The Securities and Exchange Commission carved out a capped exemption from its Treasury clearing mandate for foreign and affiliate repo trades, but structured the relief to shrink over time. Release No. 34-106789, issued October 30, 2026, allows big banks' foreign desks to keep repo with non-U.S. clients off the clearinghouse up to a 25% cap starting June 30, 2027, stepping down annually to 20%, then 15%, and finally reaching 10% after June 30, 2030. The order also widened an exemption for inter-affiliate repo, which the SEC says moves cash and collateral inside one balance sheet and creates no outside risk.
The U.S. repo market averaged $12.75 trillion daily from July 2025 to February 2026, with $4.93 trillion of that volume in non-centrally cleared bilateral repo, according to the Office of Financial Research. Roughly 53% of uncleared bilateral repo, about $2.6 trillion, involved a counterparty across the border. The OFR estimates the mandate could push approximately $1.5 trillion of uncleared repo into clearing, while around 70% of that segment remains bilateral. The carve-out applies to repo between a non-U.S. client and either a non-U.S. clearing member, a non-U.S. affiliate of a member, or a foreign branch of a U.S. member. Firms qualify if those trades stay below the applicable percentage of their cleared repo plus the exempt trades, or if they total under $5 billion. Both tests use a rolling daily average of the prior three quarters.
The report explains the percentage test deliberately excludes uncleared trades from the denominator and counts cleared repo even when clearing was never required, designed to "incentivize" firms to clear more. The SEC widened the affiliate exemption so any majority-owned, consolidated affiliate now counts, as long as it isn't an investment company, compared to the previous rule that limited the exemption to affiliates that were banks, broker-dealers, or futures commission merchants. Firms must attest to every clearinghouse they belong to that they're complying, and notify them immediately if they breach the cap. The order responds to requests from the Institute of International Bankers, which asked in February for relief on foreign trades, and SIFMA, which requested the broader affiliate definition and an activity threshold for foreign affiliates.
The denominator structure means firms that want to preserve more of their foreign book bilateral must clear more of everything else. At a 25% cap, $3 of cleared repo supports $1 of exempt repo; at 10%, it takes $9. The report notes this creates a market mechanism bolted onto a mandate, treating the firm as the entity that knows which of its trades carry risk and which involve a treasury desk moving cash between its own pockets outside U.S. hours. CME Group plans to open CME Securities Clearing on December 7, 2026, pending regulatory approvals, clearing both Treasury cash and repo. The firm's pitch centers on capital efficiency through cross-margining Treasury cash and repo against swaps, futures, and options at its existing derivatives clearinghouse. For a global dealer trying to grow its cleared repo volume to earn bilateral room under the new formula, a venue that lowers the margin bill on that extra clearing could prove valuable, especially as the glide path tightens each year.
The first cap reduction arrives July 1, 2028, one year after the repo clearing deadline takes effect. Cash Treasury trades must clear by December 31, 2026, and repo by June 30, 2027, deadlines that already slipped once. The order gives mid-sized foreign dealers a $5 billion floor, creating a simple bright line without a percentage test, though one commenter asked for $10 billion and was turned down. The relief shrinks on a schedule, and the exchange rate for bilateral room gets worse annually, turning the exemption into a currency firms spend cleared volume to buy.