SEC proposal seeks risk stability for clearing agencies

The proposal, announced Wednesday, seeks to amend existing rules regarding intraday margin and use of sources of information in a covered clearing agency’s risk-based margin system. If approved, the proposal would also establish new requirements for the contents of a covered clearing agency’s recovery and wind-down plans (RWPs).

“Today’s proposal would help ensure the continuity of clearing services during times of significant stress,” said SEC Chair Gary Gensler in a press release. “Well-regulated and well-managed clearinghouses help lower risk for the public.”

The comment period on the proposal will remain open for at least 60 days.

The new requirements put forward in the proposal specify nine elements a covered clearing agency would be mandated to include in its RWPs. The elements, as described in an SEC fact sheet, include:

1. Identifying and describing critical payment, clearing, and settlement services and addressing how the firm would continue to provide such services in the event of recovery and during a wind-down;
2. Identifying and describing service providers upon which the agency relies;
3. Identifying and describing scenarios that might prevent the agency from being able to provide critical services;
4. Identifying and describing criteria that could trigger the implementation of RWPs;
5. Identifying and describing the rules, policies, procedures, and other tools the agency would use in a recovery or wind-down;
6. Addressing how the identified rules, policies, procedures, and other tools would ensure timely implementation of RWPs;
7. Establishing procedures to alert the SEC when an agency considers initiating a recovery or wind-down;
8. Annual testing of the agency’s ability to implement RWPs; and
9. Review of RWPs by the board of directors at least annually or following material changes that affect a plan’s viability or execution.

The amendments in the package seek to require covered clearing agencies have policies and procedures to establish a risk-based margin system that monitors intraday exposure on an ongoing basis and addresses the use of substantive inputs to the system when such inputs are not readily available or reliable.

In a rare development, all five of the SEC’s commissioners supported the proposal.