SEC Proposes Clearing Agency Risk-Management Revisions | Practical Law

SEC Proposes Clearing Agency Risk-Management Revisions | Practical Law

The SEC has proposed amended rules and a new rule designed to improve risk management and resilience for covered clearing agencies.

SEC Proposes Clearing Agency Risk-Management Revisions

Practical Law Legal Update w-039-5373 (Approx. 3 pages)

SEC Proposes Clearing Agency Risk-Management Revisions

by Practical Law Corporate and Securities
Published on 23 May 2023 • USA (National/Federal)
The SEC has proposed amended rules and a new rule designed to improve risk management and resilience for covered clearing agencies.
On May 17, 2023, the SEC issued a proposal under the Securities Exchange Act of 1934, as amended (Exchange Act) that would amend current rules and create a new rule designed to help improve risk management and resilience for covered clearing agencies, including those that clear security-based swaps (SBS). The SEC also issued a related press release and fact sheet on improving central clearing risk management and resilience.
The proposed amendments would require that each registered covered clearing agency implement policies and procedures that establish a risk-based margin system that:
  • Monitors intraday exposure on an ongoing basis and includes the authority and operational capacity to make intraday margin calls as frequently as circumstances warrant, including:
    • when risk thresholds specified by the covered clearing agency are breached; or
    • when the products cleared or markets served display elevated volatility.
  • Addresses the use of substantive inputs to its risk-based margin system, specifically for when such inputs are not readily available or reliable.
The proposal defines covered clearing agencies as "a registered clearing agency that provides the services of a central counterparty or a central securities depository" (17 CFR 240.17Ad-22(a)(5)).
The proposed new rule would build upon the existing requirement that each covered clearing agency have in place a recovery and wind-down plan (RWP) that includes the following specific elements:
  • Identification and description of the covered clearing agency's critical payment, clearing, and settlement services.
  • Scenarios that may prevent the covered clearing agency from being able to provide its critical services.
  • Criteria that could trigger the RWP's implementation.
  • Procedures for informing the SEC as soon as practicable when the covered clearing agency is considering initiating a RWP.
  • Procedures for testing and board review of the RWP every 12 months.
Public comment on the proposal must be submitted by the later of:
  • 30 days following publication in the Federal Register; or
  • July 17, 2023.