SEC Adopts Rule Amendments and New Rule to Improve Risk Management and Resilience of Covered Clearing Agencies
Washington D.C., Oct. 25, 2024 —
The Securities and Exchange Commission today adopted rule amendments and a new rule to improve the resilience and recovery and wind-down planning of covered clearing agencies. The rule amendments establish new requirements regarding a covered clearing agency’s collection of intraday margin as well as a covered clearing agency’s reliance on substantive inputs to its risk-based margin model. The new rule prescribes requirements for the contents of a covered clearing agency’s recovery and wind-down plan.
“Recovery and wind-down planning enhances the resiliency and continuity of our market plumbing,” said SEC Chair Gary Gensler. “I’m pleased that today’s amendments will benefit investors, issuers, and the markets alike.”
Specifically, regarding intraday margin collection, the rule amendments 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, 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), and documents when the covered clearing agency determines not to make an intraday call pursuant to its written policies and procedures.
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 (to ensure that the covered clearing agency can continue to meet its credit exposures to its participants), and that such procedures must 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.
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 new rule’s required elements address: planning (e.g., the identification and use of scenarios, triggers, tools, staffing, and service providers); timing and implementation of the plans; and testing and board approval of the plans.
The Commission is adopting two compliance dates: (1) 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 (2) 390 days after publication in the Federal Register for such proposed rule changes and advance notices to be effective.
