The U.S. Securities and Exchange Commission (SEC) has announced an extension of the compliance dates for the US Treasury Clearing Mandate. The compliance date for eligible cash market transactions has been moved from December 31, 2025, to December 31, 2026, and from June 30, 2026, to June 30, 2027, for eligible repo transactions. They also provided a 6-month exemption for the margin separation requirement to September 30, 2025.

Given the complexity and breadth of the required changes, a delay in these deadlines offers essential breathing space for market participants, allowing them to more effectively adapt and optimize their systems and processes.

However, despite this reprieve, the sheer amount of work and resources required necessitates a continued urgent and concerted effort to meet compliance standards effectively.

Treasury Clearing fundamentally changes a firm’s trade processing workflows and the business processes. We would anticipate the analysis and design effort to take at least three months as firms decide on their target operating models. Once the target operating models are determined, the design phase will kick off a procurement process as firms line up the technical resources required in the future state which could be lengthy.

This would be followed by a development phase which would take three to six months.  

Given the complexity of the changes, a thorough end to end test must be completed. This is more complex than the recent shortened settlement (T+1) initiative which firms devoted up to nine months to.

The need for urgency is clear and the momentum must be maintained.

Benefits of the Delay, with a Pressing Need for Action

1. Time for Process Development and Maturation:

   Done Away Processes: While Sponsored processes have been operational for several years, the broader application to Done Away trades presents unique challenges. Firms would benefit from additional time to solidify these processes, ensuring robust compliance mechanisms and minimizing operational risk. Nevertheless, it is crucial that firms promptly address these gaps to avoid scrambling as deadlines approach.

2. Technological Enhancements and Integration:

   Credit Checks and Matching Platforms: No industry standards are currently in place for credit checks (Done Away) or trade matching (Voice) for trades. The development, integration, and testing of these systems involve significant time and financial resources. Delaying the deadlines would allow firms more time, yet the complexity of technical integration demands immediate prioritization to ensure systems are fully operational when required.

   Technical Connectivity: The interconnectivity between various applications—spanning from front office to back-office systems—is crucial for compliance. While the delay could allow firms to build integrations strategically, immediate efforts must begin to lay the groundwork for these connections to prevent a bottleneck closer to the new deadlines.

3. Strategic Opportunity:

   The immediate focus is on tactical compliance with the rule, but the deadline extension enables firms to explore and implement comprehensive strategic solutions. Despite the potential for value-driven strategic planning, firms must act urgently to start designing and conceptualizing these solutions.

4. Resource Allocation and Management:

   Implementing current state remediations and target state updates concurrently can stretch resources thin. A delay allows for more efficient resource allocation, yet the magnitude of required changes underscores the necessity for immediate action in resource planning to ensure that teams are well-prepared to scale up efforts swiftly.

Conclusion

While the delay in UST clearing rule deadlines provides breathing room, the urgency remains palpable given the significant work and resources required to achieve compliance. Market participants must strike a balance between leveraging this additional time and maintaining an aggressive implementation schedule. Achieving this balance will be crucial for minimizing execution risks and ensuring long-term operational resilience and regulatory compliance in the fast-paced and complex environment of capital markets.

Broadridge stands ready to assist with consulting services and product solutions to address gaps in trade lifecycle processes. Our expertise ensures compliance while providing strategic insights to seize value-driven business opportunities arising from the regulatory changes.

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