The Securities and Exchange Commission issued two exemptions from its U.S. Treasury central-clearing rules on October 30. They cover specified repurchase agreements, or repos, involving non-U.S. counterparties and trades between a clearing participant and certain affiliates.
What the order changes
The Treasury rules generally require a direct participant of a covered clearing agency to submit its eligible secondary-market transactions for clearing. A repo is a financing transaction backed here by Treasury securities. The new order removes two defined groups of repos from the category of eligible transactions; it does not repeal that general submission requirement.
One exemption applies to a limited amount of a firm's qualifying non-U.S. repo transactions. The order makes this relief conditional on either a firm-specific percentage test or a fixed-dollar threshold, together with an attestation to the relevant Treasury clearing agency. The order's detailed definitions determine which parties and transactions qualify. A transaction is not exempt merely because one counterparty is overseas.
The other exemption covers repo transactions between a direct clearing participant and an entity meeting the rule's ownership and consolidated-financial-reporting tests for an affiliate. It broadens relief beyond the existing categories of banks, brokers, dealers and futures commission merchants. The entity cannot be an investment company as defined by the Investment Company Act, whether or not it is registered under that law.
The limit
The SEC said it considered requests and public comments about legal and operational problems for foreign transactions and internal group financing. Those are the agency's reasons for the relief, not measured results of the new order. The SEC's release directs market participants with implementation questions to its Division of Trading and Markets. The order itself is the source for the operative conditions.