Title 12—Banks and Banking--Volume 1
PART 1320—DESIGNATION OF FINANCIAL MARKET UTILITIES
§ 1320.1   Authority and purpose.
(a) Authority. This part is issued by the Financial Stability Oversight Council under sections 111, 112, 804, 809, and 810 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) (12 U.S.C. 5321, 5322, 5463, 5468, and 5469).
(b) Purpose. The purpose of this part is to set forth the standards and procedures governing the Council's designation of a financial market utility that the Council determines is, or is likely to become, systemically important.
§ 1320.2   Definitions.
The terms used in this part have the following meanings:
Appropriate Federal banking agency. The term “ appropriate Federal banking agency” has the same meaning as in section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)), as amended.
Board of Governors. The term “ Board of Governors” means the Board of Governors of the Federal Reserve System.
Council. The term “ Council” means the Financial Stability Oversight Council.
Designated clearing entity. The term “ designated clearing entity” means a designated financial market utility that is a derivatives clearing organization registered under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1) or a clearing agency registered with the Securities and Exchange Commission under section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1).
Designated financial market utility. The term “ designated financial market utility” means a financial market utility that the Council has designated as systemically important under § 1320.13.
Financial institution. The term “ financial institution” —
(1) Means—
(i) A depository institution as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);
(ii) A branch or agency of a foreign bank, as defined in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101);
(iii) An organization operating under section 25 or 25A of the Federal Reserve Act (12 U.S.C. 601-604a and 611 through 631);
(iv) A credit union, as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752);
(v) A broker or dealer, as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c);
(vi) An investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3);
(vii) An insurance company, as defined in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2);
(viii) An investment adviser, as defined in section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2);
(ix) A futures commission merchant, commodity trading advisor, or commodity pool operator, as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); and
(x) Any company engaged in activities that are financial in nature or incidental to a financial activity, as described in section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
(2) Does not include designated contract markets, registered futures associations, swap data repositories, and swap execution facilities registered under the Commodity Exchange Act (7 U.S.C. 1 et seq. ), or national securities exchanges, national securities associations, alternative trading systems, securities information processors solely with respect to the activities of the entity as a securities information processor, security-based swap data repositories, and swap execution facilities registered under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq. ), or designated clearing entities, provided that the exclusions in this paragraph apply only with respect to the activities that require the entity to be so registered.
Financial market utility. The term “financial market utility”—
(1) Means any person that manages or operates a multilateral system for the purpose of transferring, clearing, or settling payments, securities, or other financial transactions among financial institutions or between financial institutions and the person; and
(2) Does not include—
(i) Designated contract markets, registered futures associations, swap data repositories, and swap execution facilities registered under the Commodity Exchange Act (7 U.S.C. 1 et seq. ), or national securities exchanges, national securities associations, alternative trading systems, security-based swap data repositories, and swap data execution facilities registered under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq. ), solely by reason of their providing facilities for comparison of data respecting the terms of settlement of securities or futures transactions effected on such exchange or by means of any electronic system operated or controlled by such entities, provided that the exclusions in this clause apply only with respect to the activities that require the entity to be so registered; and
(ii) Any broker, dealer, transfer agent, or investment company, or any futures commission merchant, introducing broker, commodity trading advisor, or commodity pool operator, solely by reason of functions performed by such institution as part of brokerage, dealing, transfer agency, or investment company activities, or solely by reason of acting on behalf of a financial market utility or a participant therein in connection with the furnishing by the financial market utility of services to its participants or the use of services of the financial market utility by its participants, provided that services performed by such institution do not constitute critical risk management or processing functions of the financial market utility.
Hearing date. The term “hearing date” means the later of—
(1) The date on which the Council receives all of the written materials timely submitted by the financial market utility for a hearing that is conducted without oral testimony; or
(2) The final date on which the Council convenes for the financial market utility to present oral testimony.
Payment, clearing, or settlement activity.
(1) The term “payment, clearing, or settlement activity” means an activity carried out by 1 or more financial institutions to facilitate the completion of financial transactions, but shall not include any offer or sale of a security under the Securities Act of 1933 (15 U.S.C. 77a et seq. ), or any quotation, order entry, negotiation, or other pre-trade activity or execution activity.
(2) For purposes of paragraph (1) of this definition, the term “financial transaction” includes—
(i) Funds transfers;
(ii) Securities contracts;
(iii) Contracts of sale of a commodity for future delivery;
(iv) Forward contracts;
(v) Repurchase agreements;
(vi) Swaps;
(vii) Security-based swaps;
(viii) Swap agreements;
(ix) Security-based swap agreements;
(x) Foreign exchange contracts;
(xi) Financial derivatives contracts; and
(xii) Any similar transaction that the Council determines to be a financial transaction for purposes of this part.
(3) When conducted with respect to a financial transaction, payment, clearing, and settlement activities may include—
(i) The calculation and communication of unsettled financial transactions between counterparties;
(ii) The netting of transactions;
(iii) Provision and maintenance of trade, contract, or instrument information;
(iv) The management of risks and activities associated with continuing financial transactions;
(v) Transmittal and storage of payment instructions;
(vi) The movement of funds;
(vii) The final settlement of financial transactions; and
(viii) Other similar functions that the Council may determine.
(4) Payment, clearing, and settlement activities shall not include public reporting of swap transactions under section 727 or 763(i) of the Dodd-Frank Act.
Supervisory Agency. (1) The term “Supervisory Agency” means the Federal agency that—
(i) Has primary jurisdiction over a designated financial market utility under Federal banking, securities, or commodity futures laws as follows—
(A) The Securities and Exchange Commission, with respect to a designated financial market utility that is a clearing agency registered with the Securities and Exchange Commission;
(B) The Commodity Futures Trading Commission, with respect to a designated financial market utility that is a derivatives clearing organization registered with the Commodity Futures Trading Commission;
(C) The appropriate Federal banking agency, with respect to a designated financial market utility that is an institution described in section 3(q) of the Federal Deposit Insurance Act;
(D) The Board of Governors, with respect to a designated financial market utility that is otherwise not subject to the jurisdiction of any agency listed in paragraphs (1)(i), (ii), and (iii) of this definition; or
(ii) Would have primary jurisdiction over a financial market utility if the financial market utility were a designated financial market utility under paragraph (1) of this definition.
(2) If a financial market utility is subject to the jurisdictional supervision of more than one agency listed in paragraph (1) of this definition, then such agencies should agree on one agency to act as the Supervisory Agency, and if such agencies cannot agree on which agency has primary jurisdiction, the Council shall decide which is the Supervisory Agency for purposes of this part.
Systemically important and systemic importance. The terms “systemically important” and “systemic importance” mean a situation where the failure of or a disruption to the functioning of a financial market utility could create, or increase, the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the financial system of the United States.
§ 1320.10   Factors for consideration in designations.
In making any proposed or final determination with respect to whether a financial market utility is, or is likely to become, systemically important under this part, the Council shall take into consideration:
(a) The aggregate monetary value of transactions processed by the financial market utility, including without limitation—
(1) The number of transactions processed, cleared or settled;
(2) The value of transactions processed, cleared or settled; and
(3) The value of other financial flows.
(b) The aggregate exposure of the financial market utility to its counterparties, including without limitation—
(1) Credit exposures, which includes but is not limited to potential future exposures; and
(2) Liquidity exposures.
(c) The relationship, interdependencies, or other interactions of the financial market utility with other financial market utilities or payment, clearing, or settlement activities, including without limitation interactions with different types of participants in those utilities or activities.
(d) The effect that the failure of or a disruption to the financial market utility would have on critical markets, financial institutions, or the broader financial system, including without limitation—
(1) Role of the financial market utility in the market served;
(2) Availability of substitutes;
(3) Concentration of participants;
(4) Concentration by product type;
(5) Degree of tiering; and
(6) Potential impact or spillover in the event of a failure or disruption.
(e) Any other factors that the Council deems appropriate.
§ 1320.11   Consultation with financial market utility.
Before providing a financial market utility notice of a proposed determination under § 1320.12, the Council shall provide the financial market utility with—
(a) Written notice that the Council is considering whether to make a proposed determination with respect to the financial market utility under § 1320.13; and
(b) An opportunity to submit written materials to the Council, within such time as the Council determines to be appropriate, concerning—
(1) Whether the financial market utility is systemically important taking into consideration the factors set out in § 1320.10; and
(2) Proposed changes by the financial market utility that could—
(i) Reduce or increase the inherent systemic risk the financial market utility poses and the need for designation under § 1320.13; or
(ii) Reduce or increase the appropriateness of rescission under § 1320.13.
(3) The Council shall consider any written materials timely submitted by the financial market utility under this section before making a proposed determination under section 1320.13.
§ 1320.12   Advance notice of proposed determination.
(a) Notice of proposed determination and opportunity for hearing. Before making any final determination on designation or rescission under § 1320.13, the Council shall propose a determination and provide the financial market utility with advance notice of the proposed determination, and proposed findings of fact supporting that determination. A proposed determination shall be made by a vote of the Council in the manner described in § 1320.13(c).
(b) Request for hearing. Within 30 calendar days from the date of any provision of notice of the proposed determination of the Council, the financial market utility may request, in writing, an opportunity for a written or oral hearing before the Council to demonstrate that the proposed designation or rescission of designation is not supported by substantial evidence.
(c) Written submissions. Upon receipt of a timely request, the Council shall fix a time, not more than 30 calendar days after receipt of the request, unless extended by the Council at the request of the financial market utility, and place at which the financial market utility may appear, personally or through counsel, to submit written materials, or, at the sole discretion of the Council, oral testimony and oral argument.
§ 1320.13   Council determination regarding systemic importance.
(a) Designation determination. The Council shall designate a financial market utility if the Council determines that the financial market utility is, or is likely to become, systemically important.
(b) Rescission determination. The Council shall rescind a designation of systemic importance for a designated financial market utility if the Council determines that the financial market utility no longer meets the standards for systemic importance.
(c) Vote required. Any determination under paragraph (a) or (b) of this section and any proposed determination under § 1320.12 shall—
(1) Be made by the Council and must not be delegated by the Council; and
(2) Require the vote of not fewer than two-thirds of the members of the Council then serving, including the affirmative vote of the Chairperson of the Council.
(d) Consultations. Before making any determination under paragraph (a) or (b) of this section or any proposed determination under § 1320.12, the Council shall consult with the relevant Supervisory Agency and the Board of Governors.
§ 1320.14   Emergency exception.
(a) Emergency exception. Notwithstanding §§ 1320.11 and 1320.12, the Council may waive or modify any or all of the notice, hearing, and other requirements of §§ 1320.11 and 1320.12 with respect to a financial market utility if—
(1) The Council determines that the waiver or modification is necessary to prevent or mitigate an immediate threat to the financial system posed by the financial market utility; and
(2) The Council provides notice of the waiver or modification, and an explanation of the basis for the waiver or modification, to the financial market utility concerned, as soon as practicable, but not later than 24 hours after the waiver or modification.
(b) Vote required. Any determination by the Council under paragraph (a) to waive or modify any of the requirements of §§ 1320.11 and 1320.12 shall—
(1) Be made by the Council; and
(2) Require the affirmative vote of not fewer than two-thirds of members then serving, including the affirmative vote of the Chairperson of Council.
(c) Request for hearing. Within 10 calendar days from the date of any provision of notice of waiver or modification of the Council, the financial market utility may request, in writing, an opportunity for a written or oral hearing before the Council to demonstrate that the basis for the waiver or modification is not supported by substantial evidence.
(d) Written submissions. Upon receipt of a timely request, the Council shall fix a time, not more than 30 calendar days after receipt of the request, and place at which the financial market utility may appear, personally or through counsel, to submit written materials, or, at the sole discretion of the Counsel, oral testimony and oral argument.
(e) Notification of hearing determination. If a financial market utility makes a timely request for a hearing under paragraph (c) of this section, the Council shall, not later than 30 calendar days after the hearing date, notify the financial market utility of the determination of the Council, which shall include a statement of the basis for the determination of the Council.
§ 1320.15   Notification of final determination regarding systemic importance.
(a) Notification of final determination after a hearing. Within 60 calendar days of the hearing date, the Council shall provide to the financial market utility written notification of the final determination of the Council under § 1320.13, which shall include findings of fact upon which the determination of the Council is based.
(b) Notification of final determination if no hearing. If the Council does not receive a timely request for a hearing under § 1320.12, the Council shall provide the financial market utility written notification of the final determination of the Council under § 1320.13 not later than 30 calendar days after the expiration of the date by which a financial market utility could have requested a hearing.
§ 1320.16   Extension of time periods.
The Council may extend any time period established in § 1320.12, § 1320.14, or § 1320.15 as the Council determines to be necessary or appropriate.
§ 1320.20   Council information collection and coordination.
(a) Information collection to assess systemic importance. The Council may require any financial market utility to submit such information to the Council as the Council may require for the sole purpose of assessing whether the financial market utility is systemically important.
(b) Prerequisites to information collection. Before requiring any financial market utility to submit information to the Council under paragraph (a) of this section, the Council shall—
(1) Determine that it has reasonable cause to believe that the financial market utility is, or is likely to become, systemically important, considering the standards set out in § 1320.10; or
(2) Determine that it has reasonable cause to believe that the designated financial market utility is no longer, or is no longer likely to become, systemically important, considering the standards set out in § 1320.10; and
(3) Coordinate with the Supervisory Agency for the financial market utility to determine if the information is available from, or may be obtained by, the Supervisory Agency in the form, format, or detail required by the Council.
(c) Timing of response from the appropriate Supervisory Agency. If the information, reports, records, or data requested by the Council under paragraph (b)(3) of this section are not provided in full by the Supervisory Agency in less than 15 calendar days after the date on which the material is requested, the Council may request the information directly from the financial market utility with notice to the Supervisory Agency.
(d) Notice to financial market utility of information collection requirement. In requiring a financial market utility to submit information to the Council, the Council shall provide to the financial market utility the following—
(1) Written notice that the Council is considering whether to make a proposed determination under § 1320.12; and
(2) A description of the basis for the Council's belief under paragraphs (b)(1) or (b)(2) of this section.