SEC Exempts Certain Repo Transactions From Treasury Clearing Rule

The U.S. Securities and Exchange Commission on October 30, 2026 granted exemptive relief from its U.S. Treasury clearing rules for certain repurchase agreement transactions involving non-U.S. counterparties and for certain repo transactions between direct participants of Treasury clearing agencies and a broader set of affiliated entities, the agency announced.

The order, Release No. 34-106789 under File Nos. S7-2026-07 and S7-2026-11, was issued pursuant to Sections 17A and 36(a) of the Securities Exchange Act of 1934. It excludes the covered transactions from the definition of an “eligible secondary market transaction” in Rule 17ad-22(a), meaning covered clearing agencies need not enforce the trade submission obligation against them.

“The Commission has listened carefully to market participants about the challenges of implementing our Treasury clearing rules,” said Commissioner Mark T. Uyeda, whom Chairman Paul S. Atkins has designated to lead the agency’s initiative overseeing the transition to central clearing of U.S. Treasury security transactions. “Successful implementation requires a thoughtful approach that must account for the realities of cross-border transactions. Today’s targeted relief addresses practical concerns while preserving the important benefits of central clearing.”

The Commission adopted the Treasury clearing amendments on December 13, 2023, in Release No. 34-99149. The amendments require covered clearing agencies that provide central counterparty services for U.S. Treasury securities, known as U.S. Treasury securities CCAs, to maintain policies requiring each direct participant to submit for clearance and settlement all eligible secondary market transactions to which it is a counterparty, a mandate the order calls the Trade Submission Requirement. Eligible secondary market transactions include repo transactions collateralized by U.S. Treasury securities in which one counterparty is a direct participant of a covered clearing agency.

The 2023 amendments already contained an Inter-Affiliate Exclusion for repo transactions between a direct participant and an affiliated counterparty, conditioned on the affiliate submitting all other repo transactions to which it is a party for clearance and settlement, termed the outward-facing condition. Rule 17ad-22(a) defines an affiliated counterparty through three criteria: the counterparty is a bank, broker, dealer, or futures commission merchant, or an entity regulated as one in its home jurisdiction; a majority ownership interest links it to the direct participant directly or through a third party; and the majority holder reports consolidated financial statements under U.S. Generally Accepted Accounting Principles or International Financial Reporting Standards that include the majority-owned parties’ results. The Commission previously extended the original compliance dates and, in September 2025, launched a one-stop webpage consolidating implementation updates, FAQs, and statements.

The relief follows two published requests. On February 27, 2026, the Institute of International Bankers requested an exemption from the Trade Submission Requirement for foreign financial institutions that are direct participants when transacting with non-U.S. clients, citing legal uncertainty in certain foreign jurisdictions over the enforceability of clearing requirements, potential registration requirements, and repos occurring when no U.S. Treasury securities CCA is operating. The Commission published that notice on March 6, 2026, with an initial comment period closing April 10, 2026 and a reopened period closing May 29, 2026. On April 10, 2026, the Securities Industry and Financial Markets Association requested relief in two areas: expanding the affiliates eligible for the Inter-Affiliate Exclusion to all counterparties meeting the ownership and consolidation prongs of the definition except investment companies, and removing repo transactions between non-U.S. affiliates and non-U.S. counterparties from the outward-facing condition subject to an activity-level percentage threshold. That notice was published April 17, 2026. After commenters suggested a unified approach, the Commission reopened both comment periods on August 7, 2026, presenting a preliminary combined example and targeted questions; both periods closed August 31, 2026.

Terms of the Conditional Non-U.S. Exemption

The conditional exemption covers a limited amount of a firm’s “Qualifying Non-U.S. Transactions,” defined as uncleared eligible secondary market repo transactions between a Non-U.S. Client and a Non-U.S. Participant, a qualifying non-U.S. affiliated counterparty of a direct participant, or a foreign branch of a direct participant that is a U.S. person. A Non-U.S. Client is an entity that is not a direct participant, not a U.S. person, not a U.S. branch of a non-U.S. person, and not a non-U.S. person whose obligations under the transaction are guaranteed by a U.S. person, with U.S. person defined as in Exchange Act Rule 3a71-3.

Under the first condition, a firm qualifies if either of two tests is met. The Firm-Specific Threshold requires that the market value of the firm’s Qualifying Non-U.S. Transactions, divided by the sum of the market value of all of the firm’s cleared repo transactions excluding inter-affiliate repo transactions plus the Qualifying Non-U.S. Transactions, fall below a Percentage Cap. Alternatively, the Fixed Dollar Threshold requires that the market value of the firm’s Qualifying Non-U.S. Transactions be less than $5 billion. Both thresholds are calculated using a rolling daily average of the immediately prior three quarters, with each quarter weighted equally. Market value means the principal amount of the opening leg of a repo transaction, and “firm” means any direct participant together with its affiliates, including other direct participants.

The Percentage Cap phases down on the following schedule:

Under the second condition, a direct participant must attest to any U.S. Treasury securities CCA of which it is a participant that it is monitoring and complying with the first condition. If it fails the first condition, it must immediately notify each such CCA and state its plan for returning to compliance or that it will no longer use the relief, and each CCA may then determine appropriate action consistent with its rules.

The order states that the Commission revised the threshold denominator to consist of the firm’s cleared repo transactions, including cleared transactions that are not eligible secondary market transactions because of the counterparty, a change the order states incentivizes clearing even when not required. The denominator excludes inter-affiliate repo transactions after commenters said they are not market transactions. On the fixed-dollar test, one commenter proposed a $10 billion threshold while another cautioned against setting the level so high it would create a bifurcated market; the Commission set $5 billion based on its current understanding of the U.S. Treasury market and stated it will monitor whether the threshold remains appropriately tailored. The order states that one unified exemption should be more efficient to administer than two separately calculated exemptions, and that phasing the cap down over three years gives participants time to onboard clients, obtain legal opinions, and update systems.

The Commission found the conditional exemption necessary or appropriate in the public interest and consistent with the protection of investors under Section 36, and consistent with the purposes of Section 17A, including prompt and accurate clearance and settlement and the safeguarding of securities and funds. The order states the relief lets affiliated groups use inter-affiliate repos with non-U.S. affiliates for treasury, liquidity, and collateral management, and lets foreign financial institutions and U.S. institutions with foreign branches or affiliates accommodate Non-U.S. Clients despite legal uncertainty over netting enforceability, time-zone constraints, and transactions occurring when no U.S. Treasury securities CCA is open. The attestation condition is intended to help CCAs understand whether direct participants rely on the exemption and to support enforcement of the Trade Submission Requirement, with the order citing CMESC Rule 305(a)(vi) and FICC GSD Rule 3, section 10 books-and-records authority.

Expanded Affiliated Counterparty Relief

Separately, the order exempts repo transactions between a direct participant of a U.S. Treasury securities CCA and any entity that meets the majority-ownership and consolidated-reporting prongs of the Rule 17ad-22(a) affiliated counterparty definition, provided the entity is not an “investment company” as defined in Section 3 of the Investment Company Act of 1940, regardless of whether it is registered or required to be registered.

According to the order, commenters explained that many affiliates of direct participants are not banks, broker-dealers, or futures commission merchants and were therefore ineligible for the Inter-Affiliate Exclusion as adopted, meaning their inter-affiliate repos would have to be cleared even when the affiliate conducts no external customer-facing activity. The Commission states the exemption should lower costs and reduce delays for treasury, liquidity, and collateral management transactions. The exemption does not extend to investment-company affiliates because, the order states, such an affiliate may pose additional risk to the direct participant by taking market positions on the value of securities.

The new relief does not supersede or otherwise affect the Commission’s June 18, 2026 Private Fund Relief, Release No. 105736, issued in response to a request from the Managed Funds Association regarding the Inter-Affiliate Exclusion. During the implementation period, market participants can contact SEC staff in the Division of Trading and Markets at [email protected] or 202-551-5777.