SEC phases a capped exemption from Treasury repo clearing

Release No. 34-106789, dated October 30, 2026, takes a capped share of qualifying non-US Treasury repo, and a wider class of inter-affiliate repo, out of the Rule 17ad-22(a) definition of an eligible secondary market transaction.

The Securities and Exchange Commission (SEC) issued the order under Sections 17A and 36(a) of the Exchange Act, in file numbers S7-2026-07 and S7-2026-11. A firm may leave Qualifying Non-US Transactions outside that definition only while the book stays under a falling Percentage Cap or a $5 billion test. The Treasury Clearing Implementation page, reviewed on October 31, 2026, still lists December 31, 2026 for eligible cash and June 30, 2027 for eligible repo. What follows is the cap arithmetic and the affiliate boundary.

Key facts

• Release No. 34-106789 is dated October 30, 2026, rests on Sections 17A and 36(a), and is signed for the Commission by Assistant Secretary Sherry Haywood (the order).
• Eligible cash transactions are dated December 31, 2026, and eligible repo June 30, 2027, after a one-year extension (SEC Treasury Clearing Implementation page).
• The Percentage Cap is 25% from June 30, 2027 through June 30, 2028, then 20%, 15%, and 10% after June 30, 2030 (the order).
• The alternative Fixed Dollar Threshold is a market value below $5 billion, on a rolling daily average of the prior three quarters, weighted equally (the order).
• Part III stops at an investment company under Section 3 of the Investment Company Act of 1940, registered or unregistered (the order).
• The June 18, 2026 Private Fund Relief, Exchange Act Release No. 105736, 91 FR 37446 (June 23, 2026), stays in place beside the new text (the order).

Methodology and the documents behind the thresholds

The primary document is the Commission's order of October 30, 2026, Release No. 34-106789, read with press release 2026-111. Compliance dates come from the SEC Treasury Clearing Implementation page, which records a one-year extension. The quoted letter is Robert Toomey's April 10, 2026 request for the Securities Industry and Financial Markets Association (SIFMA). Comparison sources are the European Commission page on Regulation (EU) 2015/2365, the Bank of England supervision page, and the Japan Securities Clearing Corporation (JSCC) qualification page. Enforcement context is the September 22, 2026 order against OTC Link LLC, Release No. 34-106458. The window runs from the December 13, 2023 adopting release through October 30, 2026. The Official Journal text of Regulation (EU) 2015/2365 failed to load, so this account states no euro sanction figure.

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What the order removes from an eligible secondary market transaction

On December 13, 2023 the Commission amended Rule 17ad-22(a) and Rule 17ad-22(e)(18)(iv), cited in the October order as Release No. 34-99149. A covered clearing agency for US Treasury securities must require each direct participant to submit every eligible secondary market transaction to which it is a counterparty, including repo collateralised by Treasuries the agency accepts. The 2023 exclusion for an affiliated counterparty, the outward-facing condition, was limited to a bank, broker, dealer, futures commission merchant or home-country equivalent inside a majority-owned consolidated group.

A Qualifying Non-US Transaction under Release No. 34-106789 is an uncleared eligible secondary market repurchase agreement between a Non-US Client and one of three bookings: a Non-US Participant, an affiliated counterparty of a direct participant that fails the US-person tests, or a foreign branch of a direct participant that is a US person. A Non-US Client sits outside the direct-participant population, outside the Exchange Act Rule 3a71-3 definition of a US person, outside a US branch of a non-US person, and outside a non-US person whose obligations on the trade a US person guarantees. The October 30, 2026 order excludes only a limited amount of that book from the Rule 17ad-22(a) definition. The firm must keep market value, the principal amount of the opening leg, under the Percentage Cap or under $5 billion, on a rolling daily average of the prior three quarters. The cap is 25% from June 30, 2027 through June 30, 2028, then 20%, then 15%, and 10% after June 30, 2030.

The denominator is the firm's cleared repo, other than repo with an affiliated counterparty, plus the qualifying book. Cleared repo with a central bank, a sovereign, a state, a local government or a natural person still counts, and uncleared repo stays out of that sum. The Commission kept uncleared trades out, as SIFMA argued on September 18, 2026, and rejected both a request to add uncleared volume and a request to drop exempt trades. The fixed test is $5 billion, against an Institute proposal of $10 billion.

Under Section 36, 15 USC 78mm, and Section 17A, 15 USC 78q-1(b)(1), the Commission finds the conditional exemption appropriate for internal collateral movements, for Non-US Clients where close-out netting is uncertain, and for one test in place of two requests. The ordering clause grants that relief and, separately, the Part III affiliate exclusion.

How the United States, the European Union, the United Kingdom and Japan diverge

Sources: Release No. 34-106789; SEC Treasury Clearing Implementation; European Commission, securities financing transactions; Bank of England FMI supervision; JSCC Japanese government bond clearing qualification, consulted through October 31, 2026.

Government-bond repo sits under three different legal designs, and Release No. 34-106789 makes the American design more specific. Rule 17ad-22(e)(18)(iv) requires a covered clearing agency to insist that direct participants submit eligible secondary market transactions. The implementation page dates the repo limb at June 30, 2027, and the October order then cuts two categories out of the definition, one only while a Percentage Cap starting at 25% or a $5 billion test is met. In the European Union, Regulation (EU) 2015/2365, fully applied from January 11, 2021, reports repurchase transactions, other than those with central banks, to trade repositories. The Commission's securities-financing page stays silent on any duty to submit government-bond repo to a central counterparty. In Japan, JSCC's page is a membership test, with a capital-to-risk ratio above 200%. The American order limits residual uncleared repo inside one US clearing membership.

The United Kingdom sits nearer that transparency model. From January 1, 2024 the Financial Services and Markets Act 2023 gave the Bank of England rulemaking powers over central counterparties. The supervision page stays silent on gilt repo. Set beside the European Securities and Markets Authority's refusal to widen central-counterparty collateral and the Financial Conduct Authority's transaction-reporting map, the American change is an exemption inside a submission duty.

"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."

— Mark T Uyeda, Commissioner, Securities and Exchange Commission, whom Chairman Paul Atkins has designated to lead the transition to central clearing of US Treasury security transactions (SEC press release 2026-111, October 30, 2026).

Where the trade-submission duty is enforced, and what a recent penalty shows

Release No. 34-106789 puts the consequence of a missed test on the covered clearing agency. The direct participant attests that it is watching the Percentage Cap or the $5 billion test. If the test is missed, it tells each such agency at once and either offers a plan to come back inside the condition or says it will leave the relief. The order points to CME Securities Clearing Rule 305(a)(vi) and to Fixed Income Clearing Corporation Government Securities Division Rule 3, section 10, as books-and-records authority those agencies already hold.

Footnote 55 cites the adopting release at page 2717 on hybrid clearing: bilateral trades can affect resources owed to the covered clearing agency. The cap and the $5 billion test are the limit the order puts on that book. Footnote 52 points to pages 2798 to 2800 for benefits the Commission says remain. The implementation page records registration orders for CME Securities Clearing and ICE Clear Credit. The Commodity Futures Trading Commission's registration of Coinbase Clearing sits under a different statute.

On September 22, 2026, in Release No. 34-106458, Administrative Proceeding File No. 3-22748, the Commission censured OTC Link LLC and set a civil money penalty of $575,000 for violations of Regulation Systems Compliance and Integrity Rules 1001(a)(1), 1001(a)(2) and 1001(a)(3). From August 2016 through March 2025 the broker-dealer lacked written policies reasonably designed for the capacity and security of OTC Link ATS. OTC Link agreed, without admitting the findings, to a censure, a cease-and-desist order, and payment within 14 days. Adam Gottlieb conducted the investigation, supervised by Paul Kim and Laura D'Allaird. Our earlier account of the $575,000 Regulation SCI penalty sets out the posture. The repo order leaves the daily record of the cap with the clearing agency.

What the relief changes for direct participants, affiliates and legal teams

For a broker-dealer or futures commission merchant that is a direct participant, footnote 19 defines the firm as that participant plus affiliates in the same consolidation group, including another direct participant, under US Generally Accepted Accounting Principles or International Financial Reporting Standards. Two direct participants in one group share a single ratio. The attestation runs to every US Treasury securities covered clearing agency of which the firm is a member, so a dual member repeats the notice if the test fails. Clearing repo with a central bank, a sovereign, a state, a local government or a natural person enlarges the denominator.

SIFMA's April 10, 2026 letter asked for an activity percentage on repo between non-US affiliates and non-US counterparties. The conditional exemption also covers client-facing Qualifying Non-US Transactions, including a foreign branch of a US direct participant, and starts at 25% rather than the 10% SIFMA asked to apply at once. Part III drops repo with an entity that meets only the ownership and consolidation prongs, unless the entity is an investment company under Section 3 of the 1940 Act, a line the Commission draws where the affiliate takes market positions on securities.

A Section 3 investment company stays outside Part III, registered or unregistered, while private funds remain under Release No. 105736 of June 18, 2026, issued for the Managed Funds Association. Rule 3a71-3 decides who is a US person, and a US guarantee or a US-branch booking pulls the trade out of the Non-US categories. Footnote 18 records the September 10, 2026 REIT Groups request from William C Thum and Robert Toomey, which the ordering clause leaves untouched. Staff in the Division of Trading and Markets can be reached at tradingandmarkets@sec.gov or 202-551-5777. Commodity Futures Trading Commission Release 9306-26 extends a different cross-border relief on its own timetable.

"The requested relief would allow more inter-affiliate Repo Transactions to settle without central clearing, achieving the SEC's stated intent for including the Inter-Affiliate Exemption in the Clearing Rule and avoiding the deleterious consequences for financial markets that could result from requiring affiliates to clear Repo Transactions with their Direct Participants."

— Robert Toomey, Head of Capital Markets, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, in the April 10, 2026 letter to the Commission (SIFMA exemptive-relief request).

What stays open as the percentage cap steps down

The order is final as of October 30, 2026, and the comment periods are closed. The Institute of International Bankers wrote on February 27, 2026. The Commission noticed that request as Exchange Act Release No. 104944 (March 6, 2026), 91 FR 12030, with windows closing April 10, 2026 and, after Release No. 105261, May 29, 2026. SIFMA's letter was noticed as Release No. 105262 (April 17, 2026), 91 FR 21533. Footnote 17 identifies the combined reopening as Release No. 106062 (August 4, 2026), 91 FR 52354. Both later windows closed on August 31, 2026. The narrative dates that reopening to August 7, 2026.

Three items stay live after the signature. The Percentage Cap runs at 25% through June 30, 2028, then 20% from July 1, 2028, 15% from July 1, 2029, and 10% after June 30, 2030. The Commission says it will monitor the $5 billion threshold against the Treasury market, and the order sets no calendar date for that look-back. The REIT Groups request sits outside the ordering clause. The implementation page, last reviewed October 30, 2026, still states December 31, 2026 for eligible cash and June 30, 2027 for eligible repo.

SIFMA asked for a 10% test and later withheld objection to a path from 20% towards 10%. The Institute suggested 25% for two years, then 10%. The Commission chose 25%, then 20%, then 15%, then 10%, on client-facing Qualifying Non-US Transactions, with the $5 billion alternative beside the ratio. The order cites the April 10, 2026 UBS AG letter of Callum Nieto and Patrick Deharveng, and the May 28, 2026 HSBC Bank USA letter of Curtis Tao, on operational difficulty. A thin cleared book will use the dollar test, and a large cleared book will use the ratio.

TL;DR

Release No. 34-106789, issued on October 30, 2026 under Sections 17A and 36(a), excludes two categories of Treasury repo from the Rule 17ad-22(a) definition of an eligible secondary market transaction. Qualifying Non-US Transactions stay outside only while the group-wide book is under a Percentage Cap or under $5 billion. The cap is 25% from June 30, 2027 through June 30, 2028 and falls to 10% after June 30, 2030. A separate exemption covers repo with an affiliate that meets the ownership and consolidation tests and falls outside Section 3 of the Investment Company Act of 1940. Eligible cash remains dated December 31, 2026 and eligible repo June 30, 2027 on the implementation page. Direct participants attest to their clearing agencies. The order records an industry suggestion of $10 billion and sets the fixed-dollar limb at $5 billion.

FAQ

What does Release No. 34-106789 actually exempt?

Release No. 34-106789 grants two exemptions from the eligible-secondary-market-transaction definition in Rule 17ad-22(a). Part II is conditional and covers a limited amount of Qualifying Non-US Transactions, uncleared Treasury repo with a Non-US Client. Part III covers repo with an entity that meets the ownership and consolidation prongs and falls outside Section 3 of the Investment Company Act of 1940. The order is dated October 30, 2026.

How does a firm know whether it is inside the Percentage Cap?

The firm is any direct participant together with its affiliates. Divide Qualifying Non-US Transactions, at the principal of the opening leg, by cleared repo other than inter-affiliate repo, plus that qualifying book. The quotient must sit below 25% from June 30, 2027 through June 30, 2028, then below 20%, 15%, and 10% after June 30, 2030. The alternative is a book below $5 billion. Both tests use an equally weighted daily average of the prior three quarters.

Which affiliates remain outside the wider exclusion?

Part III reaches an entity with majority ownership and consolidated reporting under US Generally Accepted Accounting Principles or International Financial Reporting Standards. The exemption stops at an investment company under Section 3 of the Investment Company Act of 1940, registered or unregistered. The 2023 Inter-Affiliate Exclusion, including the outward-facing condition, remains for a counterparty that already meets all three prongs. Release No. 105736 of June 18, 2026 stays in place beside this order.

Does the order move the cash or repo compliance date?

The operative text leaves compliance dates on the SEC Treasury Clearing Implementation page, last reviewed October 30, 2026. That page states a one-year extension, to December 31, 2026 for eligible cash and to June 30, 2027 for eligible repo. The Percentage Cap begins on that same repo date, so the relief is available when the submission duty starts and then tightens. A later miss triggers notice to the firm's covered clearing agencies.

How is this different from European repo transparency rules?

Regulation (EU) 2015/2365, on the European Commission's securities-financing page, took effect on January 12, 2016, with full application on January 11, 2021. Repo is in scope, other than transactions with central banks. Duties are repository reporting and prior consent before collateral reuse. The page stays silent on a submission duty and on a percentage cap. Release No. 34-106789 pairs a submission duty with a quantified exemption.

What must a direct participant tell its clearing agency?

The direct participant attests to each US Treasury securities covered clearing agency where it is a member that it meets the Percentage Cap or the $5 billion test. A miss requires immediate notice and either a plan to return or a statement that the firm will stop relying on the relief. The agency may then apply its rules. The order cites CME Securities Clearing Rule 305(a)(vi) and Fixed Income Clearing Corporation Rule 3, section 10.

This article is informational analysis only and does not constitute legal, regulatory, tax, or investment advice. Regulatory frameworks change frequently and interpretation depends on facts and circumstances; primary documents and official regulator guidance always supersede summaries. Firms should consult qualified legal counsel and their relevant supervisory authority before taking any action based on the analysis above.