SEC Adopts Standards for Risk Management and Operations of Clearing Agencies

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.

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 — http://www.sec.gov/swaps-chart/swaps-chart.shtml — depicts the regulatory regime for security-based swaps and details what happens as a transaction occurs.