The U.S. securities regulator on Tuesday adopted a rule requiring proprietary traders and other firms that routinely deal in U.S. government bonds and other securities to register as broker-dealers, subjecting them to stricter oversight, Reuters reported. The new Securities and Exchange Commission (SEC) rule is part of a broader effort to fix structural issues regulators say are causing liquidity problems in the $26 trillion Treasury market. Those changes, which include pushing more trades through clearinghouses, represent the biggest overhaul of the Treasury market in decades, market participants say. The SEC's five commissioners voted 3-2, with Republican members objecting, saying the rule would was too broad and would create undue burdens on market players. The rule primarily targets proprietary traders, which the SEC says have become "critical sources" of Treasury market liquidity and should be subject to the same strict oversight and risk management controls as other Treasury market dealers. "These measures are common sense," SEC Chair Gary Gensler said at the start of the meeting. "Congress did not intend for registration and regulatory requirements to apply to some dealers and not to others." The new rules, which were first proposed in March 2022, would apply to traders if they meet either of two activity-based tests, SEC officials said in advance of the meeting. Firms which routinely express interest in trading at the best available prices on both sides of the market, or which mainly derive revenue by trading on the spread between securities' bidding and asking prices or from incentives offered by trading venues.
