If you thought completely tearing out and redoing the entire vast plumbing system underlying U.S. equities trading—in addition to insisting on quicker settlements—was enough for Gary Gensler, or really any Securities and Exchange Commission chair, to undertake in his term, then you don’t know Gary Gensler. And you probably also thought that, what with all the new disclosure requirements covering fees and activists were enough punishment for the hedge and private equity fund industries, then you really don’t know Gary Gensler. Because in the fractured, muddled and seemingly banal world of trading those most banal securities—U.S. Treasuries—he’s found a way to combine those two interests.
The Securities and Exchange Commission proposed a rule Wednesday that aims to force more market participants to settle trades in U.S. Treasury securities on clearinghouses. Such platforms sit between buyers and sellers of securities and serve as an alternative to bilateral transactions, reducing the risk to each party that the other side will fail to deliver…. “I want to take off the table that we have to worry about—in the next stress time—these interdealer brokers,” Mr. Gensler told reporters.
Bryan Corbett, who leads the Managed Funds Association trade group for hedge funds, said in a statement that the proposal was “arbitrarily singling out hedge funds for mandatory central clearing, which could impact market competition and lead to increased costs borne by institutional investors….” Only about 13% of Treasury cash trading was centrally cleared in 2017, according to a 2021 government report. Proprietary trading firms, which generally don’t participate in central clearing, account for about 60% of Treasury trading volume on interdealer platforms, according to a 2021 report by the DTCC, which cited Federal Reserve data.
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