Gensler and Peirce Disagree on Treasury Clearing Implementation

Washington, DC – Today, at a Financial Services hearing entitled Oversight of the Securities and Exchange Commission, Congressman Lucas, SEC Chair Gary Gensler, and SEC Commissioner Hester Peirce discussed the need to extend Treasury clearing timelines.

While Chair Gensler did not say, Commissioner Peirce agreed with Congressman Lucas that there is a need to extend these timelines.

HIGHLIGHTED QUOTES

Lucas: “The SEC recently made significant reforms to Treasury clearing, which plays a vital role for financial markets and the U.S. economy. Market participants have expressed the need to extend these timelines for implementation to be successful. Chairman Gensler, has there been consideration given to adjusting this timeline?”

Gensler: “We work very closely with the U.S. Department of Treasury and the Federal Reserve for what was a 2-and-a-half-year timeline when we adopted this. It is a vital market to U.S. taxpayers at 28 trillion-dollar treasury market and it’s really to bring greater efficiency… The first timeline is on track right now… the ultimate timelines will go all the way through June of 2026.”

Peirce: “I did not support the rule because I thought we could take a more measured approach, but now that it is in place… I think we should be open to the idea of extending the timelines.”

Click here to watch Lucas’ full Q&A (09/24/2024). 

FULL TRANSCRIPT:

Lucas: I’d like to begin by focusing on proposed rule 10B-1, regarding security-based swap positions. Chairman Gensler, we’ve discussed this proposal before, and I appreciate your willingness to engage on this Rule and to meet with stakeholders. I know you are familiar with the bipartisan feedback concerning market liquidity. Chairman, could you first briefly touch on if the Commission is still taking this bipartisan feedback into consideration, and I’d also appreciate if Commissioner Peirce could offer insight here as well. 

Gensler: Yes and you’re feedback was very helpful because you helped write this provision in the original bill and I remember it because we worked together on some of that legislation. While a comment period closed months ago, if feedback comes in just like this discussion here, we continue to consult and consider that. This is about whether in security-based swaps there is some reporting or transparency for the larger positions to the agency, and secondly whether there’s any public reporting of that. And there was a lot of comments in the comment file to maybe look to just have the reporting to the agency and not have it public. But we’re still considering that record. 

Lucas: Commissioner Peirce?

Peirce: I think this project is pretty typical of a lot of rulemaking projects at the SEC. We go out with something really broad and very onerous and lacking the data to form the basis for it. And then we get comment back saying, “hey, this is unworkable and will have adverse, unintended consequences.” And we pull back. We’re thinking about it now, so I don’t know where we’re going to come out, but I will say if we get it wrong then we risk roiling the markets – so I hope we will take that considering into account.

Lucas: The SEC recently made significant reforms to Treasury clearing, which plays a vital role for financial markets and the U.S. economy. Market participants have expressed the need to extend those timelines for implementation to be successful. Chairman Gensler, has there been consideration given to adjusting this timeline?

Gensler: We work very closely with the U.S. Department of Treasury and the Federal Reserve when we adopted this for what was a 2-and-a-half-year timeline. This is a vital market to U.S. taxpayers, a 28 trillion-dollar Treasury market, and it’s really to bring greater efficiency – meaning lowering the cost and lowering the risk resiliency through central clearing. The first timeline is on track right now and March of next year for what’s called customer clearing. The ultimate timelines go all the way through June of 2026.

Lucas: Commissioner Peirce, could you offer your perspective on the Treasury Clearing timeline? 

Peirce: I did not support the rule because I thought we could take a more measured approach, but now it is in place I am committed to as sound implementation as possible and I think we should be open to the idea of extending the timelines. And also, we should be working closely with industry and other regulators to make sure we are getting this right. I have called for setting up a task force to really throw ourselves into the implementation process and that will put us in a place to whether we need to know to extend timelines. 

Lucas: As many of my colleagues have discussed during the last several years, the volume and scope of SEC rule makings has been of concern. Two examples: The Custody Rule and the Predictive Data Analytics Rule – both presented major challenges to the market, and both seem to require major revisions to address the unintended consequences. Commissioner Uyeda, could you discuss how the Commission could better catch these unintended consequences before reaching the proposal stage?

Uyeda: One common tool, which we have not used in recent times, is to hold roundtables and other fact-finding type activities that would lay a better predicate before we issue an actual proposal. That is one of the challenges, I think, and concerns about our current proposals, is they are so broad and so wide. We have the proposal itself but many times we’ll have dozens if not scores of permutations and combinations on that. When you have multiple rulemakings all at the same time on different subjects that affect the same entities, it’s really hard for them to give us thoughtful feedback on that. So, this is one where it’s a bit like the saying in construction, “measure twice, cut once,” we should think about doing the same thing with proposals.

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