Wall St watchdog to finalize rule on Treasury dealer definition By Reuters

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(Reuters) – The U.S. Securities and Exchange Commission is set to vote next week on proposed regulations that would bring more proprietary traders and Treasury broker-dealers under the regulators’ oversight, the agency said.

The new rules, if adopted, would follow last month’s overhaul of clearing in the $26 trillion Treasury market which aimed to reduce systemic risk by routing more trades through central clearing houses to lessen the risk of defaults.

Market players including asset managers and pension funds have pushed to soften the proposal, which would subject broker-dealers to capital and liquidity requirements, among other things.

The five-member commission will meet in open session on Wednesday, Jan. 31, according to a notice due to appear in the U.S. Federal Register.

The proposal aims to expand the definition of a dealer to include traders who meet certain thresholds in activities conducted “as part of a regular business,” requiring them to register with the SEC, become members of securities exchanges and comply with related securities laws.

SEC officials say such traders provide an increasingly important share of the market liquidity traditionally provided by SEC-registered brokerages but can lack the protections that come with registration and support market resiliency.

The Managed Funds Association, an industry lobby group, called on the SEC last month to solicit a new round of public comment on any changes made to the proposal, arguing that as written it would drive participants out of the market, leading to greater volatility and higher costs.

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