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Notice2026-22493

Order Granting Exemptive Relief, Pursuant to Sections 17A and 36(a) of the Securities Exchange Act of 1934, From the Definition of an “Eligible Secondary Market Transaction” in Rule 17ad-22(a)

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Published

November 4, 2026

Issuing agencies

Securities and Exchange Commission

Full Text

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<title>Federal Register, Volume 91 Issue 212 (Wednesday, November 4, 2026)</title>
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[Federal Register Volume 91, Number 212 (Wednesday, November 4, 2026)]
[Notices]
[Pages 69578-69583]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-22493]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-106789; File Nos. S7-2026-07 and S7-2026-11]

Order Granting Exemptive Relief, Pursuant to Sections 17A and
36(a) of the Securities Exchange Act of 1934, From the Definition of an
``Eligible Secondary Market Transaction'' in Rule 17ad-22(a)

October 30, 2026.

I. Introduction

A. Background

On December 13, 2023, the Securities and Exchange Commission
(``Commission'' or ``SEC'') adopted amendments to Rule 17a9(a) and
(e)(18)(iv)(A) and (B) under the Securities Exchange Act of 1934
(``Exchange Act'').\1\ Under these amendments, covered clearing
agencies that provide central counterparty services for U.S. Treasury
securities (``U.S. Treasury securities CCAs'') must establish,
implement, maintain, and enforce written policies and procedures
reasonably designed to establish objective, risk-based, and publicly
disclosed criteria for participation which require that any direct
participant of a U.S. Treasury securities CCA submit for clearance and
settlement all of the eligible secondary market transactions to which
such direct participant is a counterparty, and identify and monitor the
U.S. Treasury securities CCA's direct participants' submission of
transactions for clearing as required under the amendments (together,
the ``Trade Submission Requirement'').\2\ The amendments defined what
constitutes an ``eligible secondary market transaction'' to include,
among other things, a secondary market transaction in U.S. Treasury
securities of a type accepted for clearing by a registered covered
clearing agency that is a repurchase or reverse repurchase agreement
collateralized by U.S. Treasury securities (``repo transactions''), in
which one of the counterparties is a direct participant of a covered
clearing agency.\3\
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\1\ Standards for Covered Clearing Agencies for U.S. Treasury
Securities and Application of the Broker-Dealer Customer Protection
Rule With Respect to U.S. Treasury Securities, Release No. 34-99149
(Dec. 13, 2023), 89 FR 2714, 2737 (Jan. 16, 2024) (``Adopting
Release'').
\2\ 17 CFR 240.17ad-22(e)(18)(iv)(A) and (B).
\3\ 17 CFR 240.17ad-22(a).
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The amendments also included an exclusion from the definition of an
eligible secondary market transaction for any repo transactions entered
into between a direct participant and an affiliated counterparty (the
``Inter-Affiliate Exclusion''), provided that the affiliated
counterparty submit for clearance and settlement all other repo
transactions to which the affiliate is a party (the ``outward facing
condition'').\4\ The amendments define ``affiliated counterparty'' as
any counterparty which meets the following criteria: (i) the
counterparty is either a bank (as defined in 15 U.S.C. 78c(6)), broker
(as defined in 15 U.S.C. 78c(4)), dealer (as defined in 15 U.S.C.
78c(5)), or futures commission merchant (as defined in 7 U.S.C.
1a(28)), or any entity regulated as a bank, broker, dealer, or futures
commission merchant in its home jurisdiction; (ii) the counterparty
holds, directly or indirectly, a majority ownership interest in the
direct participant, or the direct participant, directly or indirectly,
holds a majority ownership interest in the counterparty, or a third
party, directly or indirectly, holds a majority ownership interest in
both the direct participant and the counterparty; and (iii) the
counterparty, direct participant, or third party referenced in
paragraph (ii) of this definition as holding the majority ownership
interest would be required to report its financial statements on a
consolidated basis under U.S. Generally Accepted Accounting Principles
or International Financial Reporting Standards, and such consolidated
financial statements include the financial results of the majority-
owned party or of both majority-owned parties.\5\
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\4\ Id.
\5\ Id.
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B. IIB's and SIFMA's Requests for Exemptive Relief

The Commission has received requests for exemptive relief related
to transactions by non-U.S. persons and related to the Inter-Affiliate
Exclusion.
On February 27, 2026, the Institute of International Bankers
(``IIB'') submitted a letter to the Commission requesting exemptive
relief from the Trade Submission Requirement for certain non-U.S.
transactions, specifically, the transactions of foreign financial
institutions who are direct participants of a U.S. Treasury securities
CCA when transacting with non-U.S. clients.\6\ IIB explained that
exemptive relief was appropriate because of legal uncertainty in
certain foreign jurisdictions regarding the enforceability of
fundamental clearing requirements, potential registration requirements
for clearing firms operating in those jurisdictions, and practical
concerns about repo transactions occurring when no U.S. Treasury
securities CCA is operating.\7\ On March 6, 2026, the Commission
published the notice and encouraged interested persons to comment on
the request for exemptive relief pursuant to Section 36 of the Exchange
Act.\8\ The initial comment period for the IIB Notice closed on April
10, 2026, and the Commission then reopened the comment period, which
then closed on May 29, 2026.\9\
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\6\ See Letter from Stephanie Webster, General Counsel,
Institute of International Bankers, dated February 27, 2026,
available at <a href="https://cdn.ymaws.com/www.iib.org/resource/resmgr/2026_comment_letters/2026.02.27_iib_comm.ltr..t.c.pdf?bcs-agent-scanner=74470127-f329-574a-92f4-5e29ae31bc4d">https://cdn.ymaws.com/www.iib.org/resource/resmgr/2026_comment_letters/2026.02.27_iib_comm.ltr..t.c.pdf?bcs-agent-scanner=74470127-f329-574a-92f4-5e29ae31bc4d</a> (``IIB Letter'').
\7\ Id. at 3-4.
\8\ Notice of Request for Exemptive Relief, Pursuant to Section
36(a) of the Securities Exchange Act of 1934, From Certain Aspects
of Rule 17ad-22(e)(18)(iv) of the Securities Exchange Act of 1934
and Request for Comment, Exchange Act Release No. 104944 (Mar. 6,
2026), 91 FR 12030 (Mar. 11, 2026) (``IIB Notice'').
\9\ Reopening of Comment Period; Notice of Request for Exemptive
Relief, Pursuant to Section 36(a) of the Securities Exchange Act of
1934, from Certain Aspects of Rule 17ad-22(e)(18)(iv) of the
Securities Exchange Act of 1934 and Request for Comment, Exchange
Act Release No. 105261 (Apr. 17, 2026), 91 FR 21584 (Apr. 22, 2026).
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On April 10, 2026, the Securities Industry and Financial Markets
Association (``SIFMA'') submitted a letter to the Commission requesting
exemptive relief in two areas related to the Trade Submission
Requirement.\10\ First, SIFMA requested exemptive relief to expand the
list of permitted affiliates with whom direct participants of a U.S.
Treasury securities CCA could transact and rely upon the Inter-
Affiliate Exclusion beyond the current set (i.e., banks, broker-
dealers, futures commission merchants, and their foreign equivalents)
(the ``SIFMA First Request''). Specifically, SIFMA requested that the
Commission exercise its exemptive authority to allow a firm to treat
all counterparties that meet clauses (ii) and (iii) of the definition
in Rule 17ad-22(a) as affiliated counterparties, except for an
affiliate that is an ``investment company'' as defined in Section 3 of
the Investment Company Act of 1940 (regardless of whether such
investment company is registered or required to be registered under
that act).\11\
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\10\ See Letter from Robert Toomey, Head of Capital Markets,
Managing Director/Associate General Counsel, Securities Industry and
Financial Markets Association, dated April 10, 2026, available at
<a href="https://www.sifma.org/wp-content/uploads/2026/04/SIFMA-Section-36-Exemptive-Relief-Request-for-Interaffiliate-Transactions.pdf">https://www.sifma.org/wp-content/uploads/2026/04/SIFMA-Section-36-Exemptive-Relief-Request-for-Interaffiliate-Transactions.pdf</a>
(``SIFMA Letter'').
\11\ Id. at 8.
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Second, SIFMA requested that the outward-facing condition not
include repo transactions between non-U.S.

[[Page 69579]]

affiliates and non-U.S. counterparties, to the extent that the direct
participant does not exceed a specific activity level percentage
threshold for those transactions (the ``SIFMA Second Request'').\12\
SIFMA explained that such relief was appropriate because non-U.S.
affiliates commonly enter into transactions with each other for
treasury, liquidity, and collateral management purposes that would
raise serious logistical and cost concerns under the adopted rule.\13\
On April 17, 2026, the Commission published the notice and encouraged
interested persons to comment on the request for exemptive relief
pursuant to Section 36 of the Exchange Act.\14\ The comment period
closed on May 29, 2026.
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\12\ Id. at 8-11.
\13\ Id. at 9.
\14\ Notice of Request for Exemptive Relief, Pursuant to Section
36(a) of the Securities Exchange Act of 1934, From Certain Aspects
of Rule 17ad-22(e)(18)(iv) of the Securities Exchange Act of 1934
and Request for Comment, Exchange Act Release No. 105262 (Apr. 17,
2026), 91 FR 21533 (Apr. 22, 2026) (``SIFMA Notice'' and, together
with the IIB Notice, ``Notices'').
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The Commission received certain comments on both Notices that
suggested different approaches or modifications to the requested
exempted relief.\15\ In particular, certain commenters suggested that a
unified or holistic approach to the issues presented in the IIB Notice
and in the SIFMA Second Request may be workable, by incorporating
elements from each Notice into one exemption, thus allowing for one
exemption to generally address the issues raised in both Notices.\16\
In response, on August 7, 2026, the Commission reopened the comment
periods on both Notices, presenting a preliminary example of a unified
approach and seeking additional feedback on certain targeted questions
about the approach and alternative exemptive relief.\17\ Both comment
periods closed on August 31, 2026, and the Commission received
additional comments on the issues raised in the Second Reopening
Release.\18\
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\15\ See, e.g., Letters from Stephanie Webster, General Counsel,
Institute of International Bankers, dated April 10, 2026, May 29,
2026, August 4, 2026 (the latter two letters ``IIB May 29 Letter''
and ``IIB Aug. 4 Letter'' respectively); Letter from Robert Toomey,
Head of Capital Markets, Managing Director/Associate General
Counsel, SIFMA, dated July 1, 2026; Letters from Financial Services
Forum, dated April 10, 2026 and May 29, 2026 (the former letter
``FSF Apr. 10 Letter''). All comments are available at <a href="https://www.sec.gov/rules-regulations/public-comments/s7-2026-11">https://www.sec.gov/rules-regulations/public-comments/s7-2026-11</a> and <a href="https://www.sec.gov/rules-regulations/public-comments/s7-2026-07">https://www.sec.gov/rules-regulations/public-comments/s7-2026-07</a>.
\16\ See, e.g., IIB May 29 Letter, supra note 15 at 2; FSF Apr.
10 Letter, supra note 15 at 2-3.
\17\ Reopening of Comment Period; Notices of Request for
Exemptive Relief, Pursuant to Section 36(a) of the Securities
Exchange Act of 1934, from Certain Aspects of Rule 17ad-
22(e)(18)(iv) of the Securities Exchange Act of 1934 and Requests
for Comment, Exchange Act Release No. 106062 (Aug. 4, 2026), 91 FR
52354 (Aug. 13, 2026) (``Second Reopening Release'').
\18\ See Letters from Stephanie Webster, General Counsel,
Institute of International Bankers, dated August 31, 2026 and
October 1, 2026 (``IIB Aug. 31 Letter'' and ``IIB Oct. 1 Letter,''
respectively); Letter from Robert Toomey, Head of Capital Markets,
Managing Director/Associate General Counsel, SIFMA, dated September
18, 2026 (``SIFMA Sept. 18 Letter''); see also Letter from William
C. Thum, Managing Director/Associate General Counsel, SIFMA AMG and
Robert Toomey, Managing Director/Associate General Counsel, SIFMA,
dated September 10, 2026 (requesting a separate exemption related to
REIT Groups).
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II. Exemptive Relief for Qualifying Non-U.S. Transactions

A. Scope of Conditional Exemptive Relief

After considering the requests and the comments received on the IIB
Notice, SIFMA's Second Request, and the Second Reopening Release, the
Commission is issuing a conditional exemption, pursuant to Sections
36(a) and 17A(b)(1) of the Exchange Act, from the definition of an
eligible secondary market transaction in Rule 17ad-22(a). Specifically,
this exemption would exclude, from the definition of eligible secondary
market transaction, a certain amount of a firm's \19\ Qualifying Non-
U.S. Transactions, as that term is defined below, provided that the two
conditions set forth below are met.
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\19\ For purposes of the conditional exemptive relief for
Qualifying Non-U.S. Transactions, ``firm'' means any direct
participant of a U.S. Treasury securities CCA, together with its
affiliates. A specified person is an ``affiliate'' of another person
if: (i) either person consolidates the other on a financial
statement prepared in accordance with U.S. Generally Accepted
Accounting Principles, the International Financial Reporting
Standards, or other similar standards, (ii) both persons are
consolidated with a third person on a financial statement prepared
in accordance with such principles or standards, or (iii) for a
person that is not subject to such principles or standards, if
consolidated as described in clause (i) or (ii) of this definition
would have occurred if such principles or standards had applied.
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First condition:
Either:
The quotient of the following is less than a specified percentage
(``Percentage Cap''):
<bullet> The market value \20\ of the firm's Qualifying Non-U.S.
Transactions; divided by
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\20\ For purposes of the conditional exemptive relief, ``market
value'' means the principal amount of the opening leg (i.e., the
start leg) of a repo transaction.
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<bullet> The sum of the market value of (i) all of the firm's
cleared repo transactions, excluding such repo transactions entered
into between a direct participant and an affiliated counterparty \21\
(as discussed further below), and (ii) the firm's Qualifying Non-U.S.
Transactions (i.e., the numerator transactions) (collectively, the
``Firm-Specific Threshold'');
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\21\ See discussion in Part III, infra.
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Or:
The market value of the firm's Qualifying Non-U.S. Transactions are
less than $5,000,000,000 (``Fixed Dollar Threshold'').
For purposes of this conditional exemption, ``Qualifying Non-U.S.
Transactions'' means uncleared eligible secondary market transactions
that are repo transactions between:
1. A ``Non-U.S. Client'', meaning an entity that is not:
a. A direct participant of a U.S. Treasury securities CCA,
b. A U.S. person,\22\
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\22\ U.S. person is defined as in Exchange Act Rule 3a71-3, 17
CFR 240.3a71-3.
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c. A U.S. branch of a non-U.S. person, or
d. A non-U.S. person whose obligations under the transaction are
guaranteed by a U.S. person; and
2. An entity that is any of the following:
a. A ``Non-U.S. Participant'', meaning a direct participant of a
U.S. Treasury securities CCA that is not:
i. A U.S. person,
ii. A U.S. branch of a non-U.S. person;
iii. A non-U.S. person whose obligations under the transaction are
guaranteed by a U.S. person; or
b. Any affiliated counterparty \23\ of a direct participant of a
U.S. Treasury securities CCA that is not:
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\23\ See discussion in Part III, infra.
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i. A U.S. person,
ii. A U.S. branch of a non-U.S. person,
iii. A non-U.S. person whose obligations under the transaction are
guaranteed by a U.S. person, or
c. A foreign branch \24\ of a direct participant of a U.S. Treasury
securities CCA that is a U.S. person.
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\24\ Foreign branch would be defined as in Exchange Act Rule
3a71-3, 17 CFR 240.3a71-3.
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Both the Firm-Specific Threshold and Fixed Dollar Threshold would
be calculated using a rolling daily average of the immediately prior
three quarters as the ``Assessment Period,'' with each quarter being
weighted equally.\25\
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\25\ The Commission previously solicited comment on whether the
Assessment Period should be more heavily weighted on more recent
quarters. See Second Reopening Release, supra note 17, at 52356.
Commenters replied that unequal weighting of quarters in the
Assessment Period could be unnecessarily complex and lead to
unexpected fluctuations. See IIB Aug. 31 Letter, supra note 18, at
4; SIFMA Sept. 18 Letter, supra note 18, at 4.
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The Percentage Cap would initially be 25% and would decrease over
time, as follows:

[[Page 69580]]

------------------------------------------------------------------------
Applicable percentage cap Time period
------------------------------------------------------------------------
25.................................... June 30, 2027 through June 30,
2028.
20.................................... July 1, 2028 through June 30,
2029.
15.................................... July 1, 2029 through June 30,
2030.
10.................................... After June 30, 2030.
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Second condition:
A direct participant of a U.S. Treasury securities CCA attests to
any U.S. Treasury securities CCA of which it is a direct participant
that such direct participant is monitoring and complying with the terms
of the first condition set forth above. In the event a direct
participant does not satisfy the first condition, it immediately
notifies any U.S. Treasury securities CCA of which it is a direct
participant and informs each such CCA of its plan for returning to
compliance with the conditional exemptive relief, or that it will no
longer avail itself of the conditional exemptive relief. Each such U.S.
Treasury securities CCA will then be able to determine any appropriate
action on its part, consistent with the CCA's rules.
The Firm-Specific Threshold is based on suggestions from IIB \26\
and on SIFMA's Second Request, which contains a percentage cap,\27\ a
numerator consisting of transactions that were exempted from the Trade
Submission Requirement,\28\ and a denominator consisting of a measure
of the firm's total repo transaction activity added to the transactions
in the numerator.\29\ The Commission has modified the scope of the
Firm-Specific Threshold to encompass the relief requested in the IIB
Notice and in response to suggestions from commenters,\30\ including
those that commented on a preliminary version of this Firm-Specific
Threshold in the Second Reopening Release.\31\
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\26\ See, e.g., IIB May 29 Letter, supra note 15, at 3.
\27\ See SIFMA Letter, supra note 10, at 2-3, 8; SIFMA Notice,
supra note 14, at 21535.
\28\ See SIFMA Letter, supra note 10, at 2-3, 8; SIFMA Notice,
supra note 14, at 21535.
\29\ See SIFMA Letter, supra note 10, at 2-3, 8; SIFMA Notice,
supra note 14, at 21535.
\30\ See, e.g., SIFMA Sept. 18 Letter, supra note 18, at 2-3;
IIB May 29 Letter, supra note 15, at 2; FSF Apr. 10 Letter, supra
note 15, at 2-3.
\31\ See Second Reopening Release, supra note 17.
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The Commission made several changes from the preliminary version of
this Firm-Specific Threshold presented in the Second Reopening Release.
In response to commenters, the denominator now excludes ``such repo
transactions entered into between a direct participant and an
affiliated counterparty,'' as commenters stated that such transactions
were not market transactions and should not be included as a measure of
the firm's market activity.\32\ Recognizing that certain corporate
entities may have multiple direct participants, the Commission has also
clarified that ``firm,'' as it relates to the first condition, applies
to any direct participant of a U.S. Treasury securities CCA, together
with its affiliates, which would include other direct participants.\33\
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\32\ SIFMA Sept. 18 Letter, supra note 18, at 3, see also IIB
May 29 Letter, supra note 15, at 3; IIB Aug. 4 Letter, supra note
15, at 2 (proposing a definition of ``Firm-Specific Threshold'' that
excludes ``transactions entered into between a direct participant
and an affiliated counterparty'').
\33\ See generally supra note 19. See also IIB May 29 Letter,
supra note 15, at 3 (the denominator should include such
transactions ``entered into by such firm together with its
affiliates''), IIB Aug. 4 Letter, supra note 15, at 2-3 (proposed
definitions of ``firm'' and ``affiliate''); see also SIFMA Letter,
supra note 10, at 10 (the denominator ``should not be measured on a
Direct Participant-by-Direct Participant basis, but rather across
the entire organization'').
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The Commission has also revised the denominator to consist of the
firm's cleared repo transactions.\34\ This revision allows the firm's
denominator to include cleared repo transactions that are not eligible
secondary market transactions, because they are excluded from that
definition because of the counterparty.\35\ This change therefore
incentivizes a firm to clear certain repo transactions, even when not
required.\36\
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\34\ See Second Reopening Release, supra note 17, at 52355 (the
denominator consisted of ``cleared eligible secondary market
transactions that are repo transactions.'').
\35\ See 17 CFR 240.17ad-22 (excluding certain transactions from
the definition of eligible secondary market transaction if the
counterparty is a state or local government, a central bank, a
sovereign entity, a natural person, etc.).
\36\ Certain commenters requested that the denominator be
comprised of cleared eligible secondary market transactions that are
repo transactions. See, e.g., SIFMA Notice, supra note 14, at 21535.
Others requested that the denominator include both cleared and
uncleared repo transactions. See, e.g., IIB Aug. 31 Letter, supra
note 18, at 3 (``when defining the scope of a firm's overall repo
volume . . . the Commission should include both cleared and non-
cleared transactions'') (emphasis in the original). The Commission
does not believe it would be appropriate for the denominator to
include uncleared repo transactions, as it believes the exemption
from the clearing requirement should be based on a percentage of the
firm's cleared activity. See SIFMA Sept. 18 Letter, supra note 18,
at 4 (``We do not believe that uncleared transactions should be
included in this measurement.''). However, the Commission believes a
firm that clears repo transactions even when not required to do so
(because the transactions are not eligible secondary market
transactions) should be able to get credit for it in the
denominator. Contra SIFMA Sept. 18 Letter, supra note 18, at 3
(``exempt transactions should not be included in the denominator of
the calculation.'').
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The Firm-Specific Threshold is subject to a Percentage Cap that
falls over time, from 25% initially and for the first year, to 20% for
the second year, 15% for the third year, and ending at 10% after June
30, 2030. Several commenters suggested various approaches for
percentage caps.\37\ The Commission believes this phased approach with
a final Percentage Cap of 10% most appropriately balances the need for
the exemption to be narrow while also recognizing that market
participants, particularly foreign entities, may need time to change or
adapt business practices, onboard clients, obtain legal opinions, or
update systems in order to comply.\38\
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\37\ See, e.g., IIB Oct. 1 Letter, supra note 18, at 6
(suggesting a 25% threshold for two years, gradually going down to
10%); SIFMA Sept. 18 Letter, supra note 18, at 5 (not objecting to a
20% threshold for one year, gradually moving to 10%).
\38\ See generally Letter from Callum Nieto and Patrick
Deharveng, UBS AG, dated Apr. 10, 2026, at 4 (discussing operational
challenges); Letter from Curtis Tao, General Counsel, HSBC Bank USA,
dated May 28, 2026, at 7-8 (raising the operational difficulties of
complying with a 10% cap).
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The Commission has also added the Fixed Dollar Threshold to the
conditional exemptive relief. The idea of exemptive relief that was not
derived from a firm's cleared repo transactions was first suggested by
commenters to level the playing field between market participants with
a large U.S. domestic Treasury repo business and market participants
with smaller volume Treasury repo businesses that are more heavily
focused outside the U.S.\39\ As first suggested, such a threshold would
have been calculated by dividing market-wide transaction activity in
Treasury repo by a measure of direct participants at a U.S. Treasury
securities CCA.\40\ The Commission solicited comments about whether
such a threshold was necessary and how it should be calculated in the
Second Reopening Release.\41\ In response, one commenter reemphasized
the importance of such a threshold but, acknowledging potential
difficulties with its calculation as initially suggested, proposed a
fixed dollar amount threshold of $10 billion to account for future
growth in U.S. Treasury repo activity.\42\ Another commenter was not
opposed to a fixed dollar amount threshold but cautioned the Commission
to avoid setting the threshold so high that it would create a
bifurcated market.\43\ The Commission is setting the threshold at $5
billion, based

[[Page 69581]]

on its current understanding of the U.S. Treasury market, to
accommodate the need for such a threshold while reducing the risk of a
bifurcated market. The Commission will monitor the Fixed Dollar
Threshold going forward to consider whether it remains appropriately
tailored to the U.S. Treasury market.
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\39\ IIB May 29 Letter, supra note 15, at 3 (referring to such a
threshold as the ``market-wide ratio.'').
\40\ Id. See also IIB Aug 4 Letter, supra note 15, at 3
(referring to it as a ``market-based threshold'').
\41\ Second Reopening Release, supra note 17, at 52356.
\42\ IIB Oct. 1 Letter, supra note 18, at 5.
\43\ SIFMA Sept. 18 Letter, supra note 18, at 5-6.
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The Commission has also added a second condition to the exemptive
relief to ensure that the U.S. Treasury securities CCAs that are tasked
with enforcing the Trade Submission Requirement are provided
information to allow them to better understand whether their direct
participants are relying on this exemption and to ensure that those
direct participants affirm that they are monitoring and complying with
the conditional relief herein.

B. Discussion of the Conditional Exemptive Relief for Qualifying Non-
U.S. Transactions

\44\ 15 U.S.C. 78mm.
\45\ 15 U.S.C. 78q-1(b)(1).
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For the reasons discussed below, the Commission is using its
authority under Section 36 and Section 17A of the Exchange Act to
provide a conditional exemption from the definition of an eligible
secondary market transaction under Rule 17ad-22(a), meaning that a U.S.
Treasury securities CCA will be exempt from enforcing the Trade
Submission Requirement with respect to Qualifying Non-U.S. Transactions
if the conditions stated above are met. The Commission finds such
conditional exemption to be necessary or appropriate in the public
interest and consistent with the protection of investors, as required
under Section 36, and with the purposes of Section 17A of the Exchange
Act, including the prompt and accurate clearance and settlement of
securities transactions and the safeguarding of securities and funds,
as required under Section 17A.
First, the conditional exemption would allow financial institutions
to better accommodate repo transactions within an affiliated group
involving non-U.S. affiliates for purposes of treasury, liquidity, and
collateral management. As the Commission stated in the Adopting
Release, inter-affiliate transactions represent an important tool to
transfer liquidity and risk within an affiliated group.\46\ These
transactions may serve different purposes, including, but not limited
to, providing U.S. Treasury securities for delivery when an affiliate
has taken a long or short position in U.S. Treasury securities as a
hedge against other exposures, allowing the movement of U.S. Treasury
securities to allow them to be posted as margin on an affiliate's
transaction, ensuring that U.S. Treasury securities can serve as a
liquidity buffer for an affiliated bank, or to meet liquidity
composition targets.\47\ To get the U.S. Treasury securities to the
appropriate entity within an affiliated group, the affiliate often
enters into repos or reverse repos with a direct participant of a U.S.
Treasury securities CCA.\48\
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\46\ Adopting Release, supra note 1, at 2737.
\47\ Id.
\48\ Id. SIFMA also stated that using repos for treasury,
liquidity, and collateral management purposes may be crucial in the
event of an insolvency or resolution, with particular importance for
entities subject to resolution planning who have a particular need
to demonstrate that they can use uncleared repo transactions in such
a scenario. See SIFMA Letter, supra note 10, at 5.
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Market participants have explained that, as adopted, the terms of
the Inter-Affiliate Exclusion effectively negate its utility, because
in order to use the exclusion, an affiliate must centrally clear all
outward-facing repos pursuant to the outward-facing condition.\49\ As a
result, market participants have claimed that two non-U.S. affiliates
of a direct participant would be required to clear a repo transaction
between themselves if either affiliate enters into an uncleared repo
transaction with a direct participant, raising costs and burdens for an
activity commonly used between non-U.S. affiliates for treasury,
liquidity, and collateral management activities.\50\ The Commission
agrees with these market participants that this restriction on
transactions between non-U.S. affiliates could have destabilizing
effects, such as limiting the ability for a non-U.S. affiliate to
obtain funding through a repo transaction with another non-U.S.
affiliate when U.S. Treasury securities CCAs are closed.\51\
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\49\ SIFMA Letter, supra note 10, at 2.
\50\ Id. at 9. Market participants also explained that forcing
the non-U.S. affiliates to become direct or indirect participants of
a U.S. Treasury securities CCA to use the Inter-Affiliate Exclusion
was hardly optimal given that repo transactions between non-U.S.
affiliates were likely to be very small. Id.
\51\ Id. at 10.
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Because of this exemption, non-U.S. affiliates of a direct
participant will be able to use inter-affiliate transactions for
treasury, liquidity, and collateral management with each other, subject
to the specified conditions. This exemptive relief should help ensure
that non-U.S. affiliates are not forced to clear internal treasury,
liquidity, or collateral transactions with the direct participant
(which, if required, would eliminate the practical value of the Inter-
Affiliate Exclusion) or reduce their participation in U.S. Treasury
repo activity with non-U.S. counterparties. The Commission believes
that the scope of this exemption, including the Percentage Cap and the
Fixed Dollar Threshold, ensures that it applies in limited
circumstances, meaning that the benefits of increased central clearing
identified in the Adopting Release will still be present.\52\
Therefore, the exemption is consistent with promoting the prompt and
accurate clearance and settlement of securities transactions, the
public interest, and the protection of investors.
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\52\ See Adopting Release, supra note 1, at 2798-2800.
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Second, the conditional exemption should allow foreign financial
institutions that are direct participants of U.S. Treasury securities
CCAs and U.S. financial institutions that have foreign branches or
affiliates to accommodate transactions with Non-U.S. Clients. Without
such an exemption, such transactions may face legal uncertainty
regarding certain aspects of central clearing, such as the
enforceability of netting contracts in relevant jurisdictions
(including close-out netting in a default scenario), and operational
challenges due to, for example, time zones and transactions occurring
when no U.S. Treasury securities CCA is open.\53\ Further, the
Commission understands that, as a practical matter, many non-U.S.

[[Page 69582]]

counterparties do not engage in U.S. Treasury repo activity at a level
that makes onboarding to a U.S. Treasury securities CCA economically or
operationally feasible.\54\ This conditional exemptive relief allows
for direct participants of U.S. Treasury securities CCAs to continue to
transact with such non-U.S. counterparties without having to incur
overly burdensome costs for a relatively limited amount of
transactions, while ensuring, through the narrow terms of the
exemption, that the amount of transactions being centrally cleared and
risk managed continues to increase. Thus, the exemption is consistent
with reducing the contagion risk to a U.S. Treasury securities CCA,\55\
which in turn, is consistent with promoting the prompt and accurate
clearance and settlement of U.S. Treasury securities and the
safeguarding of securities and funds.
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\53\ See IIB Letter, supra note 6, at 2-5; IIB Notice, supra
note 8, at 12031.
\54\ See Letter from Katherine Darras, General Counsel,
International Swaps and Derivatives Association, Inc., dated May 29,
2026, at 5 (``ISDA May 29 Letter''); SIFMA Letter, supra note 10, at
6-7; SIFMA Notice, supra note 14, at 21535.
\55\ See Adopting Release, supra note 1, at 2717 (stating that
``the requirement to clear eligible secondary market transactions is
designed to reduce the amount of `contagion risk' to a U.S. Treasury
securities CCA arising from what has been described as `hybrid
clearing' '' in which ``a direct participant's transactions that are
not submitted for central clearing pose an indirect risk to the
covered clearing agency, as any default on a bilaterally settled
transaction could impact the direct participant's financial
resources and ability to meet its obligations to the covered
clearing agency'').
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Third, issuing one conditional exemption to address concerns
related to both non-U.S. transactions and the Inter-Affiliate Exclusion
should facilitate administration of the relief sought with respect to
such transactions (meaning, it should be more efficient for market
participants to manage compliance with one holistic exemption, as
opposed to two very similar exemptions that have to be calculated
separately).\56\ Market participants could manage and build reporting
systems based on one set of conditions, as opposed to two, thereby
decreasing burden and potential operational costs of set-up and ongoing
compliance. Such an approach is therefore consistent with promoting the
public interest.
---------------------------------------------------------------------------

\56\ See, e.g., SIFMA Sept. 18 Letter, supra note 18, at 2-3;
IIB May 29 Letter, supra note 15, at 2; FSF Apr. 10 Letter, supra
note 15, at 2-3.
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Fourth, the condition regarding attestation to any U.S. Treasury
securities CCA of which a firm is a direct participant should help
ensure that such CCAs can better understand whether their direct
participants are relying upon this exemption and, as necessary, seek
additional information from direct participants that would allow such
CCAs to consider how direct participants are complying with such CCAs'
rules pursuant to the Trade Submission Requirement.\57\ Facilitating
the ability of a U.S. Treasury securities CCA to understand its direct
participants' activity, and therefore also facilitating the ability to
enforce the Trade Submission Requirement, is consistent with promoting
the public interest.
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\57\ See, e.g., CMESC Rule 305(a)(vi) (CMESC Member Agreement
includes agreement for the Member to permit inspection of its books
and records at all times by representatives of the Corporation and
to furnish the Corporation with all information in respect of the
applicant's business and transactions as the Corporation or its
officers may require); FICC GSD Rule 3, section 10 (providing
similar books and records authority).
---------------------------------------------------------------------------

Finally, phasing in reductions to the Percentage Cap over a period
of three years should ensure that market participants have sufficient
time to arrange compliance with the conditions of the exemptive relief
by initially allowing a greater percentage of Qualifying Non-U.S.
Transactions to qualify under the exemption while gradually reducing
that percentage.\58\ The Commission recognizes that market participants
may need to change or adapt certain business practices to ensure
compliance with the exemption, and phasing in reductions to the
Percentage Cap should allow market participants time to take any
necessary steps to comply with the Trade Submission Requirement and the
conditional exemption issued herein, such as onboarding clients,
obtaining legal opinions, or updating systems accordingly. Therefore,
reducing the Percentage Cap over time allows market participants time
to adapt or change business practices over several years, as opposed to
all at once, which should allow for smoother implementation for the
U.S. Treasury market, which is therefore in the public interest and
consistent with the protection of investors.
---------------------------------------------------------------------------

\58\ See, e.g., IIB Aug. 31 Letter, supra note 18, at 5; SIFMA
Sept. 18 Letter, supra note 18, at 4-5.
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III. Exemptive Relief for Affiliated Counterparties

A. Scope of Exemptive Relief

As discussed above, the SIFMA First Request asked the Commission to
provide exemptive relief to treat all counterparties that meet clauses
(ii) and (iii) of the definition in Rule 17ad-22(a) as affiliated
counterparties, except for an affiliate that is an investment company.
Rule 17ad-22(a) defines an affiliated counterparty as any
counterparty which meets the following criteria: (i) The counterparty
is either a bank (as defined in 15 U.S.C. 78c(6)), broker (as defined
in 15 U.S.C. 78c(4)), dealer (as defined in 15 U.S.C. 78c(5)), or
futures commission merchant (as defined in 7 U.S.C. 1a(28)), or any
entity regulated as a bank, broker, dealer, or futures commission
merchant in its home jurisdiction; (ii) The counterparty holds,
directly or indirectly, a majority ownership interest in the direct
participant, or the direct participant, directly or indirectly, holds a
majority ownership interest in the counterparty, or a third party,
directly or indirectly, holds a majority ownership interest in both the
direct participant and the counterparty; and (iii) The counterparty,
direct participant, or third party referenced in paragraph (ii) of this
definition as holding the majority ownership interest would be required
to report its financial statements on a consolidated basis under U.S.
Generally Accepted Accounting Principles or International Financial
Reporting Standards, and such consolidated financial statements include
the financial results of the majority-owned party or of both majority-
owned parties.\59\
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\59\ 17 CFR 240.17ad-22(a).
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After considering the SIFMA First Request and the comments received
upon the request, the Commission is providing an exemption, pursuant to
Sections 36(a) and 17A(b)(1) of the Exchange Act, from the definition
of an eligible secondary market transaction in Rule 17ad-22(a).
Specifically, this exemption would exclude, from the definition of
eligible secondary market transaction, repo transactions between a
direct participant of a U.S. Treasury securities CCA and any entity
that meets the criteria in parts (ii) and (iii) of the definition of an
affiliated counterparty in Rule 17ad-22(a), provided that the entity is
not an ``investment company'' as defined in Section 3 of the Investment
Company Act of 1940 (regardless of whether such investment company is
registered or required to be registered under the Investment Company
Act of 1940).\60\
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\60\ The exemptive relief discussed here does not supersede or
otherwise affect prior exemptive relief issued by the Commission
regarding the Inter-Affiliate Exclusion in response to a request
from the Managed Funds Association. See Order Granting Conditional
Exemptive Relief, Pursuant to Sections 17A and 36(a) of the
Securities Exchange Act of 1934, From the Definition of an
``Eligible Secondary Market Transaction'' in Rule 17ad-22(a),
Exchange Act. Rel. No. 105736 (Jun. 18, 2026), 91 FR 37446 (Jun. 23,
2026) (``Private Fund Relief'').

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[[Page 69583]]

B. Discussion of Exemptive Relief for Affiliated Counterparties

Section 36(a) of the Exchange Act authorizes the Commission, by
rule, regulation or order, to exempt, either conditionally or
unconditionally, any person, security or transaction, or any class or
classes of persons, securities, or transactions, from any provision or
provisions of the Exchange Act or any rule or regulation thereunder, to
the extent that such exemption is necessary or appropriate in the
public interest, and is consistent with the protection of investors. In
addition, under Section 17A(b)(1) of the Exchange Act, the Commission,
by rule or order, upon its own motion or upon application, may
conditionally or unconditionally exempt any clearing agency or security
or any class of clearing agencies or securities from any provisions of
this section or the rules or regulations thereunder, if the Commission
finds that such exemption is consistent with the public interest, the
protection of investors, and the purposes of this section, including
the prompt and accurate clearance and settlement of securities
transactions and the safeguarding of securities and funds.
For the reasons discussed below, the Commission finds this
exemption necessary or appropriate in the public interest and
consistent with the protection of investors, as required under Section
36, and with the purposes of Section 17A of the Exchange Act, including
the prompt and accurate clearance and settlement of securities
transactions and the safeguarding of securities and funds, as required
under Section 17A.
Commenters have explained that many affiliates of direct
participants rely on repo transactions with that direct participant for
purposes of liquidity, treasury, and collateral management. Many such
affiliates are not banks, broker-dealers, or futures commission
merchants, and are thus ineligible for the Inter-Affiliate Exclusion as
adopted. Thus, absent this exemptive relief, these transactions between
a non-bank/broker-dealer/futures commission merchant affiliate and the
direct participant would be required to be cleared, even if the
affiliate does not conduct any external customer-facing activity or
subject the direct participant to any external risk.\61\ According to
commenters, such a requirement would impose serious costs and delays,
consume balance sheet and clearing capacity, and increase risks to non-
U.S. affiliates (and their customers) with liquidity and collateral
needs during the hours in which no U.S. Treasury CCA is operating.\62\
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\61\ SIFMA Letter, supra note 10, at 7.
\62\ Id. at 6-7, ISDA May 29 Letter, supra note 53, at 2; IIB
Aug. 31 Letter, supra note 18, at 5.
---------------------------------------------------------------------------

Therefore, by allowing direct participants to utilize the Inter-
Affiliate Exclusion for transactions with a broader array of
affiliates, the exemption should better accommodate transactions within
an affiliated group involving non-U.S. affiliates or foreign branches
for purposes of treasury, liquidity, and collateral management. This
will lower costs and reduce delays by not requiring the unnecessary
clearing of inter-affiliate transactions when an affiliate that is not
a bank, broker-dealer, or futures commission merchant enters into an
inter-affiliate transaction with a direct participant. At the same
time, the exemption does not apply to inter-affiliate transactions
between a direct participant and an affiliate that is an ``investment
company'' under the Investment Company Act of 1940, because such an
affiliate may pose additional risk to the direct participant due to it
taking market positions on the value of securities.\63\
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\63\ SIFMA Letter, supra note 10, at 7-8.
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IV. Conclusion

Accordingly, It is ordered, pursuant to Sections 17A and 36 of the
Exchange Act, that the Commission grants a conditional exemption for
the transactions described in Part II of this Order, from the
definition of an eligible secondary market transaction in Rule 17ad-
22(a), and an exemption as described in Part III of this Order from the
definition of an eligible secondary market transaction in Rule 17ad-
22(a).

By the Commission.

Dated October 30, 2026.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-22493 Filed 11-3-26; 8:45 am]
BILLING CODE 8011-01-P

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