On April 9th, the SEC adopted amendments to its rules for securities clearing agencies to apply enhanced standards to all SEC-registered central counterparties and central securities depositories. The rule amendments build on rules adopted by the SEC in 2016 that were pursuant to the Dodd-Frank Act and established enhanced standards for the operation and governance of securities clearing agencies. These clearing agencies were deemed systemically important or they otherwise act as central counterparties for security-based swaps.
Securities clearing agencies perform a range of services critical to the effective operation of the securities markets following the execution of a trade. For example, clearing agencies may help to ensure that funds and securities are transferred between parties after the trade. When acting as a central counterparty, a securities clearing agency interposes itself between the counterparties to a securities transaction, serving functionally as the buyer to every seller and the seller to every buyer. When acting in this capacity, a clearing agency may perform a range of depository functions designed to facilitate the settlement of a transaction.
Securities clearing agencies subject to the SEC’s enhanced standards must adhere to requirements regarding their policies and procedures for financial risk management, governance, recovery planning, operations, and disclosures to market participants and the public, among other requirements. Prior to the new amendments, only certain systemically important clearing agencies and clearing agencies for security-based swaps were subject to these enhanced standards. The new rules apply the standards to all SEC-registered central counterparties and central securities depositories. Specifically, the SEC is amending the definition of “covered clearing agency” to mean a registered clearing agency that provides the services of a central counterparty or central securities depository. The SEC also is amending the definition of “central securities depository” to mean a clearing agency that is a securities depository as described in the Exchange Act. In addition, the SEC is amending the definition of “sensitivity analysis” so that the policies and procedures of all covered clearing agencies that are central counterparties provide for a sensitivity analysis that considers the most volatile relevant periods, where practical, that have been experienced by the markets served by the covered clearing agency. The SEC is not altering the definition of “securities settlement system.”
The adopted rules will become effective 60 days after publication in the Federal Register.