The U.S. Securities and Exchange Commission has granted targeted exemptions from mandatory Treasury clearing for certain cross-border repurchase agreements and transactions between affiliated companies, changing which trades must enter central clearing as the United States prepares to implement its expanded clearing requirements.
The October 30 SEC order, Release No. 34-106789, creates two forms of relief: a conditional exemption for qualifying non-U.S. repo transactions and a broader exemption for transactions between clearing members and eligible affiliates.
The cross-border exemption permits qualifying activity below either a declining percentage limit or a $5 billion threshold, subject to monitoring and reporting conditions. The separate affiliate exemption expands eligibility beyond banks, brokers, dealers and futures commission merchants, while excluding entities classified as investment companies under the Investment Company Act of 1940.
The decision does not eliminate mandatory Treasury clearing or postpone its implementation. The SEC implementation schedule still requires compliance for eligible cash-market transactions by December 31, 2026, and eligible repo-market transactions by June 30, 2027.
The distinction matters for international banks, U.S. financial institutions operating abroad and financial groups that use Treasury-backed repo transactions to move cash and securities between subsidiaries.
Cross-Border Relief
A repurchase agreement, commonly called a repo, allows one institution to obtain short-term financing by selling securities while agreeing to repurchase them later. U.S. Treasury securities frequently serve as collateral.
Under the Treasury clearing framework adopted in December 2023, covered clearing agencies must require direct participants to submit specified eligible transactions for central clearing. Central clearing places a central counterparty between trading parties, helping manage counterparty exposure and settlement risk.
The October order provides conditional relief for defined non-U.S. transactions that otherwise fall within the trade-submission requirement. Its scope is narrower than a general exemption for foreign institutions.
Under Part II.A, pages 6–8, the qualifying transaction must involve a defined non-U.S. client and one of three specified counterparties: an eligible non-U.S. clearing participant, an eligible foreign affiliate of a clearing participant, or a foreign branch of a U.S. clearing participant.
The non-U.S. client cannot itself be a direct participant in a U.S. Treasury clearing agency, a U.S. person, a U.S. branch of a foreign person, or a foreign person whose obligations under the transaction are guaranteed by a U.S. person. These restrictions mean that an overseas trade is not automatically exempt simply because it takes place outside the United States.
The SEC’s order addresses concerns raised by foreign financial institutions about clearing arrangements across jurisdictions. These include the enforceability of netting agreements, potential foreign regulatory requirements, differences in operating hours and the costs of bringing smaller overseas clients into U.S. clearing systems. The agency concluded that limited relief could accommodate such transactions while retaining the broader benefits of central clearing.
Exemption Limits
The conditional cross-border exemption uses two alternative quantitative tests. A firm’s qualifying non-U.S. repo activity can remain within the exemption if its calculated share of the relevant transaction base is below the applicable percentage cap, or if the market value of qualifying activity is below $5 billion.
Both tests use rolling daily averages over the immediately preceding three quarters, with each quarter weighted equally. The applicable percentage cap declines according to the order’s timetable:
| Period | Percentage Cap |
|---|---|
| June 30, 2027–June 30, 2028 | 25% |
| July 1, 2028–June 30, 2029 | 20% |
| July 1, 2029–June 30, 2030 | 15% |
| After June 30, 2030 | 10% |
The percentage is not a ceiling on every firm’s entire Treasury repo business. It measures qualifying non-U.S. transactions against a specifically defined denominator consisting of the firm’s cleared repo activity, excluding designated direct-participant-to-affiliate transactions, plus the qualifying non-U.S. transactions themselves.
For this calculation, the SEC defines market value using the principal amount of the repo transaction’s opening leg. The order also requires direct participants relying on the relief to attest to their Treasury clearing agencies that they monitor and comply with the quantitative condition.
If a participant fails that condition, it must immediately notify each relevant clearing agency and explain how it intends to restore compliance or that it will stop relying on the exemption. These obligations distinguish the exemption from an unrestricted permission to conduct Treasury-backed financing outside central clearing.
The Calculation Difference
A direct comparison of the August SEC consultation, Release No. 34-106062, with the final October order reveals a consequential change in how the cross-border exemption is calculated. The August document presented alternative approaches for public comment, including a percentage test based on cleared eligible secondary-market repo transactions.
The October order adopts a broader measure of cleared repo transactions, while excluding specified direct-participant-to-affiliate transactions from the denominator. This matters because a larger eligible denominator can reduce the calculated proportion of qualifying non-U.S. activity without any reduction in that activity. Consider a hypothetical firm with:
- $8 billion in qualifying non-U.S. repo transactions.
- $24 billion in cleared repo transactions eligible for the earlier illustrative denominator.
- An additional $8 billion in other cleared repo transactions that count under the final denominator.
- No transactions requiring the specified inter-affiliate subtraction.
Under the earlier illustrative approach, the ratio would be $8 billion divided by $32 billion, or 25%. Under the final approach, it would be $8 billion divided by $40 billion, or 20%. At a 25% cap, the first ratio would not satisfy the order’s strict requirement to be less than the cap, while the second would satisfy it.
Investozora’s calculation demonstrates that the final denominator can change exemption eligibility even when the amount of uncleared cross-border repo activity stays unchanged. This is a mathematical illustration, not an SEC estimate or evidence of actual trading volumes. Actual eligibility depends on the exact transaction classifications, required exclusions and rolling assessment period.
The final order also adds the fixed $5 billion alternative. The SEC states in Part II.A, pages 11–12, that it selected this threshold partly to accommodate institutions with smaller U.S. Treasury repo operations without creating an excessively broad exemption. Together, these changes make the final framework materially different from the preliminary approaches presented in August.
Affiliate Transactions
The second major change concerns repo transactions within the same corporate group. Under the original framework, the inter-affiliate exclusion was tied to particular categories of regulated financial entities, including banks, brokers, dealers and futures commission merchants, or their foreign regulatory equivalents.
The October order extends relief to transactions between a direct Treasury clearing participant and an affiliated entity satisfying the majority-ownership and consolidated-financial-reporting criteria in Rule 17ad-22(a), even if that affiliate does not qualify under the original regulated-entity category.
The exemption does not extend to an affiliate that meets the statutory definition of an investment company under Section 3 of the Investment Company Act of 1940, whether or not that company is registered under the Act. This distinction can matter for diversified financial groups with treasury-management subsidiaries or other consolidated entities that are not individually regulated as banks or securities dealers.
The SEC explains in Part III, pages 18–20, that these entities may use repo transactions to transfer liquidity or collateral internally, sometimes outside the operating hours of U.S. clearing agencies. Forcing all such internal movements through central clearing could increase costs and operational delays.
The relief therefore broadens the range of affiliate relationships that can qualify for exclusion. It does not remove the requirement to establish the relevant ownership and consolidated-reporting relationships. The order also explicitly states that it does not supersede the SEC’s separate June 18, 2026 private-fund relief, which addressed qualifying transactions involving captive clearing subsidiaries.
The existing outward-facing condition also warrants careful interpretation. Under the original rule, an affiliate relying on the inter-affiliate exclusion generally had to submit its other repo transactions for clearing.
The October order separately addresses defined non-U.S. outward-facing transactions through its conditional relief, but Part III does not expressly provide a comprehensive replacement for that condition. Consequently, the expanded affiliate exemption should not be characterized as unrestricted relief for every external repo trade undertaken by an eligible subsidiary.
Market Implications
The decision is significant because the U.S. Treasury market depends on international institutions, securities dealers and financing arrangements that operate across national boundaries and time zones. Repo financing supports trading inventories, collateral transfers and liquidity management. Its importance extends beyond transactions involving the Federal Reserve itself.
Investozora’s previous reporting on Treasury yields, bank reserves and Treasury cash examines other parts of the financial conditions surrounding the government securities market.
The Federal Reserve’s SOMA holdings, reverse repo facility and broader balance sheet provide additional context for how public-sector operations interact with funding markets.
Those mechanisms are distinct from the SEC’s clearing mandate. The SEC order changes the treatment of certain transactions under clearing requirements; it does not itself change Federal Reserve interest rates, Treasury issuance or the amount of securities held by the central bank.
The SEC’s original central-clearing policy was designed partly to reduce contagion risk arising when a clearing member has both centrally cleared positions and bilateral exposures outside the clearinghouse.
The new relief preserves that policy objective while acknowledging that certain international and internal transactions present distinct legal and operational complications. The agency expects the declining percentage cap to give market participants time to adapt their systems, obtain legal opinions and arrange clearing access.
However, the order does not quantify how much repo volume will ultimately remain outside clearing because of the exemptions. It also does not establish that transaction costs, Treasury yields or market liquidity have already changed as a result. Those outcomes require separate market evidence.
Implementation Outlook
The October 30 decision is an operative SEC exemption order issued under Sections 17A and 36 of the Securities Exchange Act of 1934, rather than a proposal awaiting another public-comment period. Its cross-border percentage schedule begins alongside the June 30, 2027 repo-clearing compliance deadline. The original cash-market compliance deadline remains December 31, 2026.
The SEC has maintained a centralized Treasury clearing implementation resource containing regulatory orders, implementation updates and staff guidance. For affected firms, the practical work now involves identifying qualifying transactions, determining applicable affiliate relationships, establishing the rolling three-quarter calculations and preparing clearing-agency attestations.
The narrower exemption also places importance on firms’ ability to distinguish trades that qualify for relief from those that remain subject to the clearing mandate. The most important unresolved market question is the actual volume of Treasury repo activity that will qualify once the new clearing requirements become applicable.
Without firm-level trading and clearing data, the final order cannot establish that amount. What the document does establish is a more differentiated Treasury-clearing framework: certain overseas and internal transactions receive targeted relief, while the broader mandatory clearing program proceeds toward implementation.
The SEC has therefore adjusted the boundaries of the mandate without abandoning its central objective of bringing more U.S. Treasury transactions into centrally managed clearing arrangements.
