SEC Proposes Rule Amendments and New Rule to Improve Risk Management and Resilience of Covered Clearing Agencies

The U.S. Securities and Exchange Commission (SEC) has published a press release to announce an upcoming consultation on proposed modifications under the Securities Exchange Act of 1934 – in this particular case to 17 CFR Part 240 (general rules and regulations under the Act) – to modify margin handling requirements of clearing agencies and implement new rules to specify the content of wind-down plans of such firms. The objective of the proposed modifications is to enhance overall resilience of clearing agencies and to facilitate an orderly market exit, if so needed. Specifically, the Commission proposes to:
– require clearing agencies to mark-to-market positions and collect margins, including variation margins or equivalent charges, AT LEAST daily and to continuously monitor intraday exposures.
– explicitly grant the authority to clearing agencies to make intraday margin calls, if the situation so requires. Reasons for intraday margin calls may be „when risk thresholds specified by the covered clearing agency are breached or when the products cleared or markets served display elevated volatility.
– require clearing agencies to set up policies and procedures to monitor the input data used for above noted mark-to-market and margin calculations as to its timeliness and reliability and to use alternative data sources, in case the data from the original provider isn’t meeting these criteria.
– stipulate specific provisions for the content of the wind-down plan of a clearing agency, including provisions on
– the identification and description of critical services provided by the clearing agency (e.g. payment, clearing, and settlement services);
– the identification and description of the services provided by third parties;
– the identification and description of scenarios that may prevent the agency from providing its critical services;
– the description of trigger events that causes an agency to use its wind-down plan and a description of corresponding criteria to determine that the trigger event has taken place;
– the identification and description of policies to be used in case of a wind-down;
– the description of procedures for informing the Commission of the use of a wind-down plan.
Also the Commission would require clearing agencies to review their wind-down plans at least every twelve months and always after significant, material changes have occurred.
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There are a few more provisions outlined in the proposal as regards the content of the wind-down plans. Please see the original document for more detailed, comprehensive information.