CME Seeks SEC Nod to Clear Treasury Trades Smoothly
Published Date: 1/22/2025
Notice
Summary
CME Securities Clearing, Inc. wants to become an official clearing agency to help handle U.S. Treasury securities trades smoothly and safely. This change affects banks, brokers, and investors who trade these securities, aiming to make transactions faster and more secure. The SEC is now asking for public comments before deciding, so keep an eye out for updates that could impact how these trades get settled.
Analyzed Economic Effects
5 provisions identified: 3 benefits, 0 costs, 2 mixed.
New CCP for U.S. Treasury Trades
CME Securities Clearing, Inc. applied to register as a clearing agency to provide central counterparty (CCP) clearing services for secondary cash market transactions in U.S. Treasury securities and for repurchase and reverse repurchase agreements involving U.S. Treasury securities. If approved, this would change who clears and guarantees those trades for market participants that use the service.
Member vs. User Financial Roles
Under CMESC's proposed rules, there would be two participant types: Members (who can clear proprietary transactions and authorize Users) and Users (authorized by a Member). Members must make contributions to CMESC's Guaranty Fund and guarantee Supported Users' financial performance, while CMESC does not impose direct financial responsibility requirements on User applicants.
Guaranty Fund and Default Coverage
CMESC proposes a Guaranty Fund sized by stress testing so that it is at least equal to the largest theoretical loss from the default of two Member Families (and covering a predefined number of User accounts) in extreme but plausible market conditions. CMESC would also establish credit and liquidity 'waterfalls' for use in a default.
Fees To Be Set; Competitive Pressure Expected
The application states CMESC is still finalizing its fee structure and expects cleared repo and cleared U.S. Treasuries services to operate in a competitive environment, which it says is expected to impact fees. Final fees for Members and Users will be published on CMESC's website when services launch and after a proposed rule change is filed with the Commission.
Operational Resilience and Systems Hosting
CMESC says its systems will be hosted in a virtual private cloud environment and in physical datacenters and describes measures for operational resilience, availability, disaster recovery, and data backup.
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