SEC adopts new rule for covered clearing agencies
28 October 2024 US
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The US Securities and Exchange Commission (SEC) has adopted amendments and a new rule to improve the resilience, recovery and wind-down planning of covered clearing agencies.
For the new rule, the regulatory body says it 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 new rule’s required elements address planning for 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.
Commenting on the announcement, SEC Chair Gary Gensler says: “Recovery and wind-down planning enhances the resiliency and continuity of our market plumbing. I’m pleased that [the] amendments will benefit investors, issuers, and the markets alike.”
On the other hand, the SEC’s new amendments establish new requirements regarding a covered clearing agency’s collection of intraday margin, as well as its reliance on substantive inputs to its risk-based margin model.
Regarding intraday margin collection, the 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.
According to the SEC, this includes the authority and operational capacity to make intraday margin calls as frequently as circumstances warrant, 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.
It also requires covered clearing agencies to use procedures to address circumstances in which substantive inputs are not readily available or reliable, 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.
The Commission 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.
For the new rule, the regulatory body says it 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 new rule’s required elements address planning for 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.
Commenting on the announcement, SEC Chair Gary Gensler says: “Recovery and wind-down planning enhances the resiliency and continuity of our market plumbing. I’m pleased that [the] amendments will benefit investors, issuers, and the markets alike.”
On the other hand, the SEC’s new amendments establish new requirements regarding a covered clearing agency’s collection of intraday margin, as well as its reliance on substantive inputs to its risk-based margin model.
Regarding intraday margin collection, the 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.
According to the SEC, this includes the authority and operational capacity to make intraday margin calls as frequently as circumstances warrant, 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.
It also requires covered clearing agencies to use procedures to address circumstances in which substantive inputs are not readily available or reliable, 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.
The Commission 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.
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