Industry practice suggests that a large share of hedge funds trading in repo markets put up zero collateral, meaning they are fuelling activity using enormous amounts of cheap debt.
A looming rule by the U.S. Securities and Exchange Commission would expand the use of central clearing in the cash Treasury and repo market.
SEC chair Gary Gensler recently promoted the benefits of central clearing and pointed to data showing high levels of repo trades transacted at zero haircuts.
James Tabacchi, CEO of South Street Securities, called zero haircuts a "race to the bottom" and not healthy for markets.
However, some market participants have voiced concerns that some of the proposed reforms could be a hurdle for some investors, potentially undermining the goal to improve liquidity and resilience in the Treasury market.
Persons:
Rick Wilking, Christopher Clarke, Gary Gensler, James Tabacchi, Richard Chambers, Goldman Sachs, Davide Barbuscia, Megan Davies, Paritosh Bansal, Sonali Paul
Organizations:
REUTERS, U.S, Industry, repo, North America Sovereign Financing, Morgan Securities, Treasury, Federal Reserve Bank of New, U.S . Securities, Exchange, Corporation, SEC, . Federal Reserve, South Street Securities, Goldman, Thomson
Locations:
Westminster , Colorado, Treasuries, Federal Reserve Bank of New York, Carolina