Chair Mary Jo White
Washington, D.C.
March 12, 2014
Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on March 12, 2014 under the Government in the Sunshine Act.
Today we are considering whether to propose rules under the Securities Exchange Act and the Dodd-Frank Act that would establish enhanced standards for the risk management, operations, and governance of certain clearing agencies registered with the Commission.
Clearing agencies perform a wide range of services that are essential to the functioning of our securities markets. For example, a clearing agency may act as a "central counterparty," interposing itself between the counterparties to a trade and assuming the corresponding risks of exposure to those counterparties. When structured and operated appropriately, clearing agencies help to increase the safety and efficiency of securities trading, ensuring that trillions of dollars of securities can trade hands every year. At the same time, their central role and the concentration of financial exposures can raise systemic risk concerns.
In recognition of the unique role of clearing agents in today´s financial markets, Congress passed Title VIII of the Dodd-Frank Act to provide for enhanced regulation of "financial market utilities" – such as clearing agencies – that have been designated systemically important by the Financial Stability Oversight Council. In 2012, FSOC designated six clearing agencies registered with the Commission as systemically important. Under Title VIII, the Commission serves as the "supervisory agency" for four of these designated clearing agencies.
For designated clearing agencies, Title VIII provides that the Commission may prescribe risk management standards governing their operations. It also provides for the Commission to take into consideration the relevant international standards and existing prudential requirements.
The Commission has been the key supervisory agency for securities clearing agencies since 1975, and operates a comprehensive oversight program for the clearance and settlement of securities. In recent years, we have expanded that program to keep pace with market developments, particularly with respect to the clearing of credit default swaps and other derivatives implicating the securities laws. We also have expanded our examination program, implemented strong new regulatory standards, and developed new procedures for reviewing rule changes by clearing agencies. And our staff has continued to coordinate these efforts with the CFTC and Federal Reserve, particularly with respect to systemic risk issues.
Today´s proposal would build on this program, providing enhanced regulation for designated clearing agencies for which the Commission acts as the supervisory agency under Title VIII. In addition, it would impose enhanced standards on certain clearing agencies that clear security-based swaps. It would also provide the Commission with flexibility to apply enhanced standards to other clearing agencies in the future, in response to changes in the U.S. securities markets, market participants and the products that are cleared and settled by registered clearing agencies.
This proposal demonstrates our continued attention to critical market infrastructures and reflects a comprehensive approach to enhancing standards for clearing agencies supervised by the Commission.
In setting forth these standards, the proposal is also sensitive to the global system of regulation that already exists for designated clearing agencies. The proposal, for example, reflects careful consideration of the Principles for Financial Market Infrastructures published by the Committee for Payment and Settlement Systems and the International Organization of Securities Commissions to which our staff significantly contributed. The proposal also takes into account the requirements currently applicable to registered clearing agencies under Rule 17Ad-22 of the Exchange Act.
Taken together, I believe that the proposed requirements would sensibly and robustly enhance management of the risks faced by clearing agencies and make them better able to withstand adverse events that may arise in stressed market conditions.
Before I ask John Ramsay, the Acting Director of the Division of Trading and Markets, to discuss the proposed rules, I would like to thank members of the staff from across the agency for their work on this proposal. Specifically, I would like to thank John Ramsay, Jim Burns, Peter Curley, Jeffrey Mooney, Katherine Martin, Donna Chambers, Stephanie Park, Mark Saltzburg, Matthew Lee, and Abraham Jacob in the Division of Trading and Markets; Meridith Mitchell, Lori Price, Deborah Flynn, and Robert Teply in the Office of the General Counsel; and Craig Lewis, Vanessa Countryman, Adam Yonce, Hari Phatak, Chris Meeks, and Seung Won Woo in the Division of Economic and Risk Analysis. I would also like to thank my fellow Commissioners and all of our counsel for their hard work and comments on the proposed rule.