Trump’s Treasury pick Bessent says US must keep oversight of Treasuries

Bgc

16/01/2025 23:51

NEW YORK, Jan 16 (Reuters) - The United States should
keep oversight of potential problems in the U.S. bond market,
President-elect Donald Trump's Treasury Secretary pick Scott
Bessent told Congress on Thursday, referring to Wall Street
billionaire Howard Lutnick's plan to clear Treasury futures
through a UK firm. 
     Lutnick's BGC Group  BGC.O  brokerage last year launched a
futures exchange and plans to add U.S. Treasury futures in the
first quarter this year. 
    That FMX Futures Exchange has partnered with London Stock
Exchange Group's  LSEG.L  London Clearing House (LCH), stoking
concerns among some U.S. lawmakers that the United States could
lose control and oversight of certain Treasury market trades.
    With a value of around $28 trillion, the U.S. Treasury
market is the world's biggest bond market and is crucial to the
U.S. government's ability to finance itself, as well as for
global financial stability.
    During Bessent's Thursday confirmation hearing, Senator John
Cornyn asked him if "a proposal for an entity to clear U.S.
Treasury futures at the London Clearing House" could have
financial stability repercussions, alluding to FMX. 
        "Some argue that the Bank of England would have control
over a, heaven forbid, a default scenario ... in this critical
market, instead of the U.S.," he said.
    Bessent said resolution authority over the U.S. Treasury
market should remain in the country. 
    "It is important for the U.S., for U.S. Treasuries, for us
to be able to resolve any stress issues in the market in the
U.S.," he said, adding he planned to investigate the issue.
    Bessent noted that the bankruptcy of Lehman Brothers in
2008, which caused global markets to plummet, was triggered by
issues with its UK subsidiary.
    Lutnick is a Trump backer who lost out on the Treasury
Secretary role to Bessent but was instead picked to lead Trump's
trade and tariff strategy as head of the Commerce Department.   
    An FMX spokesperson said the FMX Futures Exchange is fully
approved by the Commodity Futures Trading Commission (CFTC), the
U.S. derivatives regulator, to list U.S. Treasury futures
contracts.
    LCH is registered with the CFTC to clear futures contracts,
a spokesperson at the London-headquartered company said. 
    "LCH holds all futures customer collateral in the U.S.
onshore, as required by the CFTC for the protection of such
funds and assets belonging to U.S. firms," the spokesperson
added in an emailed statement. 

 (Reporting by Davide Barbuscia in New York; Editing by Nia
Williams)
 ((Davide.Barbuscia@thomsonreuters.com; +1 917 285 3067;))