SEC Adopts Standards for Risk Management and Operations of Clearing Agencies


Washington, D.C., Oct. 22, 2012 — The Securities and Exchange Commission today adopted a rule that establishes standards for how registered clearing agencies should manage their risks and run their operations.

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Clearing agencies generally act as middlemen to the parties in a securities transaction. They play a critical role in the securities markets by ensuring that transactions settle on time and on the agreed-upon terms.

The rule was adopted in accordance with the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd Frank Act provides the SEC with additional authority to establish standards for clearing agencies, including for those clearing agencies that clear security-based swaps.

"These new rules are designed to ensure that clearing agencies will be able to fulfill their responsibilities in the multi-trillion dollar derivatives market as well as more traditional securities markets," said SEC Chairman Mary L. Schapiro. "They´re part of a broader effort to put in place an entirely new regulatory regime intended to mitigate systemic risks that emerged during the financial crisis."

The new rule would require registered clearing agencies that provide central counterparty services to maintain certain standards with respect to risk management and operations. Among other things, the rules would set standards with respect to measurement and management of credit exposures, margin requirements, financial resources and margin model validation. The rule also establishes certain recordkeeping and financial disclosure requirements for all registered clearing agencies as well as several new operational standards for these entities.

The new rule 17Ad-22 will become effective 60 days after the date of publication in the Federal Register.

An SEC webpage — — depicts the regulatory regime for security-based swaps and details what happens as a transaction occurs.

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A clearing agency generally acts as a middleman between the parties to a transaction, and when acting as a central counterparty it assumes the risk should there be a default. When structured and operated appropriately, such a clearing agency can provide such benefits as improving the management of counterparty risk and reducing outstanding exposures through multilateral netting of trades.

Because of the integral role that clearing agencies play in the securities markets, Congress directed the SEC to oversee these entities.

Under Section 17A of the Securities Exchange Act, the SEC already has authority to write rules governing clearing agencies. The Dodd-Frank Act enhanced the SEC´s authority to adopt rules addressing risk management standards for clearing agencies that are systemically important. The Dodd-Frank Act also amended the Securities Exchange Act to grant the SEC authority to write rules governing those who are registered as clearing agencies for security-based swaps.

Risk Management Standards for Central Counterparties

Under the final rule, a registered clearing agency that performs central counterparty services is required to establish, implement, maintain and enforce written policies and procedures reasonably designed to:

Membership Standards for Central Counterparties

The final rule also requires a registered clearing agency that performs central counterparty services to establish, implement, maintain, and enforce written policies and procedures reasonably designed to:

Recordkeeping and Financial Disclosure by Registered Clearing Agencies

Under the final rule, registered clearing agencies that perform central counterparty services are required to calculate and maintain a record of the financial resources that would be needed in the event of a participant default. Clearing agencies must perform the calculation quarterly or at any time upon the SEC´s request.

In addition, the final rule will require each registered clearing agency to post on its website its annual audited financial statements within 60 days after the end of its fiscal year.

Other Standards for Clearance and Settlement Processes

The final rules also require each registered clearing agency to (as applicable):

What´s Next?

The new rule becomes effective 60 days after its publication in the Federal Register.