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SEC Proposes New Treasury Market Reform Next Week

by Michelle Price

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission (SEC) will present a draft rule change in September 14 based on How U.S. Treasuries are traded and cleared, the agency issued a notice Wednesday.

U.S. regulators have been working to reform the structure of the 23 trillion-dollar U.S. Treasury market following a series of liquidity crunch that included a market crash . The COVID-19 pandemic shut down the U.S. economy in March 19. The event prompted the Federal Reserve to step in and start buying U.S. Treasuries.

As U.S. Treasuries continue to grow, the market-making power of Treasury dealers remains intact, regulatory experts including former U.S. Treasury Secretary Tim Geithner warned in a report. Limited, the U.S. Treasury market remains highly vulnerable to further dysfunction under stress. This year.

Markets experienced wild price swings as the Federal Reserve began “quantitative tightening” in June, letting its Treasury bonds mature without buying more, Reuters reported last month.

The price volatility of the U.S. Treasury market, the largest bond market in the world and the global benchmark for many other asset classes, is of particular concern.

The SEC notice said the agency would consider revisions to certain clearing rules for U.S. Treasury market participants, but did not provide details. Central clearing involves sending transactions to a clearing house, which requires both parties to provide cash to guarantee execution of the transaction in the event of a default by either party.

SEC Chairman Gary Gensler has advocated in the past for expanding centralized clearing of Treasuries because it adds resilience by introducing additional funds to the market during times of stress.



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