In the Market: Treasury market braces for seismic SEC rule

Oct 30 - Treasury market participants expect U.S. regulators to soon finalize a major rule aimed at reining in debt-fueled bets by hedge funds and bolstering financial stability. They worry it could also reshape the industry and create new problems.

The rule would come as other regulations in recent years have seen banks pull back as intermediaries from the Treasury market, causing some of the issues that regulators are trying to fix. The industry fears central clearing, if not done right, could undermine that goal: it will increase costs, which would risk more traders withdrawing.

"It's very much a big bang approach,” said Rob Toomey, SIFMA's head of capital markets, referring to the SEC's rule."There are costs embedded in this. Who bears those costs remains a big question." There have been near misses, most recently in March 2020, when Treasury markets seized up at the height of the pandemic, forcing the Federal Reserve to step in to prop it up with emergency measures. Many experts now expect some of those to become permanent market features.

"It depends a lot on how this is implemented. What are the associated implementation costs and compliance costs?” she said.

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