Today, the Commission adopted final rules relating to the governance and use of outside service providers by clearinghouses. I am pleased to support this adoption because it helps foster more resilient clearinghouses.

Clearinghouses play a vital role in our capital markets. They facilitate what one might call the market plumbing, that which happens after you enter into a transaction through the time that it settles. Standing in the middle of the securities markets, clearinghouses are the buyer to every seller and the seller to every buyer. Thus, they operate like a utility—and in the words of Congress in the Dodd-Frank Act, “financial market utilities.”

Congress has said that the Commission has an important role relating to clearinghouses. In 1975, Congress granted the SEC authority over securities clearinghouses. In 1986, Congress extended the SEC’s authority to clearinghouses in the Treasury markets. In 2010, Congress granted the SEC authority with respect to clearinghouses in the security-based swap market. It was in those 2010 Dodd-Frank authorities that Congress directed the Commission to address conflicts of interest for clearinghouses in the security-based swap market.

Given the importance of governance to clearinghouse resiliency, in 2012, the Commission first adopted rules to implement general governance requirements for registered clearinghouses. Later in 2016, we adopted rules heightening those governance standards for a subset of clearinghouses considered systemically important market utilities.

Given what the Commission has observed since adopting those rules, today’s rules enhance clearinghouses’ governance and use of outside service providers.

As relates to clearinghouse governance, today’s adoption seeks to enhance standards to achieve several goals: to promote board independence, consider the views of relevant stakeholders, and reduce the potential for conflicts of interest with respect to the board and senior management.

First, the rules set thresholds for the number of independent board members of the clearinghouse. Independent board members are individuals who do not have a material relationship with the clearinghouse. As further detailed in the release, the rules require that the majority of a clearinghouse’s board members must be independent members, or in some cases at least 34 percent. Such independence can help promote the board’s ability to manage risk, address conflicts of interest, and maintain public confidence in the clearinghouse.

Further, the rules set requirements relating to the board’s nominating committee and risk management committee. For instance, the majority of the nominating committee’s membership is required to be independent. In addition, the rules require that the risk management committee members have sufficient expertise.

Second, the rules set requirements for clearinghouses’ consideration of stakeholders’ viewpoints on risk management and operations. This provides the opportunity for market participants to weigh in on that market utility’s risk management activity.

Third, the rules set requirements for clearinghouses relating to conflicts of interest. In particular, the final rules require clearinghouses to adopt policies and procedures to identify and document existing or potential conflicts of interest involving directors or senior managers, as well as to mitigate or eliminate those conflicts of interest.

With respect to outside service providers, the rules set requirements for clearinghouses’ use of service providers for their core services. In essence, this is about making sure that these critical market utilities cannot outsource their obligations in a manner that puts market plumbing at risk. As further detailed in the release, the rules require clearinghouses to establish policies and procedures for the clearinghouses’ use of and relationship with service providers.

Taken together, these final rules help make clearinghouses more resilient. That benefits investors, issuers, and the markets connecting them.

I’d like to thank the members of the SEC staff who worked on these final rules, including:

• Haoxiang Zhu, Andrea Orr, Yue Ding, David Bloom, John Prochilo, Roni Bergoffen, Sharon Park, Jeff Mooney, Matt Lee, Steph Park, Claire Noakes, Jenny Ogasawara, Halley Holliday, Elizabeth Fitzgerald, Moshe Rothman, Kevin Schopp, Aaron Foxman, Jonathan Abraham, Heidi Pilpel, David Liu, Randall Roy, Nina Kostyukovsky, Meredith MacVicar, and Richard Holley in the Division of Trading and Markets;
• Jessica Wachter, Josh Mallet, Andrew Glickman, Juan Echeverri, Marina Martynova, and Samantha Croffie in the Division of Economic and Risk Analysis;
• Megan Barbero, Meridith Mitchell, Robert Teply, Donna Chambers, and Ronesha Butler in the Office of the General Counsel;
• Felicia Kung in the Division of Corporation Finance;
• Melissa Roverts Harke and Jennifer Porter in the Division of Investment Management; and
• Carrie O’Brien in the Division of Examinations.