On April 9, 2020, the SEC issued a final rule amending certain definitions within its rules, including the definition of "covered clearing agency" (CCA), subjecting many SEC-registered securities clearing agencies (SCAs), including registered central counterparties (CCPs) and central securities depositories (CSDs), to enhanced operational standards for CCAs.

The amendments in the final rule build on rules adopted by the SEC in 2016, which established enhanced standards for the operation and governance of SCAs that satisfy the CCA definition (see Practice Note, US Derivatives Regulation: Swap Clearing and Trade Execution: Standards for Registered Clearing Agencies). These standards now also apply to all SEC-registered CCPs and CSDs.

Specifically, the final rule amends the definition of the following terms under Section 17A of the Securities Exchange Act of 1934 (Exchange Act):

The Exchange Act generally defines a clearing agency as any person who acts as an intermediary in making payments or deliveries or both in connection with transactions in securities (15 U.S.C. § 78c(a)(23)). Rule 17Ad-22 establishes general operational standards applicable to all SCAs.

As amended in 2016, however, Rule 17Ad-22(e) includes a separate defined term for covered clearing agencies (CCAs), which are subjected to enhanced operational standards. Under the 2016 CCA definition, only certain systemically important clearing agencies and clearing agencies for security-based swaps (SBS) were subject to the enhanced standards.

However, in order to simplify the process of defining an agency as a CCA, the SEC has amended the CCA definition to include any registered clearing agency that provides services of a CCP or central securities depository (CSD). In light of the amended definition, many more CCPs and CSDs that are registered with the SEC will meet the definition of CCA and will become subject to the enhanced standards for CCAs established under Rule 17Ad-22(e).

The SEC clarifies in the final rule that registered clearing agencies that are not CCAs that do not provide CCP or CSD services will continue to be governed by the other provisions of Rule 17Ad-22, which contain requirements for various aspects of the payment, clearance, and settlement process.

The SEC is amending the term "central securities depository services" in Rule 17Ad-22(a)(3) by deleting the word "services" so that the rule instead defines the term "central security depository" to mean a clearing agency that is a securities depository as described in Section 3(a)(23)(A) of the Exchange Act. The goal of this amendment is to create consistency with the defined term "central counterparty" in Rule 17Ad-22(a)(2) by removing the reference to services in the term.

Under Rule 17Ad-22(a)(16), a CCA that provides CCP services must establish, implement, maintain, and enforce written policies and procedures to regularly review, test, and verify its risk-based margin system by conducting a sensitivity analysis of its margin model, among other things. The amended definition of sensitivity analysis applies to CCAs that provide CCP services and would require an analysis that involves analyzing the sensitivity of a model to its assumptions, parameters, and inputs that:

The final rule becomes effective on July 13, 2020.