Clearinghouses guaranteeing trades in part of the $693 trillion swaps market would have to meet new standards to guard against defaults and failure under rules proposed by the U.S. Securities and Exchange Commission.
The SEC’s five commissioners voted unanimously Wednesday to seek comment on the measures aimed at clearinghouses whose importance was boosted by the 2010 Dodd-Frank Act, which required most swaps to be guaranteed at clearinghouses, traded on exchanges or other platforms, and reported to the government.
In 2012, U.S. regulators designated as systemically important clearinghouses that guard against default by holding collateral from buyers and sellers. The designation for the clearinghouses—four of which are overseen by the SEC—subjects them to enhanced supervision because their collapse could threaten the broader economy.
Under the SEC’s proposal, a clearinghouse would have to ensure it has sufficient cash and easily sold assets to withstand a member’s default that would “generate the largest aggregate payment obligation,” SEC Associate Director Peter J. Curley said at a meeting in Washington where commissioners voted. They also would be subject to a new minimum capital requirement—equal to at least six months of operating expenses—to manage their wind-down in case of failure.
“The proposal would sensitively and robustly enhance management of the risks faced by clearing agencies and make them better able to withstand adverse events that may arise in stressed market conditions,” SEC Chairman Mary Jo White said.
The clearinghouses subject to the SEC’s proposal include the Depository Trust Co., Fixed Income Clearing Corp., National Securities Clearing Corp. and the Options Clearing Corp. Those firms are primarily subject to the SEC’s rules, while the Fed can consult on regulations that affect them.
The SEC’s proposal, open for public comment for 60 days, also would create new governance rules intended to reduce conflicts of interest, including requirements for independent audit and risk-management personnel at clearinghouses. The plan also proposes new qualifications for the boards of directors and senior managers of clearinghouses, the SEC said in a fact sheet distributed Wednesday.
Smaller clearinghouses that haven’t been designated as systemically important wouldn’t face the enhanced requirements. They will have to meet less stringent rules to “provide flexibility for new entrants that might seek to operate as registered” clearinghouses, the SEC said in its fact sheet.