SEC Approves Exemptive Order and Proposed Rule Change to Permit Customer Cross-Margining in the U.S. Treasury Market

Impact. This rule enables dually-registered broker-dealers and FCMs with common FICC-CME membership to cross-margin customer Treasury cash and futures positions, creating material capital efficiencies through reduced margin requirements. Your trading and treasury operations must integrate position management systems across cash and derivatives books while implementing new customer protection safeguards required under the exemptive order conditions.

Risk. Operations teams face the highest exposure through system integration complexity and the compressed timeline to retrofit cross-margining capabilities. Examiners will scrutinize customer fund protection mechanisms and risk management controls for cross-margined positions, particularly focusing on whether your firm properly segregates customer assets and maintains adequate model validation for the new margining framework.

Recommended Action. Trading Operations should immediately assess current system capabilities against the cross-margining requirements and engage IT to scope integration timelines between your cash Treasury and futures platforms. Risk Management needs to validate existing models can handle cross-margined position calculations and ensure customer protection controls meet the exemptive order standards.

Watch. Monitor for SEC examination guidance on cross-margining compliance expectations and any interpretive releases clarifying customer protection requirements as firms begin implementing these capabilities.