On June 18, 2026, the Securities and Exchange Commission (“SEC”) granted conditional exemptive relief (the “Conditional Exemption”) from the central clearing mandate for U.S. Treasury securities for private funds to access central clearing through captive clearing subsidiaries.
SEC Rules 17ad-22(a) and (e)(18)(iv)(A) require a U.S. Treasury securities covered clearing agency (“U.S. Treasury securities CCA”) to maintain written policies and procedures reasonably designed to (i) require direct participants to centrally clear all “eligible secondary market transactions” to which they are a counterparty and (ii) identify and monitor those participants’ submission of transactions for clearing (the “Trade Submission Requirement”). The definition of “eligible secondary market transactions” excludes any repurchase or reverse repurchase agreement (“repo”) collateralized by U.S. Treasury securities entered into between a direct participant and an affiliated counterparty (the “Inter-Affiliate Exclusion”). Among other conditions, the Inter-Affiliate Exclusion requires the affiliated counterparty to be a bank, broker-dealer or futures commission merchant, rendering it unavailable to private funds.
Under the Conditional Exemption, a repo between a private fund and its captive clearing subsidiary – a direct participant of a U.S. Treasury securities CCA – falls outside the definition of an “eligible secondary market transaction,” subject to three conditions:
- The captive clearing subsidiary must be directly or indirectly wholly-owned by one or more private funds;
- If the captive clearing subsidiary is owned by more than one private fund, those funds must be managed by a common investment adviser or an affiliated group of investment advisers; and
- The private fund(s) and the captive clearing subsidiary must satisfy the other applicable conditions of the Inter-Affiliate Exclusion, including that the affiliated counterparty must centrally clear all other repos collateralized by U.S. Treasury securities to which it is a party.
For this purpose, a “private fund” is an issuer that would be an investment company, as defined in the Investment Company Act of 1940, but for Section 3(c)(1) or 3(c)(7) of that Act. In practice, the Conditional Exemption enables certain private funds to comply with the central clearing mandate on a more cost-effective basis. Read the SEC’s Exemptive Order.