SEC Approves Exemptive Order and Proposed Rule Change to Permit Customer Cross-Margining in the U.S. Treasury Market
Executive Summary
The SEC has issued a conditional exemptive order and approved a proposed rule change by the Fixed Income Clearing Corporation (FICC) to enable customer cross-margining between cash U.S. Treasury positions cleared at FICC and futures positions cleared at the Chicago Mercantile Exchange (CME), extending a benefit previously limited to clearing members. This development enhances Treasury market liquidity and resilience by allowing dually registered broker-dealers/futures commission merchants (FCMs) to offer more efficient margin calculations to customers, aligning SEC and CFTC efforts in modernizing clearing infrastructure. #
What Changed
- - Exemptive Order: Provides relief from the SEC's broker-dealer customer protection rule (Rule 15c3-3), permitting dually registered broker-dealer/FCMs that are joint clearing members of FICC and CME to cross-margin customer cash Treasury positions (
- Rule Change Approval: Approves FICC's filing to incorporate a Third Amended and Restated Cross-Margining Agreement with CME into its Government Securities Division rules, enabling cross-margining at the customer level for positions cleared and carrie
- Scope Expansion: Shifts from prior restrictions where only clearing members could cross-margin, now extending to eligible customers of qualifying firms, with safeguards for customer fund segregation and risk management.
Suggested Considerations
- Qualifying Firms: Review and ensure compliance with exemptive order conditions (e.g., customer eligibility, account segregation, risk controls) before offering cross-margining; update internal policies, systems, and customer agreements to support combined margin calculations in futures accounts.
- Operational Updates: Implement changes to clearing and margining processes aligned with the Third Amended Cross-Margining Agreement; conduct testing with FICC and CME for customer-level arrangements.
- Documentation and Reporting: Maintain records demonstrating adherence to Rule 15c3-3 exemptions and notify customers of new margining options; monitor for CFTC parallel requirements on commingled funds.
- Legal/Compliance Review: Assess dual SEC/CFTC registration status and joint membership; consult with counsel on condition-specific interpretations.
Key Dates
Compliance Impact
Urgency: High - This enables immediate operational opportunities for margin efficiency but requires swift review of systems and controls to meet conditional safeguards, avoiding customer protection violations under Rule 15c3-3. Firms risk regulatory scrutiny or missed liquidity benefits if unprepared, especially amid ongoing Treasury clearing mandates; proactive adoption supports market resilience
Who is Affected
References
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Summary
The Securities and Exchange Commission today issued a conditional exemptive order that permits customer cross-margining of cash market positions in U.S. Treasury securities cleared by a registered clearing agency and futures positions in U.S. Treasury…