermediate and small firms from participating in the market, decreasing the demand for Treasuries and driving up the interest rate that must be paid on them.