“I think that these rules would reduce risk across a vital part of our capital markets in both normal and stress times,” SEC Chair Gary Gensler said.
The top 5 key takeaways from the SEC’s proposed rule changes for the U.S. Treasury market – Rule 17 CFR Part 240
While the full proposal is more than 200 pages long, we’ve narrowed it down to give you a highlight of the most critical points.
- There’s a reason behind the proposed rule changes.
Recent events have made many reluctant to participate in the market. The proposed rule was written in response to the rise of unregulated high volume market participants and electronic trading, which some experts believe contributed to more frequent market disruptions. In light of these disruptions and the recent pandemic, the proposed rule changes aim to restore confidence in the market.
2. There’s a heavy emphasis on policies and procedures.
The proposal regulations would mandate U.S. Treasury market clearing agencies adopt policies and procedures designed to require members to submit for clearing certain specified secondary market transactions. The proposed regulations also would require that firms’ policies and procedures outline calculate, collect and hold margin for their direct participants’ proprietary transactions separately from other transactions. The SEC is requiring these changes to ensure firms adhere to processes which would facilitate access to clearance and settlement services.
3. The proposed rule changes draw attention to secondary market transactions.
The Commission would define eligible secondary market transactions as a secondary market transaction in U.S. Treasury securities of a type accepted for clearing by a registered covered clearing agency that is either a repurchase or reverse repurchase agreement collateralized by U.S. Treasury securities, in which one of the counterparties is a direct participant or certain specified categories of cash purchase or sale transactions.
4. The proposed rules could affect a breadth of financial professionals.
The proposed rule changes would apply to the parties of transactions in the repurchase agreement (repo) market, including money market mutual funds. Most types of traders in the Treasury cash market, including hedge funds, government securities brokers and dealers and those using leverage, would also have to adhere to the proposed changes if they’re implemented.
5. You might be surprised by what actions this proposed rule scrutinizes.
Per the SEC, the transactions would include all repurchase and reverse repo collateralized by Treasury securities entered into by a member of the clearing agency, purchase and sale transactions entered into by a member of the clearing agency that is an interdealer broker, and purchase and sale transactions entered into between a clearing agency member and a registered broker-dealer, a government securities broker, a government securities dealer, a hedge fund or a particular type of leveraged account.
What do the SEC’s proposed rule changes mean for you and your firm?
A public comment period on the proposed rule changes will remain open for 60 days. The SEC may then revise the proposal before holding a second vote to finalize the regulation several months from now.
If the proposed rule is passed, your firm will have to make changes, ensuring it has policies and procedures which thoroughly document expectations for financial professionals to mitigate risk of noncompliance.
While many compliance teams still manually monitor employee actions to ensure they comply with their firm’s code of ethics and policies and procedures, manual processes are prone to human error and often leave teams spending more time cross-referencing rather than focusing on building a strong compliance program. Which can, in the worst circumstances, ultimately impact investor confidence.
By leveraging technology that automates compliance workflows, you ensure nothing falls through the cracks, verifying your employees follow all processes stated within your firm’s policies and procedures with proof of action. You also strengthen the impact of your compliance program, adding strategic value to your firm’s overall business.
Are you interested in learning more about the ComplySci Platform? Schedule a demo today!