ANALYSIS: US Treasury clearing will be delayed under Trump – Greenwich
8th January, 2025|Gregory Rosenvinge
The upcoming US Treasury central clearing mandate will “at the very least be delayed” as new policies from the Securities and Exchange Commission (SEC) become more unpredictable in 2025, according to a report by Coalition Greenwich.
In a report titled ‘Top market structure trends to watch in 2025’, the analytics provider said “while many believe they know what’s to come for capital markets under the new Trump administration, few really do”.
“There are several assumptions we agree with: Many of the proposed but unpassed rules at the SEC will die or be reworked,” said report authors Daniel Connell, Kevin McPartland, Audrey Costabile, Stephen Bruel, David Easthope and Jesse Forster.
“Treasury and repo clearing will fall into that latter category, with at least a delayed implementation timeline; crypto markets will see a lighter regulatory touch and gain regulatory clarity; and many pending cases against the SEC will be dropped or won by the plaintiff."
As it currently stands, the SEC plans to mandate central clearing of US Treasury bonds at the end of this year and US bond repo in the middle of 2026. But with SEC chair Gary Gensler – architect of the US Treasury clearing mandate and Joe Biden appointee – set to resign when Donald Trump is inaugurated on January 20, there has been speculation about the fate of the clearing legislation. This is especially the case with the US president-elect nominating crypto advocate Paul Atkins as the next SEC head, who is expected to take a more light-touch approach than Gensler.
“The Republican victory is not the only regulatory change that will affect the securities industry. The US Supreme Court’s Chevron decision, which reduced the amount of deference courts show to administrative agencies, could trigger a new wave of challenges to the SEC, CFTC and other financial-regulator rulemaking in areas ranging from ESG to digital assets to the future of event contracts,” said the report authors, referring to the Commodity Futures Trading Commission (CFTC).
Last month, the chair of the International Swaps and Derivatives Association (ISDA) expressed concerns about the SEC clearing deadlines being too tight.
“This is absolutely a transformative change for possibly one of the most important markets in the world. This is the largest safe asset in the world that underpins the secured dollar funding market globally. As we know from our experience in derivatives markets, the introduction of clearing is a big operational lift and there is not that much time to put it in place – the timelines are fairly tight for cash and repo clearing,” said Societe Generale managing director and group director of public affairs Eric Litvack, who will step down as ISDA chair at the start of 2025.
Litvack said whether the Treasury clearing deadlines might be extended by the new SEC chair in the early part of this year "is an interesting point".
Despite the concerns around the SEC mandate, regulation to clear US Treasury repo trades “should stick" despite the change in leadership in Washington, according to Coalition Greenwich.
“We and our study participants believe it will be a net positive for the market, even though development costs for market participants and short-term complexities must be ironed out. The repo market is one of the most critical of all financial markets, so injecting some standards and additional risk management processes into the market just makes sense,” said the report authors.
“The mandate will also bring innovation. Clearing and more standard product terms make e-trading easier, which will result in more volume through the incumbents and, perhaps, new entrants smelling opportunity. Trading mechanisms, in turn, will likely get smarter, taking cues from innovation used to electronify other parts of the fixed-income market.
“These same market standards and trading mechanisms could also open the market to new repo buyers and sellers. An easier process to generate returns for those with cash on hand or to borrow cash for those with strategies to deploy it should inject more liquidity into the market overall.”
FOW Data shows 20.15 billion equity derivatives contracts traded globally in the first 11 months of 2024, up 16% year-over-year, while 5.77 billion interest rate futures and options changed hands over the same period, up 13% year-over-year.
Looking ahead to 2025 more widely, despite optimism for derivatives trading, the report said there is uncertainty around macro-economics.
“The year ahead is arguably the most unpredictable since the start of the pandemic. Geopolitics are complicated. US regulatory policy is uncertain. And although it seems like US equity markets can’t stop going up and interest rates have nowhere to go but down, we know neither is a sure thing,” said the Coalition Greenwich report authors.
“Thankfully, a few trends remain omnipresent. The electronification of trading. The focus on workflow automation. Increasingly transparent markets. And of course, artificial intelligence and machine learning (AI/ML).”
Rostin Behnam, the Democrat-elected chair of the CFTC, on Tuesday became the latest senior US regulator to announce his resignation following Donald Trump’s US presidential election win in November. He will officially step down on January 20, the same day Trump is set to become US president.
