How the SEC Is Transforming the US Treasury Market

Rule Change

A big change is on the horizon for the world’s largest bond market.

Gary Gensler, chair of the Securities and Exchange Commission, is leading a reform that will see the bulk of Treasury trades move to a central counterparty clearinghouse, a third-party entity safeguarding transactions between buyers and sellers. Some are calling this the most meaningful regulatory change for the $26 trillion Treasury market in more than three decades.

Contagion Control

The move, which is meant to be completed by mid-2026, is intended to reduce systemic risk. In other words, because the central clearinghouse will insure that transactions get completed, the risk of a trading counterparty not being able to is taken away, and with it the fear of contagion following a party’s collapse.

At the moment, less than a sixth of cash Treasury trades, which total as much as $700 billion per day, are routed through the Fixed Income Clearing Corporation (FICC), which is the market’s only clearinghouse.

But this new safety net comes at a cost. Risk management costs stand to go up, and the SEC will likely tighten rules for the clearinghouses themselves. This could trickle down into more incremental new rules and could reduce liquidity in the massive market.

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