The U.S. securities regulator is set on Tuesday to adopt 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.

The 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 clearing houses, represent the biggest overhaul of the Treasury market in decades, market participants say.

The SEC’s five commissioners were set to hold a public meeting to vote on the proposal at an open meeting that kicks off at 10:00 a.m. ET (1500 GMT).

First proposed in March 2022, the new rules would apply to traders who act as major liquidity providers and matched either of two main conditions, SEC officials said in advance of the meeting.

These were routinely expressing trading interest at the best available prices on both sides of the market, or mainly deriving revenue by trading on the spread between securities’ bidding and asking prices or from incentives offered by trading venues. In light of public comments received, SEC officials also said the rule’s final version included substantial changes, such as eliminating a standard that would have seen it apply to market players whose trading volume was at least $25 billion in any four of the prior six months. Also eliminated was a standard that would have included those who routinely bought and sold the same or similar securities in a single day. The rule should apply to about 43 companies, officials said.

Some investors had said in public comment letters that the threshold was too broad and would inadvertently capture corporations, insurers, and pensions. They had lobbied the SEC for fixes, Reuters reported.

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. As many as 46 firms could be affected, the SEC previously said.

“Bringing more proprietary trading firms under the SEC’s purview would help create more transparency, level the playing field for market participants, and possibly improve market stability,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities USA.

The proposal drew criticism from major investors including BlackRock, as well as Washington group the Managed Funds Association, who warned the rule as proposed would not work as intended and could drain Treasury market liquidity by making it costlier for investors to participate.

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