SEC Clears Client Cross-Margining in US Treasury Market, Aiming to Boost Liquidity

YM Lee

Summary

The US Securities and Exchange Commission said it is moving to expand market liquidity by allowing client cross-margining in the US Treasury market.
The measure will allow broker-dealers to calculate margin by combining customers' US Treasury cash and futures positions in the same account.
SEC Commissioner Mark T. Uyeda said the move marks progress in building the Treasury clearing framework and will help strengthen the resilience of the US Treasury market.

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The US Securities and Exchange Commission approved a measure allowing client cross-margining in the US Treasury market, expanding access to a structure intended to support market liquidity.

According to an SEC statement released on April 15, the agency issued a conditional exemptive order permitting customer cross-margining between cash US Treasury positions cleared by registered clearing agencies and US Treasury futures positions cleared by derivatives clearing organizations. Under the order, broker-dealers that meet certain conditions can calculate margin by combining customers' cash and futures positions in the same account.

The order applies in particular to broker-dealers that are also registered with the Commodity Futures Trading Commission as futures commission merchants, or FCMs. If they are members of both a clearing agency and a derivatives clearing organization, they can offer cross-margining services to customers. Previously, only clearing members could use that structure. The latest action expands it to customers.

The SEC also approved a proposed rule change filed by the Fixed Income Clearing Corp. The change reflects in FICC's rules a third amended cross-margining agreement with the Chicago Mercantile Exchange. As a result, broker-dealers that are members of both institutions can also apply cross-margining at the customer-account level.

SEC Commissioner Mark T. Uyeda called the move another step forward in building the Treasury clearing framework. He added that it would help expand market liquidity and strengthen the resilience of the US Treasury market.

The SEC said it plans to publish the exemptive order and rule approval in the Federal Register. Related action by the CFTC will be announced separately.