SEC Rule Change: Broker-Dealer Customer Protection Rule

By | 10/06/2022 | 11:11 am ET

Recently, the Securities and Exchange Commission (SEC) proposed a new rule change related to US Treasury Securities and the application of the broker-dealer customer protection rule. The goal of this rule change is to reduce risk in the US Treasury Market. This amendment would increase requirements for agencies that deal in the clearing and settlement of specific securities transactions. Right now, there is still a significant amount of risk because some investors feel like they do not have access to all of the information they need. Now, thanks to this rule change, requirements will be adjusted slightly, making the market more competitive and resilient.

SEC Chair Gary Gensler Supports the Broker-Dealer Customer Protection Rule Change

In a statement released by SEC Chair Gary Gensler, he voiced his support for the rule change, saying, “The Securities and Exchange Commission plays a critical role in how the Treasury market functions, including to help ensure that these markets stay efficient, competitive, and resilient… While central clearing does not eliminate all risk, it certainly does lower it.”

What Is Included in the Rule Change?

There are several important changes that are included in this amendment. They include:

  • All clearing agencies are required to provide central counterparty services for US Treasury Securities. They must have policies and procedures in place to submit a broader range of transactions for clearing.
  • All clearing agencies for US Treasury Securities are also required to have policies and procedures in place to collect, calculate, and hold margin for certain proprietary transactions.
  • All clearing agencies for US Treasury Securities must also have policies and procedures in place to ensure all participants have access to clearance and settlement services.

There are several examples of transactions that would be subject to this new clearing protocol. They include:

  • All repurchase and reverse repurchase agreements collateralized by United States Treasuries.
  • All purchase and sale transactions entered by a clearing agency acting as an interdealer broker.
  • All purchase and sale transactions completed between a clearing agency member and a broker-dealer.

It is hoped that these changes will reduce some of the confusion related to US Treasury security transactions. This new rule change is open to public comment for 90 days.

The Market Reacts Positively to the New Rule Change

There has been a significant amount of turmoil in the market this year, and investors are looking for greater clarity and stability. Because of this rule change, it is widely believed that the US Treasury market will become more stable, as investors will have access to more information related to specific securities. Because of the transparency, the market responded positively, rising in the wake of the news. It was a welcome respite for traders, who are used to seeing the market fluctuate significantly this year. Even though the rule has not yet had time to take effect, it is widely believed that the rule will go into effect, increasing clearing and reporting requirements.

Ensuring Compliance

Because these rules can change quickly, it is critical for companies to make sure that they stay on top of regulatory changes. Companies that miss reporting deadlines could face fines and sanctions from the SEC.

At Colonial Filings, we work hard to stay on top of the latest reporting requirements, ensuring clients understand exactly what has to be reported, how it must be reported, and when it needs to be filed. If you have questions about how we can help you stay on top of your reporting requirements, reach out to us today to speak to an expert.

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