CFTC and SEC Collaborate on Treasury Market Reforms with New Exemption

• CFTC approves exemption expanding cross-margining access for select customers with safeguards.
• CME and FICC can extend existing cross-margining beyond clearing members only.
• Treasury market reforms advance through coordination between CFTC and SEC leaders.
• Public comments are invited within thirty days after the Federal Register publication period.

The Commodity Futures Trading Commission has taken a decisive step in Treasury market oversight. Acting Chairman Caroline D. Pham announced the approval of a proposed order to grant a limited exemption. This exemption would allow the Chicago Mercantile Exchange Inc. and the Fixed Income Clearing Corporation to extend their existing cross-margining arrangement.

Currently, this arrangement is restricted to clearing members, but the proposal would make it available to certain customers with appropriate safeguards in place.

The Commission has been adamant that risk management and market stability are at the heart of such a choice. The exemption is considered narrow in scope with the aim of ensuring that high standards of operational and financial controls are upheld. This is said to be consistent with attempts to optimize capital efficiency, with the integrity of markets being upheld in the process.

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CFTC Advances Treasury Market Reform and Risk Controls

The exemption is in line with recommendations from the CFTC Global Markets Advisory Committee and focuses on supporting the SEC’s U.S. Treasury clearing mandate. Presently, clearing members are permitted to cross-margin futures on CME with cash markets on FICC. The new rule will enable eligible customers to have similar treatment.

This is expected to optimize capital efficiency within the U.S. Treasury markets, according to regulators. This is because such customers would be able to offset their positions on various markets, thereby increasing liquidity, which would, in turn, reduce vulnerabilities in times of volatility. The U.S. Treasury market is a vital one globally.

The CFTC emphasized that this exemption would not change the existing rules on clearing obligations of members. On the contrary, it is a way to implement a controlled process that supports extending these benefits to a large number of participants. The Commission considers such a proposal a means of developing reforms for the Treasury markets.

CFTC Opens Public Comment on Cross-Margining Proposal

The proposed rule is now open for a comment period. Comments may be submitted via the CFTC’s website. Comments are to be submitted within thirty days of publication in the Federal Register, and all comments are to be posted on the website publicly.

This stage ensures transparency, which gives the markets a chance to comment on factors such as eligibility requirements, risk management, and overall readiness to implement. The CFTC considers all responses before implementing. This is essential because greater public participation helps regulators strike a balance between efficiency, liquidity, and strength.

The Commission made it clear that the final decisions would follow regular regulatory procedures. The result may set a tone concerning the future of accessing clearing in U.S. Treasury markets. The agency takes the necessary steps to ensure that all adjustments respect the realities of the situation when conducting clearing business.

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