“From Hamilton To Yellen”: Remarks Before The 10th Annual U.S. Treasury Market Conference, SEC Chair Gary Gensler, Washington D.C., Sept. 26, 2024

Thank you for the kind introduction. As is customary, I’d like to note that I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

I’m honored to be speaking with you today following Secretary Yellen, under whose leadership we are in the midst of much needed reforms of our Treasury market. I think our nation’s first Treasury secretary, Alexander Hamilton, would tip his tricorn hat to his 77th successor, for focusing on the efficiency and resiliency of the Treasury market.

A couple hundred years before he became a Broadway star, in 1790, Hamilton told Congress that “the proper funding of the present debt, will render it a national blessing.”[1]

Hamilton’s prophecy has turned out to be prescient. Treasuries are called “risk-free assets,” not just here in the U.S. but around the globe. They are the base upon which our entire capital markets are built. The U.S. Treasury markets play an integral role in the dollar’s dominance. They are how we, as a government and as taxpayers, raise money to fund roads, bridges, and public universities. We are the issuer. They are integral to how the Federal Reserve conducts monetary policy.

Given the magnitude, leverage, and importance of the Treasury markets, as policymakers, we need to promote efficiency in these markets.

Further, over the years, all too often, we’ve seen tremors in these markets. In 2014, we had a “Flash Rally.”[2] In the fall of 2019, the Treasury funding markets again experienced real stress.[3] We all recall the significant “dash-for-cash" in the Treasury market back in 2020, at the beginning of the COVID-19 crisis. While not as significant, we saw jitters again when some regional banks were failing in 2023.

This is not a new phenomenon. I witnessed it during my early days on Wall Street when a dozen government securities dealers failed in the 1980s.

Given the magnitude, leverage, and importance of the Treasury markets, as policymakers, we can’t ignore these tremors.[4]

Clearance and Settlement

While clearinghouses do not eliminate all risk, they do lower it. They facilitate what one might call the market plumbing, that which happens after you execute a transaction through the time that it settles.

First, clearinghouses do so by sitting in the middle and reducing the risks amongst and between counterparties. They also provide multilateral netting, which helps lower the overall margin (collateral) needed to be posted in the system. Further, central clearing reduces risks through the robust rules of the clearinghouses themselves, including for the collection of initial and variation margin.

After those tremors in the Treasury market in the 1980s, Congress worked with President Reagan and the 65th Treasury Secretary Jim Baker to set up a federal regulatory regime for government securities dealers, brokers, and clearinghouses. A few weeks later, the first clearinghouse for government securities was incorporated. I might note that since the beginning in 1986, Treasury transactions were settled on a T+1 basis.

Speaking of T+1, back in May, the U.S. smoothly shortened the standard settlement cycle for equities, corporate bonds, and municipal securities to one day after the transaction date.[5] This was a win for investors, who will no longer need to wait two days to get their money when they sell stocks. It’s a win for resiliency as it lowers risk in the system.

Transitioning to T+1 was a team sport. Thousands of market participants—from the clearinghouse, depositories, custodian banks, broker dealers, investment advisers, self-regulatory organizations, stock exchanges, service providers, and industry groups—worked, along with SEC staff, to make the transition happen smoothly.

Back to Treasury clearing, by 2022, only “approximately 20 percent of all repo and 30 percent of reverse repo is centrally cleared.”[6] Further, inter-dealer brokers (IDBs), which sit in the middle of these cash markets, often are bringing just one side of the trades on their platforms into central clearing.

Thus, in December 2023, the SEC adopted rules to facilitate additional central clearing for the U.S. Treasury markets.[7]

First, in March 2025, the separation of house and customer margin must be completed, ensuring that clearinghouses facilitate indirect participants as well.

When posting margin to the clearinghouse, members no longer will be able to net their customers’ positions against their own proprietary positions. This will better protect customers as well as the clearinghouse itself. Further, I think it could enhance competition as broker-dealers will no longer be able to use their customer positions to lower the margin they post to the clearinghouse.

The rules also allow for customer margin collected by broker-dealers to be onward posted to the clearinghouse under certain conditions. Allowing such rehypothecation helps both protect customers and free up broker-dealers’ resources.

Market participants have experience with similar rules regarding both gross margining and rehypothecation in the swaps, options, and derivatives markets.

Further, providing clearing for so-called “done-away” transactions can be an important component of promoting access and competition in the markets.

To facilitate access to markets, it’s important that clearinghouses and their clearing members promote the ability for market participants to trade anonymously with the confidence that they will have access to central clearing on both sides of the trade. This helps promote all-to-all trading as well as the efficiency and resiliency of central clearing itself. To achieve this, there should be provision of clearing services such that it doesn’t matter with whom one does a trade.

Subsequent to the SEC adopting the Treasury clearing rules, The Fixed Income Clearing Corporation (FICC) filed proposed rule changes intended to meet the requirements to separate house and customer margin as well as regarding customer access. The Commission has received numerous comments and continues to engage with market participants on the issues raised in FICC’s proposal. The Commission must approve or disapprove these rules by November.

More generally, Commission staff are monitoring various projects in which market participants are engaged in advance of increased central clearing in the U.S. Treasury market. Such projects include the development of standard documentation for each access model, the appropriate accounting treatment for each access model, and possible cross-margining between Treasury cash positions and Treasury futures positions for clients. Staff also are monitoring the development of additional methods by which registered investment companies will access central clearing.

Second, the SEC’s final rules broaden the scope of which transactions clearinghouse members must clear. Starting at the end of 2025, the final rules mandate that clearinghouses require their members clear any Treasury cash trades executed on an IDB platform, with registered broker-dealers, or with registered government securities broker-dealers. Starting June 2026, the final rules require clearinghouses in the Treasury markets to ensure that their members clear all their repo and reverse repo transactions.

It has been reported that there may be new entrants considering offering central clearing in the Treasury markets. We at the SEC stand ready to consider any applications to do so.

Transaction volume at the clearinghouse is already increasing. Earlier this month, FICC announced that its yearly volume was up 42 percent. On September 3, they set a new record clearing $9.2 trillion in daily activity. [8]

Dealer-Trader

As I mentioned, when I was a young associate on Wall Street, a dozen government securities dealers failed, leading to President Reagan and Congress giving this agency important authorities over the Treasury markets.

I remember my colleagues and myself processing what had happened, as well as potential effects on the markets and the economy. Drysdale, which was not registered or regulated as a dealer, had significant involvement in the U.S. Treasury markets. It also was highly leveraged. The firm had only $30 million in capital yet managed a portfolio as large potentially as $4 billion.[9]

Yet, when I arrived at the SEC in 2021, I was told that though some firms have registered with the SEC as government securities dealers or broker-dealers, some market participants have not. I think that leaves potential regulatory gaps and risk in the system.

The markets also have evolved in other ways, such as electronification, the use of algorithmic trading, and market participants transacting faster than ever before. Some market participants, such as principal-trading firms (PTFs) that use high-frequency trading strategies, started participating significantly in the Treasury cash market. In 2019, for example, PTFs represented around 60 percent of the volume on the IDB platforms in the Treasury markets.[10]

In essence, these PTFs and other firms are acting in a manner consistent with dealers in the securities markets. Nevertheless, despite these firms acting as de facto market makers, and despite their regularity of participation consistent with buying and selling securities or government securities for their own account “as a part of a regular business,” a number of these firms have not registered with the Commission as dealers.

This deprives investors and the markets themselves of important protections—protections that benefit market integrity, resiliency, transparency, and more.

Thus, the Commission earlier this year adopted final rules to further define what it means to be part of a regular business, as the dealer definition provides, in these circumstances.[11] Firms that act as dealers are required to register with the Commission as dealers, thereby protecting investors as well as promoting market integrity, resiliency, and transparency.

Exchanges and Alternative Trading Systems

Reflecting the electronification and other significant changes in the Treasury markets over the years, the Commission proposed rules to require platforms that provide marketplaces for Treasuries to register as broker-dealers and to comply with Regulation Alternative Trading System (ATS).[12]

It was the dawn of the internet, when Bob Rubin was 70th Treasury Secretary and Arthur Levitt served as the 25th SEC Chair. Under Levitt’s leadership, in responses to new trading models, the SEC in 1998 first adopted Regulation Alternative Trading Systems.[13] At the time, Treasury trading platforms were exempted from these regulations.

A lot, though, has changed in the capital markets in the intervening 26 years. Much of the secondary markets in Treasuries are now facilitated by electronic trading platforms.

The Commission’s proposal, if adopted, would require registration of certain trading platforms in the Treasury markets. It would bring Treasury trading platforms with significant volume under Regulation Systems Compliance and Integrity, a rule that protects for the resiliency of technology infrastructure.[14] It also would require these platforms to comply with the Fair Access Rule, which provides for fair access to platforms and would prohibit platforms from making unfair denials or limitations of access.

This update would close a regulatory gap among platforms.

Transparency

Before I close, I want to discuss a couple of items related to transparency. Earlier this year, we approved a Financial Industry Regulatory Authority (FINRA) rule change to enhance post-trade transparency in the Treasury markets.[15] The FINRA rule, for the first time, will provide the public with post-trade transparency in the Treasury markets on a trade-by-trade basis, rather than on an aggregated basis. The scope of what will be published to the public will include a trade’s time, price, direction, venue, and size.

Further, we approved amendments last year to modernize a rule regarding which broker-dealers must register with FINRA, which will enhance cross-market and off-exchange oversight for some of the most active participants in the capital markets.[16]

Conclusion

From Hamilton to Baker to Rubin to Yellen, each understood the importance of the U.S. Treasury markets. Much has changed since Hamilton’s era — after all, he didn’t see the dawn of the internet and modern technology. I’d like to think, though, he would have shared Secretary Yellen’s knack for playing Candy Crush Saga.

The challenge in our times is to bring reforms to ensure that they are as efficient and resilient as they can be.

It's critical to taxpayers, to the capital markets, to monetary policy, and the role of the dollar around the globe.