Hedge funds with significant exposure to US Treasury (UST) trades are pushing for an exemption from the US Securities and Exchange Commission (SEC) that would allow them to clear repo trades through their own affiliated clearing entities, according to a report by Risk.net. The move comes as firms prepare for the SEC’s upcoming mandate requiring central clearing of US Treasury transactions, a shift expected to reshape the market’s infrastructure.
The proposed exemption would enable hedge funds to execute trades through one entity and subsequently transfer them internally to another entity for central counterparty (CCP) clearing. By introducing this inter-affiliate clearing model, hedge funds hope to sidestep constraints posed by limited clearing capacity while maintaining compliance with the new regulation.
Industry concerns
The SEC’s clearing mandate aims to enhance transparency and risk management in the UST market. However, industry participants have raised concerns that existing clearing infrastructure may struggle to absorb the additional volume. Allowing hedge funds to leverage their own clearing entities could help mitigate operational bottlenecks, ensuring a smoother transition to the new framework.
