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

Impact. This exemptive order opens the door for cross-margining arrangements in U.S. Treasury markets, which will require broker-dealers to evaluate whether their current margin calculation systems can handle portfolio-level netting across Treasury positions. Firms choosing to implement cross-margining will need operational workflows that can aggregate exposures and calculate margin requirements on a net basis rather than gross position-by-position.

Risk. The primary exposure lies in systems gaps where existing margin platforms lack cross-margining functionality, potentially forcing manual workarounds that introduce operational risk. Risk management teams face the challenge of updating frameworks to properly capture and monitor the concentrated exposures that cross-margining arrangements can create when positions net against each other.

Recommended Action. Operations should immediately inventory current margin calculation systems to determine cross-margining readiness and identify any vendor discussions needed for system enhancements. Technology teams should run parallel assessments of data flows and calculation engines to map the changes required for portfolio-level margin computations.

Watch. Monitor for implementation guidance from the SEC and clearing organizations on technical specifications for cross-margining calculations, as these details will drive the scope of any required system modifications.