The Securities and Exchange Commission (SEC) adopted rules recently designed to improve the resilience of covered clearing agencies.
The SEC’s actions include rule amendments that establish new requirements regarding a covered clearing agency’s collection of intraday margins. The amendments also deal with a covered clearing agency’s reliance on substantive inputs to its risk-based margin model.
Specifically, the amendments regarding intraday margin collection require that a covered clearing agency that provides central counterparty services has policies and procedures to establish a risk-based margin system that monitors intraday exposures on an ongoing basis.
The rule amendments regarding substantive inputs require that a covered clearing agency that provides central counterparty services has policies and procedures to establish a risk-based margin system that uses reliable sources of substantive inputs, uses procedures to address circumstances in which substantive inputs are not readily available or reliable. It also requires that such procedures include either the use of price data or substantive inputs from an alternate source or a risk-based margin system that does not rely on substantive inputs that are unavailable or unreliable.
“Recovery and wind-down planning enhances the resiliency and continuity of our market plumbing,” SEC Chair Gary Gensler said. “I’m pleased that today’s amendments will benefit investors, issuers, and the markets alike.”
In addition, the SEC adopted a new rule that prescribes requirements for the contents of a covered clearing agency’s recovery and wind-down plan.
Existing rules require a covered clearing agency to have a recovery and wind-down plan, and the new rule requires such an entity to specify nine elements for its plan. The rule’s required elements address: planning; timing and implementation of the plans; and testing and board approval of the plans.
The SEC is adopting two compliance dates: 150 days after publication in the Federal Register for a covered clearing agency to file any required proposed rule changes or advance notices with the Commission; and 390 days after publication in the Federal Register for such proposed rule changes and advance notices to be effective.