14472 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

1The Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). 

2 Id. at Preamble. 

3See 156 Cong. Rec. 5878 (daily ed. July 15, 2010) 

(statement of Sen. Dodd). 4The Commission and the CFTC, in consultation 

with the Board of Governors of the Federal Reserve 

System (‘‘Federal Reserve’’), shall jointly further 

define the terms ‘‘swap,’’ ‘‘security-based swap,’’ 

‘‘swap dealer,’’ ‘‘security-based swap dealer,’’ ‘‘major 

swap participant,’’ ‘‘major security-based swap 

participant,’’ ‘‘eligible contract participant,’’ and 

‘‘security-based swap agreement.’’ Public Law 111– 

203 § 712(d). Except for the term ‘‘eligible contract 

participant’’, these terms are defined in Sections 721 

and 761 of the Dodd-Frank Act. Public Law 111– 

203 §§ 721, 761. The term ‘‘eligible contract 

participant,’’ is defined in Section 1a(18) of the 

Commodity Exchange Act (‘‘CEA’’), 7 U.S.C. 1a(18), 

as re-designated and amended by Section 721 of the 

Dodd-Frank Act. Public Law 111–203 § 721. 

Further, Sections 721(c) and 761(b) of the DoddFrank Act respectively require the CFTC to adopt 

rules to further define the terms ‘‘swap,’’ ‘‘swap 

dealer,’’ ‘‘major swap participant,’’ and ‘‘eligible 

contract participant,’’ and permit the Commission to 

adopt rules to further define the terms ‘‘securitybased swap,’’ ‘‘security-based swap dealer,’’ ‘‘major 

security-based swap participant,’’ and ‘‘eligible 

contract participant,’’ with regard to security-based 

swaps, for the purpose of including transactions 

and entities that have been structured to evade Title 

VII of the Dodd-Frank Act. Public Law 111–203 

§§ 721(c), 761(b). Finally, Section 712(a) of the 

Dodd-Frank Act provides that the Commission and 

CFTC, after consultation with the Federal Reserve, 

shall jointly prescribe regulations regarding ‘‘mixed 

swaps,’’ as may be necessary to carry out the 

purposes of Title VII. Public Law 111–203 § 712(a). 

Consistent with the Dodd-Frank statutory structure 

described above, the Commission and CFTC have 

proposed rules to define these terms. See Exchange 

Act No. 63452 (December 7, 2010), 75 FR 80174 

(December 21, 2010). 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 240 

[Release No. 34–64017; File No. S7–08–11] 

RIN 3235–AL13 

Clearing Agency Standards for 

Operation and Governance 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: In accordance with Section 

763 of Title VII (‘‘Title VII’’) of the DoddFrank Wall Street Reform and Consumer 

Protection Act of 2010 (‘‘Dodd-Frank 

Act’’), Section 805 of Title VIII (‘‘Title 

VIII’’) of the Dodd-Frank Act, and 

Section 17A of the Securities Exchange 

Act of 1934 (‘‘Exchange Act’’), the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) is proposing 

rules regarding registration of clearing 

agencies and standards for the operation 

and governance of clearing agencies. 

The proposed rules are designed to 

enhance the regulatory framework for 

the supervision of clearing agencies. 

DATES: Comments should be submitted 

on or before April 29, 2011. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/proposed.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–8–11 on the subject line; or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F St., NE., Washington, DC 20549– 

1090. 

All submissions should refer to File 

Number S7–8–11. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F St., NE., 

Washington, DC 20549 on official 

business days between the hours of 10 

a.m. and 3 p.m. All comments received 

will be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Jeffrey Mooney, Assistant Director; Peter 

Curley, Attorney Fellow; Andrew Blake, 

Special Counsel; Michael Milone, 

Special Counsel; Alison Duncan, 

Attorney-Adviser; Marta Chaffee, 

Branch Chief; and Andrew Bernstein, 

Attorney-Adviser, Office of Clearance 

and Settlement, Division of Trading and 

Markets, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–7010 at (202) 

551–5710. 

SUPPLEMENTARY INFORMATION: The 

Commission is proposing seven new 

rules and an amendment to an existing 

rule related to clearing agencies, 

including security-based swap clearing 

agencies. The proposed rules are 

designed to enhance the regulatory 

framework for the supervision of 

clearing agencies. Specifically, the 

Commission is proposing to: (1) Identify 

certain minimum standards for all 

clearing agencies; (2) require 

dissemination of pricing and valuation 

information by security-based swap 

clearing agencies that perform central 

counterparty services; (3) require all 

clearing agencies to have adequate 

safeguards and procedures to protect the 

confidentiality of trading information of 

clearing agency participants; (4) exempt 

certain security-based swap dealers and 

security-based swap execution facilities 

from the definition of a clearing agency; 

(5) amend rules concerning registration 

of clearing agencies to account for 

security-based swap clearing agencies 

and to make other technical changes; (6) 

require all clearing agencies to have 

procedures that identify and address 

conflicts of interest; (7) require 

standards for all members of clearing 

agency boards of directors or 

committees; and (8) require all clearing 

agencies to designate a chief compliance 

officer. 

I. Introduction 

On July 21, 2010, President Barack 

Obama signed the Dodd-Frank Act into 

law.1 The Dodd-Frank Act was enacted 

to, among other things, promote the 

financial stability of the United States 

by improving accountability and 

transparency in the financial system.2

Title VII of the Dodd-Frank Act provides 

the Commission and the Commodity 

Futures Trading Commission (‘‘CFTC’’) 

with the authority to regulate over-thecounter (‘‘OTC’’) derivatives in light of 

the recent financial crisis, which 

demonstrated the need for enhanced 

regulation of the OTC derivatives 

market. The Dodd-Frank Act is intended 

to bolster the existing regulatory 

structure and to provide the 

Commission and the CFTC with 

effective regulatory tools to oversee the 

OTC derivatives market, which has 

grown exponentially in recent years and 

is capable of affecting significant sectors 

of the U.S. economy.3

The Dodd-Frank Act provides that the 

CFTC will regulate ‘‘swaps,’’ the 

Commission will regulate ‘‘securitybased swaps,’’ and the CFTC and the 

Commission will jointly regulate ‘‘mixed 

swaps.’’ 4 The Dodd-Frank Act amends 

the Exchange Act to require, among 

other things, the following: (1) 

Transactions in security-based swaps 

must be cleared through a clearing 

agency if they are of a type that the 

Commission determines must be 

cleared, unless an exemption from 

mandatory clearing applies; (2) 

transactions in security-based swaps 

must be reported to a registered 

security-based swap data repository or 

the Commission; and (3) if a securityVerDate Mar<15>2010 17:56 Mar 15, 2011 Jkt 223001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:\FR\FM\16MRP2.SGM 16MRP2

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5Section 761 of the Dodd-Frank Act adds Section 

3(a)(77) to the Exchange Act, which defines the 

term ‘‘security-based swap execution facility’’ to 

mean ‘‘a trading system or platform in which 

multiple participants have the ability to execute or 

trade security-based swaps by accepting bids and 

offers made by multiple participants in the facility 

or system, through any means of interstate 

commerce, including any trading facility that (A) 

facilitates the execution of security-based swaps 

between persons; and (B) is not a national securities 

exchange.’’ See Public Law 111–203 § 761. The 

decision of a security-based swap execution facility 

or exchange to list a security-based swap contract 

for trading may not be sufficient to establish that 

the contract is ‘‘made available for trading’’ by that 

security-based swap execution facility or exchange 

and therefore cannot be traded in the over-thecounter market. See Exchange Act Release No. 

63825 (February 2, 2011), 76 FR 10948 (February 

28, 2011). The Dodd-Frank Act amends the CEA to 

provide for a similar regulatory framework with 

respect to transactions in swaps regulated by the 

CFTC. 

6The Commission authorized five entities to clear 

credit default swaps. See Exchange Act Release 

Nos. 60372 (July 23, 2009), 74 FR 37748 (July 29, 

2009), 61973 (April 23, 2010), 75 FR 22656 (April 

29, 2010) and 63389 (November 29, 2010), 75 FR 

75520 (December 3, 2010) (CDS clearing by ICE 

Clear Europe Limited); 60373 (July 23, 2009), 74 FR 

37740 (July 29, 2009), 61975 (April 23, 2010), 75 

FR 22641 (April 29, 2010) and 63390 (November 29, 

2010), 75 FR 75518 (December 3, 2010), (CDS 

clearing by Eurex Clearing AG); 59578 (March 13, 

2009), 74 FR 11781 (March 19, 2009), 61164 

(December 14, 2009), 74 FR 67258 (December 18, 

2009), 61803 (March 30, 2010), 75 FR 17181 (April 

5, 2010) and 63388 (November 29, 2010), 75 FR 

75522 (December 3, 2010) (CDS clearing by Chicago 

Mercantile Exchange Inc.); 59527 (March 6, 2009), 

74 FR 10791 (March 12, 2009), 61119 (December 4, 

2009), 74 FR 65554 (December 10, 2009), 61662 

(March 5, 2010), 75 FR 11589 (March 11, 2010) and 

63387 (November 29, 2010) 75 FR 75502 (December 

3, 2010) (CDS clearing by ICE Trust US LLC); 59164 

(December 24, 2008), 74 FR 139 (January 2, 2009) 

(temporary CDS clearing by LIFFE A&M and 

LCH.Clearnet Ltd.) (collectively, ‘‘CDS Clearing 

Exemption Orders’’). LIFFE A&M and LCH.Clearnet 

Ltd. allowed their order to lapse without seeking 

renewal. 

7Most cleared CDS transactions have cleared at 

ICE Trust US LLC (‘‘ICE Trust’’) or ICE Clear Europe 

Limited (‘‘ICE Clear Europe’’). However, Eurex 

Clearing AG (‘‘Eurex’’) and the Chicago Mercantile 

Exchange Inc. (‘‘CME’’) are also authorized to 

operate pursuant to the CDS Clearing Exemption 

Orders. As of October 8, 2010, ICE Trust had 

cleared approximately $7.1 trillion notional amount 

of CDS contracts based on indices of securities and 

approximately $490 billion notional amount of CDS 

contracts based on individual reference entities or 

securities. As of October 8, 2010, ICE Clear Europe 

had cleared approximately Ö3.09 trillion notional 

amount of CDS contracts based on indices of 

securities and approximately Ö560 billion notional 

amount of CDS contracts based on individual 

reference entities or securities. See https:// 

www.theice.com/marketdata/reports/ 

ReportCenter.shtml. The Commission has obtained 

data from The Depository Trust and Clearing 

Corporation on new and assigned CDS trades in 

United States Dollars during the month of 

November 2010 for ICE Trust. Cleared CDS trades 

represented a small fraction of total trades. 

Specifically, cleared trades were 5.24% by notional 

amount of all new or assigned single name trades, 

and 20.69% by notional amount of all new or 

assigned index trades. 

8Public Law 111–203 § 763(b) (adding 

subparagraph (g) to Section 17A of the Exchange 

Act. Pursuant to Section 774 of the Dodd-Frank Act, 

the requirement in Section 17A(g) of the Exchange 

Act for securities-based swap clearing agencies to 

be registered with the Commission takes effect on 

July 16, 2011). 

9Public Law 111–203 § 763(b) (adding 

subparagraphs (i) and (j) to Section 17A of the 

Exchange Act). 

10Public Law 111–203 § 763(b) (adding 

subparagraph (j) to Section 17A of the Exchange 

Act). See also Public Law 111–203 § 774 of the 

Dodd-Frank Act (requiring that the provisions of 

Title VII take effect on the later of 360 days after 

the date of the enactment or, to the extent a 

provision of Title VII requires a rulemaking, not less 

than 60 days after publication of the final rule or 

regulation implementing such provision). 

11Public Law 111–203 § 763(b) (adding 

subparagraph (i) to Section 17A of the Exchange 

Act). 

12Under the Exchange Act, a clearing agency can 

be registered with the Commission only if the 

Commission makes a determination that the 

clearing agency satisfies the requirements set forth 

in paragraphs (A) through (I) of Section 17A(b)(3) 

of the Exchange Act. 

13See supra note 1. Under Section 803 of the 

Clearing Supervision Act, clearing agencies may be 

FMUs. Therefore, the Commission may be the 

Supervisory Agency of a clearing agency that is 

designated as systemically important (‘‘designated 

clearing entities’’) by the Financial Stability 

Oversight Council (‘‘Council’’). See 12 U.S.C. 5463. 

The definition of ‘‘FMU,’’ which is contained in 

Section 803(6) of the Clearing Supervision Act, 

contains a number of exclusions including, but not 

limited to, designated contract markets, registered 

futures associations, swap data repositories, swap 

execution facilities, national securities exchanges, 

national securities associations, alternative trading 

systems, security-based swap data repositories, 

security-based swap execution facilities, brokers, 

dealers, transfer agents, investment companies and 

futures commission merchants. 12 U.S.C. 

5462(6)(B). The designation of systemic importance 

hinges on a determination by the Council that the 

failure of, or a disruption to, the functioning of the 

FMU 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. See 12 U.S.C. 5463(a)(2)(A)–(E). The 

designation of an FMU is significant, in part, 

because it will subject such designated entity to 

heightened oversight consistent with the terms of 

the Clearing Supervision Act. For example, the 

Clearing Supervision Act requires the Supervisory 

Agency to examine at least once annually any FMU 

that the Council has designated as systemically 

important. The Commission intends to conduct 

such annual statutory cycle examinations on the 

Commission’s fiscal year basis. The Commission 

staff anticipates conducting the first annual 

statutory cycle examination of any designated FMU 

for which it is the Supervisory Agency in the 

annual cycle following such designation. 

14See Section 805(a)(2) of the Clearing 

Supervision Act. Those regulations may govern ‘‘(A) 

the operations related to payment, clearing, and 

settlement activities of such designated clearing 

entities; and (B) the conduct of designated activities 

by such financial institutions.’’ 12 U.S.C. 5464(a)(2). 

15See 12 U.S.C 5321 (among other things 

establishing the Council and designating its voting 

and nonvoting members. In accordance with 

Section 804 of the Clearing Supervision Act, the 

Council has the authority, on a non-delegable basis 

and by a vote of not fewer than two-thirds of the 

members then serving, including the affirmative 

vote of its chairperson, to designate those FMUs 

that the Council determines are, or are likely to 

become, systemically important. The Council may, 

Continued 

based swap is subject to a clearing 

requirement, it must be traded on a 

registered trading platform, i.e., a 

security-based swap execution facility 

or exchange, unless no facility makes 

such security-based swap available for 

trading.5

Beginning in December of 2008, the 

Commission acted to facilitate the 

clearing of OTC security-based swaps by 

permitting certain clearing agencies to 

clear credit default swaps (‘‘CDS’’) on a 

temporary conditional basis.6

Consequently, a significant volume of 

security-based swaps in the form of CDS 

transactions are centrally cleared today, 

and the Commission oversees those 

activities pursuant to the CDS Clearing 

Exemption Orders.7

II. Prescribed Rulemaking for Clearing 

Agencies 

A. Title VII of Dodd-Frank Act 

Title VII of the Dodd-Frank Act added 

new provisions to the Exchange Act that 

require clearing agencies that clear 

security-based swaps (‘‘security-based 

swap clearing agencies’’) to register with 

the Commission 8 and require the 

Commission to adopt rules with respect 

to security-based swap clearing 

agencies.9

Specifically, new Section 17A(j) of the 

Exchange Act requires the Commission 

to adopt rules governing security-based 

swap clearing agencies.10 New Section 

17A(i) of the Exchange Act also gives 

the Commission authority to promulgate 

rules that establish standards for 

security-based swap clearing agencies.11

Compliance with any such rules is a 

prerequisite to the registration of a 

clearing agency with the Commission 

and is also a condition to the 

maintenance of that security-based swap 

clearing agency’s continued 

registration.12

B. Payment, Clearing, and Settlement 

Supervision Act of 2010 

Title VIII of the Dodd-Frank Act, 

entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 

(‘‘Clearing Supervision Act’’), establishes 

an enhanced supervisory and risk 

control system for systemically 

important clearing agencies and other 

financial market utilities (‘‘FMUs’’).13 It 

provides that the Commission may 

prescribe regulations containing risk 

management standards, taking into 

consideration relevant international 

standards and existing prudential 

requirements, for any designated 

clearing entities it regulates.14 The 

Council has not to date made any 

designations with respect to whether 

any FMU is, or is likely to become, 

systemically important; 15 however, the 


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using the same procedures as discussed above, 

rescind such designation if it determines that the 

FMU no longer meets the standards for systemic 

importance. Before making either determination, 

the Council is required to consult with the Federal 

Reserve and the relevant Supervisory Agency as 

determined in accordance with Section 803(8) of 

the Clearing Supervision Act). See also Section 804 

setting forth the procedures for giving entities 30 

days advance notice and the opportunity for a 

hearing prior to being designated as systemically 

important. 12 U.S.C. 5463. 

16 12 U.S.C. 5461(a)(2). 

17See 15 U.S.C. 78q–1(b)(3)(A). 

18See 15 U.S.C. 78q–1(b). See also Public Law 

111–203 § 763(b) (adding subparagraph (g) to 

Section 17 of the Exchange Act). 

19See 17 CFR 240.17b2–1. 

20Specifically, Sections 17A(b)(3)(A)–(I) identify 

determinations that the Commission must make 

about the rules and structure of a clearing agency 

prior to granting registration. See 15 U.S.C. 78q– 

1(b)(3)(A)–(I). The staff of the Commission provided 

guidance on meeting the requirements of Section 

17A in its Announcement of Standards for the 

Registration of Clearing Agencies. See Exchange Act 

Release No. 16900 (June 17, 1980), 45 FR 41920 

(June 23, 1980). 

21See 15 U.S.C. 78q–1(d). 

22See supra note 4. 

23As noted in the table, proposed Rule 17Aj–1 

would only apply to CCPs for security-based swap 

transactions. 

24Within this category, as illustrated in column 

‘‘B’’, the proposed rules distinguish between 

clearing agencies that provide central securities 

depository services, and those that do not. 

Commission believes it is beneficial to 

consider the requirements of the 

Clearing Supervision Act in its 

proposed rules for clearing agencies 

because the Clearing Supervision Act 

may apply to one or more clearing 

agencies in the future and the 

Commission preliminarily believes that 

its goals are consistent with the goals of 

Section 17A of the Exchange Act. 

Specifically, Congress recognized in the 

Clearing Supervision Act that the 

operation of multilateral payment, 

clearing or settlement activities may 

reduce risks for clearing participants 

and the broader financial system, while 

at the same time creating new risks that 

require multilateral payment, clearing or 

settlement activities to be well-designed 

and operated in a safe and sound 

manner.16 The Clearing Supervision Act 

is designed, in part, to provide a 

regulatory framework to help deal with 

such risk management issues, which is 

generally consistent with the Exchange 

Act requirement that clearing agencies 

be organized in a manner so as to 

facilitate prompt and accurate clearance 

and settlement, safeguard securities and 

funds and protect investors.17

C. Section 17A of Exchange Act 

As noted above, in addition to the 

new authority provided to the 

Commission under Titles VII and VIII of 

the Dodd-Frank Act, the Commission 

has existing authority over clearing 

agencies under the Exchange Act. For 

example, entities are required to register 

with the Commission pursuant to 

Section 17A of the Exchange Act 18 and 

Rule 17Ab2–1,19 prior to performing the 

functions of a clearing agency. Under 

this registration system, the Commission 

is not permitted to grant registration 

unless it determines that the rules and 

operations of the clearing agency meet 

the standards set forth in Section 17A.20

If a clearing agency is granted 

registration, the Commission oversees 

the clearing agency to facilitate 

compliance with the Exchange Act 

through the rule filing process for selfregulatory organizations (‘‘SROs’’) and 

through on-site examinations by 

Commission staff. Section 17A also 

gives the Commission authority to adopt 

rules for clearing agencies as necessary 

or appropriate in the public interest, for 

the protection of investors, or otherwise 

in furtherance of the purposes of the 

Exchange Act and prohibits a registered 

clearing agency from engaging in any 

activity in contravention of these rules 

and regulations.21

III. Proposed Rules Governing Clearing 

Agencies 

The Commission is proposing several 

new rules that would set standards for 

the operation and governance of 

clearing agencies. As noted above, the 

Dodd-Frank Act specifically gives the 

Commission authority to regulate 

security-based swaps 22 and to adopt 

regulations addressing risk management 

standards for designated clearing 

entities that the Commission regulates. 

In addition to considering this specific 

directive in formulating the proposed 

rules, the Commission preliminarily 

believes that applying certain rules to 

all clearing agencies would promote 

financial stability, one of the goals of the 

Dodd-Frank Act, by facilitating prompt 

and accurate clearance and settlement of 

all securities transactions consistent 

with Section 17A of the Exchange Act 

while promoting the Dodd-Frank Act’s 

stated aims of accountability and 

transparency. 

The types of clearing agencies that are 

subject to the proposed rules can be 

divided into four different categories: (i) 

Clearing agencies that offer central 

counterparty (‘‘CCP’’) services for 

transactions in securities that are not 

security-based swaps, (ii) clearing 

agencies that offer CCP services for 

transactions in securities that are 

security-based swaps; (iii) clearing 

agencies that provide non-CCP services 

for transactions in securities that are not 

security-based swaps; and (iv) clearing 

agencies that provide non-CCP services 

for transactions in securities that are 

security-based swaps. The table below 

illustrates how the proposed rules 

would apply to different types of 

clearing agencies. In general, as 

illustrated in column ‘‘A’’ in the table, 

clearing agencies offering CCP services 

(regardless of whether they offer those 

services for transactions in securities 

that are or are not security-based swaps) 

would be subject to most of the 

proposed rules.23 Clearing agencies that 

offer only non-CCP services would only 

be subject to certain of the proposed 

rules, depending on whether they offer 

those services for transactions in 

securities that are not security-based 

swaps (as illustrated in column ‘‘B’’ in 

the table) 24 or that are security-based 

swaps (as illustrated in column ‘‘C’’ in 

the table). 

APPLICATION OF PROPOSED RULES TO CLEARING AGENCIES

A 

CCP Clearing Services for Securities that are or are not SecurityBased Swaps (‘‘SBS’’) 

B 

Non-CCP Clearing Services in Securities that are not SBS 

C 

Non-CCP Clearing Services for 

Securities that are SBS 

17Ad–22(b)(1): Measurement and 

management of credit exposures ......................................... Æ ........................................................ ........................................................

17Ad–22(b)(2): Margin requirements ........................................ Æ ........................................................ ........................................................

17Ad–22(b)(3): Financial resources ..................................... Æ ........................................................ ........................................................

17Ad–22(b)(4): Model validation Æ ........................................................ ........................................................


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APPLICATION OF PROPOSED RULES TO CLEARING AGENCIES—Continued 

A 

CCP Clearing Services for Securities that are or are not SecurityBased Swaps (‘‘SBS’’) 

B 

Non-CCP Clearing Services in Securities that are not SBS 

C 

Non-CCP Clearing Services for 

Securities that are SBS 

17Ad–22(b)(5): Non-dealer access .......................................... Æ ........................................................ ........................................................

17Ad–22(b)(6): Portfolio size and 

transaction volume thresholds 

restrictions ................................ Æ ........................................................ ........................................................

17Ad–22(b)(7): Net capital restrictions ................................... Æ ........................................................ ........................................................

17Ad–22(c)(1): Records of financial resources ........................... Æ ........................................................ ........................................................

17Ad–22(c)(2): Audited financial 

statements ................................ Æ Æ Æ 

17Ad–22(d)(1): Transparent and 

enforceable rules ...................... Æ Æ Æ 

17Ad–22(d)(2): Participation requirements ................................ Æ Æ Æ 

17Ad–22(d)(3): Custody of assets 

and investment risk .................. Æ Æ Æ 

17Ad–22(d)(4): Identification and 

mitigation of operational risk .... Æ Æ Æ 

17Ad–22(d)(5): Money settlement 

risks .......................................... Æ Æ Æ 

17Ad–22(d)(6): Cost-effectiveness .......................................... Æ Æ Æ 

17Ad–22(d)(7): Links ................... Æ Æ Æ 

17Ad–22(d)(8): Governance ........ Æ Æ Æ 

17Ad–22(d)(9): Information on 

services .................................... Æ Æ Æ 

17Ad–22(d)(10): Immobilization 

and dematerialization of stock 

certificates ................................ ........................................................ Would Only Apply to Clearing 

Agencies that Provide Central 

Securities Depository (‘‘CSD’’) 

Services 

........................................................

17Ad–22(d)(11): Default procedures ........................................ Æ Æ Æ 

17Ad–22(d)(12): Timing of settlement finality .............................. Æ Æ ........................................................

17Ad–22(d)(13): Delivery versus 

payment .................................... Æ Æ ........................................................

17Ad–22(d)(14): Controls to address participants’ failure to 

settle ......................................... ........................................................ Would Only Apply to Clearing 

Agencies that Provide CSD 

Services 

........................................................

17Ad–22(d)(15): Physical delivery 

risks .......................................... Æ Æ ........................................................

17Aj–1: Dissemination of pricing 

and valuation information ......... Would Only Apply to Clearing 

Agencies that Provide CCP 

Services for SBS 

........................................................ ........................................................

17Ad–23: Policies and procedures to protect confidentiality 

of trading information of participants ......................................... Æ Æ Æ 

Amendments to Rule 17Ab2–1: 

Registration of clearing agencies ........................................... Æ Æ Æ 

17Ad–25: Procedures to identify 

and address conflicts of interests ........................................... Æ Æ Æ 

17Ad–26: Standards for board or 

board committee directors ....... Æ Æ Æ 

3Cj–1: Designation of chief compliance officer ........................... Æ Æ Æ 


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25See 15 U.S.C. 78q–1. 

26See id. 

27See id. 

28 12 U.S.C. 5464(a)(1). 

29The complete RSSS and RCCP Reports are 

available on the Web site of the Bank for 

International Settlements at http://www.bis.org/ 

publ/cpss46.htm and http://www.bis.org/publ/ 

cpss64.htm respectively. 

The RSSS and RCCP Reports were drafted by 

IOSCO and CPSS (‘‘Task Force’’). The Task Force 

consisted of securities regulators and central 

bankers from 19 countries (i.e., Australia, Belgium, 

Brazil, China, Czech Republic, France, Germany, 

Hong Kong, India, Italy, Japan, Malaysia, Mexico, 

The Netherlands, Saudi Arabia, Singapore, Spain, 

England, and the United States) and the European 

Union. The U.S. representatives on the Task Force 

included staff from the Commission, the Federal 

Reserve, and the CFTC. The Federal Reserve has 

incorporated the RSSS and RCCP, as well as the 

Core Principles for Systemically Important Payment 

Systems, in its Federal Reserve Policy on Payment 

System Risk. The Federal Reserve applies these 

standards in its supervisory process and expects 

systemically important systems, as determined by 

the Federal Reserve and subject to its authority, will 

complete a self-assessment against the standards set 

forth in the policy. See Policy on Payment System 

Risk, 72 FR 2518 (January 12, 2007). 

30See 15 U.S.C. 78q–1(d). 

31Several clearing agencies have published their 

evaluations of their compliance with the CPSS– 

IOSCO Recommendations on their Web sites. See 

http://www.dtcc.com/legal/compliance/ 

assessments.php. In addition, several clearing 

agencies, as part of requests for the CDS Clearing 

Exemption Orders, have represented to the 

Commission that they met the standards set forth 

in the RCCP. See supra note 6. 

32 In December 2009, IOSCO and CPSS began a 

comprehensive review of existing standards for 

FMUs, which includes the RSSS and RCCP. This 

review intends to strengthen and clarify the 

standards based on experience with the standards 

since their publication and specifically from lessons 

learned during the recent financial crisis. 

33Proposed Rule 17Ad–22(c)(2) would apply to 

all clearing agencies and require them to post 

annual audited financial reports on their Web sites. 

A. Proposed Rule 17Ad–22 Standards 

for All Clearing Agencies 

The Commission is proposing Rule 

17Ad–22 to augment the statutory 

requirements under the Exchange Act 

by establishing minimum requirements 

regarding how clearing agencies must 

maintain effective risk management 

procedures and controls as well as meet 

the statutory requirements under the 

Exchange Act on an ongoing basis. For 

a clearing agency to be registered under 

Section 17A, it must have the ability to 

facilitate the prompt and accurate 

clearance and settlement of transactions, 

safeguard investor funds and securities, 

remove impediments to and perfect the 

mechanism of a national clearance and 

settlement system, and generally protect 

investors.25 Also, the clearing agency’s 

rules must provide adequate access to 

qualified participants, fair 

representation of shareholders and 

participants, equitable pricing, fair 

discipline of participants, and must not 

impose any undue burden on 

competition.26 Section 17A of the 

Exchange Act explicitly provides the 

Commission with discretion to update 

the rules for clearing agencies consistent 

with the Exchange Act.27 Further, 

Section 805(a) of the Dodd-Frank Act 

directs the Commission to take into 

consideration relevant international 

standards and existing prudential 

requirements for clearing agencies that 

are designated as FMUs.28 The current 

international standards most relevant to 

risk management of clearing agencies 

are the standards developed by the 

Technical Committee of the 

International Organization of Securities 

Commissions (‘‘IOSCO’’) and the 

Committee on Payment and Settlement 

Systems (‘‘CPSS’’) of the Bank for 

International Settlements that are 

contained in the following reports: 

Recommendations for Securities 

Settlement Systems (2001) (‘‘RSSS’’), and 

Recommendations for Central 

Counterparties (2004) (‘‘RCCP’’) 

(collectively ‘‘CPSS–IOSCO 

Recommendations’’).29

The Commission preliminarily 

believes that certain aspects of the 

CPSS–IOSCO Recommendations should 

be made to clearly apply to clearing 

agencies and that such application 

would further the objectives and 

principles for clearing agencies under 

the Exchange Act and the Dodd-Frank 

Act, including those that are related to 

sound risk management practices and to 

fair and open access. These 

international standards were formulated 

by securities regulators and central 

banks to promote sound riskmanagement practices and encourage 

the safe design and operation of entities 

that provide clearance and settlement 

services. The Commission is proposing 

Rule 17Ad–22 (which is consistent with 

the CPSS–IOSCO Recommendations but 

reflects modifications designed to tailor 

the proposed rule to the Exchange Act 

and the U.S. clearance and settlement 

system) because the Commission 

preliminarily believes that the rule 

would help to facilitate prompt and 

accurate clearance and settlement, 

safeguard securities and funds and 

protect investors.30

The Commission preliminarily 

believes that the adoption of proposed 

Rule 17Ad–22, which is based on the 

CPSS–IOSCO Recommendations, and 

the application of this rule to all 

clearing agencies would have several 

important benefits, including providing 

a robust framework for assessing and 

addressing the risks within clearing 

agencies. The Commission requests 

comment on proposed Rule 17Ad–22 

and the consideration of the CPSS– 

IOSCO Recommendations in connection 

with the proposed rule. The 

Commission also requests comment on 

whether the proposed rules are properly 

tailored to assess and address the risks 

at clearing agencies and whether they 

are sufficiently clear to enable clearing 

agencies to reasonably determine 

whether they are in compliance with the 

rules or whether the Commission 

should provide additional guidance.31

The Commission notes that IOSCO 

and the CPSS are currently in the 

process of revising their existing sets of 

international standards.32 This review is 

intended to strengthen and clarify the 

CPSS–IOSCO Recommendations, as 

well as the CPSS’s existing standards for 

payment systems entitled: Core 

Principles for Systemically Important 

Payment Systems. The Commission 

may, as international standards evolve, 

consider additional modifications to its 

rules as the Commission determines is 

appropriate based on its own experience 

and the requirements under the 

Exchange Act. 

Proposed Rule 17Ad–22 contains 

certain additional requirements that are 

not addressed or contemplated by 

international standards. For clearing 

agencies that perform CCP services, 

these additional requirements are found 

in the following proposed rules: (1) Rule 

17Ad–22(b)(3), which would require 

heightened financial resources for 

clearing agencies that provide CCP 

services for securities that are securitybased swaps; (2) Rule 17Ad–22(b)(5), 

which would prohibit membership 

restrictions based on dealer status; (3) 

Rule 17Ad–22(b)(6), which would 

prohibit membership restrictions based 

on minimum volume and transaction 

thresholds; (4) Rule 17Ad–22(b)(7), 

which would prohibit restrictions on 

clearing agency membership based on 

minimum net capital requirements of 

$50 million or more; and (5) Rule 17Ad– 

22(c)(1), which would require 

calculation and maintenance of records 

of the clearing agency’s financial 

resources. 33

In addition, the Commission is 

proposing additional rules for all 

clearing agencies (whether or not they 

offer CCP services) that are not 

addressed or contemplated by the 

international standards. These proposed 

rules would: (1) Require dissemination 

of pricing and valuation information by 

security-based swap clearing agencies 

that perform CCP services (Proposed 

Rule 17Aj–1); (2) require all clearing 

agencies to have adequate safeguards 

and procedures to protect the 

confidentiality of trading information of 


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34 [Clearing agency] also means any person, such 

as a securities depository, who (i) acts as a 

custodian of securities in connection with a system 

for the central handling of securities whereby all 

securities of a particular class or series of any issuer 

deposited within the system are treated as fungible 

and may be transferred, loaned, or pledged by 

bookkeeping entry without physical delivery of 

securities certificates, or (ii) otherwise permits or 

facilitates the settlement of securities transactions 

or the hypothecation or lending of securities 

without physical delivery of securities certificates. 

15 U.S.C. 78c(a)(23). 

35As appropriate, the clearing agency would 

develop risk adjusted capital calculations for 

prospective clearing members that are not brokerdealers. 

36 In the context of the RCCP, ‘‘normal market 

conditions’’ means conditions in which the 

expected movement of the price of cleared 

securities would produce changes in a clearing 

agency’s exposures to its participants that would be 

expected to breach margin requirements or other 

risk control mechanisms only one percent of the 

time. See CPSS Publications Recommendations for 

Central Counterparties, (November 2004), available 

at http://www.bis.org/publ/cpss64.htm. 37See supra note 36. 

clearing agency participants (Proposed 

Rule 17Ad–23); (3) exempt certain 

security-based swap dealers and 

security-based swap execution facilities 

from the definition of a clearing agency 

(Proposed Rule 17Ad–24); (4) amend 

rules concerning registration of clearing 

agencies to account for security-based 

swap clearing agencies and to make 

other technical changes (Rule 17Ab2–1); 

(5) require all clearing agencies to have 

procedures that identify and address 

conflicts of interest (Proposed Rule 

17A–25); (6) require clearing agencies to 

set standards for all members of their 

boards of directors or committees 

(Proposed Rule 17Ad–26); and (7) 

require all clearing agencies to designate 

a chief compliance officer (Proposed 

Rule 3Cj–1). 

1. Proposed Rule 17Ad–22(a) 

Proposed Rule 17Ad–22(a) contains 

five definitions. Proposed Rule 17Ad– 

22(a)(1) would define CCP as a clearing 

agency that interposes itself between 

counterparties to securities transactions 

to act functionally as the buyer to every 

seller and as the seller to every buyer. 

Proposed Rule 17Ad–22(a)(2) would 

define ‘‘central securities depository 

services’’ to mean services of a clearing 

agency that is a securities depository as 

described in Section 3(a)(23) of the 

Exchange Act.34 Proposed Rule 17Ad– 

22(a)(3) would define ‘‘participant’’, for 

the limited purposes of proposed Rules 

17Ad–22(b)(3) and 17Ad–22(d)(14), to 

mean that if a participant controls 

another participant, or is under common 

control with another participant, then 

the affiliated participants shall be 

collectively deemed to be a single 

participant. Proposed Rule 17Ad– 

22(a)(4) would define ‘‘normal market 

conditions’’, for the limited purposes of 

proposed Rules 17Ad–22(b)(1) and (2), 

to mean conditions in which the 

expected movement of the price of 

cleared securities would produce 

changes in a clearing agency’s exposures 

to its participants that would be 

expected to breach margin requirements 

or other risk control mechanisms only 

one percent of the time. Proposed Rule 

17Ad–22(a)(5) would define ‘‘net 

capital’’, for the limited purposes of 

proposed Rule 17Ad–22(b)(7), to have 

the same meaning as set forth in Rule 

15c3–1 under the Exchange Act for 

broker-dealers or any similar risk 

adjusted capital calculation for all other 

prospective clearing members.35

The Commission preliminarily 

believes that these five proposed 

definitions would be consistent with the 

common meaning of these terms as 

understood in the clearance and 

settlement industry. In addition, the 

Commission preliminarily believes the 

definition of ‘‘normal market 

conditions’’ would be consistent with 

international use of that term in the 

context of clearing agency risk 

management.36 The Commission 

intends for these definitions to provide 

clearing agencies with appropriate 

guidance to determine when 

requirements under proposed Rule 

17Ad–22 would apply. The Commission 

requests comment on the proposed 

definitions, including whether any 

additional clarification would be 

helpful. 

2. Proposed Rule 17Ad–22(b) 

Proposed Rule 17Ad–22(b) would set 

forth standards that are applicable to 

clearing agencies that provide CCP 

services. Specifically, the proposed rule 

would provide standards with respect to 

measurement and management of credit 

exposures, margin requirements, 

financial resources, and annual 

evaluations of the performance of the 

clearing agency’s margin models. The 

proposed rule would also require 

membership access to clearing agencies 

for persons that are not dealers or 

security-based swap dealers, prohibit 

the use of minimum portfolio size and 

minimum volume transaction 

thresholds as a condition for 

membership at a clearing agency, and 

permit membership access to a clearing 

agency by persons with net capital equal 

to or greater than $50 million. The 

discussion below provides greater detail 

regarding each respective standard 

covered in proposed Rule 17Ad–22(b). 

The proposed rule is designed to 

address risks and participant 

membership structures that are 

specifically linked to the provision of 

services associated with a clearing 

agency interposing itself between 

counterparties to securities transactions 

and acting functionally as the buyer to 

every seller and the seller to every buyer 

(i.e., CCP services). Accordingly, the 

Commission preliminarily believes that 

these requirements would not need to 

apply to clearing agencies that do not 

provide CCP services because they 

would not be engaged in activities that 

the proposed rule is designed to 

address. 

The Commission preliminarily 

believes that proposed Rule 17Ad–22(b) 

would provide standards designed to 

help ensure sound risk management 

practices at clearing agencies providing 

CCP services. Further, the Commission 

preliminarily believes that the 

requirements of proposed Rule 17Ad– 

22(b) would help ensure that the rules, 

policies and procedures of a clearing 

agency providing CCP services will be 

designed to promote fair and open 

access, to promote the prompt and 

accurate clearance and settlement of 

securities transactions, and to assure the 

safeguarding of securities and funds that 

are in the custody or control of the 

clearing agency or for which it is 

responsible. 

Proposed Rule 17Ad–22(b)(1): 

Measurement and Management of Credit 

Exposures 

Proposed Rule 17Ad–22(b)(1) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

measure its credit exposures to its 

participants at least once each day, and 

limit its exposures to potential losses 

from defaults by its participants in 

normal market conditions 37 so that the 

operations of the clearing agency would 

not be disrupted and non-defaulting 

participants would not be exposed to 

losses that they cannot anticipate or 

control. 

The Commission preliminarily 

believes that measurement and 

management of credit exposures can, 

among other things, reduce the 

likelihood in a participant default 

scenario that losses from default would 

disrupt the operations of the clearing 

agency and its non-defaulting 

participants and adversely affect the 

functioning of the clearing agency. A 

clearing agency providing CCP services 

faces the risk that its exposures to 

participants can change dramatically as 

a result of changes in prices, in 

positions, or both. Adverse price 


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38See supra note 36. 

movements can rapidly increase 

exposures to participants, and 

participants may rapidly change or 

concentrate their positions through new 

trading. If not appropriately measured 

and managed, such results could lead to 

significant liabilities accruing at the 

clearing agency. 

Recognizing that the risks that 

clearing agencies are likely to face will 

change over time, the Commission is 

proposing that a clearing agency 

providing CCP services be required to 

measure its credit exposures to its 

participants at least once each day. The 

Commission preliminarily believes this 

is the minimum frequency of 

measurement that would permit a 

clearing agency to effectively consider 

the risks it faces because of the potential 

for significant changes to the risk 

profiles of its participants to change on 

a daily basis. 

In addition to requiring clearing 

agencies to take steps to measure their 

credit exposures to participants, the 

proposed rule would also require 

clearing agencies to limit their 

exposures to potential losses from 

participant defaults. By collecting 

sufficient margin and having other 

resources in place to account for losses 

arising under normal market conditions, 

the Commission expects that a clearing 

agency would be able to limit its 

exposures to potential losses from 

defaults by its participants. The 

Commission preliminarily believes that 

the proposed rule should thereby help 

ensure prompt and accurate clearance 

and settlement. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(b)(1). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding measurement and 

management of credit exposures 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• How do current practices of 

clearing agencies providing CCP 

services with respect to measurement 

and management of credit exposures 

compare to the practices that the 

Commission proposes to require in this 

rule? What are the expected incremental 

costs to clearing agencies providing CCP 

services in connection with adding to or 

revising their current practices in order 

to implement the Commission’s 

proposed rule? 

• Should the Commission require 

clearing agencies acting as CCPs to use 

any specific confidence level for 

limiting potential losses under the 

proposed rule when clearing certain 

products, or to use minimum amounts 

of market data when calculating credit 

exposures? Why or why not? 

• What level of discretion should the 

Commission allow clearing agencies 

providing CCP services to exercise when 

measuring and managing credit 

exposure? Are there circumstances 

when such discretion should be 

limited? 

• Is it more difficult for clearing 

agencies providing CCP services and 

their participants to anticipate and 

control losses associated with certain 

types of financial products compared to 

others? If so, how should the 

Commission take this into account 

when establishing rules for clearing 

agency standards? For example, should 

the Commission require additional risk 

management measures to be applied by 

clearing agencies providing CCP 

services when judging the risks 

associated with financial products that 

trade infrequently or when valuation 

models for the product are not yet 

broadly accepted in the financial 

market? Why or why not? 

• Extremely illiquid security-based 

swap products may be difficult to clear 

under a conventional CCP clearing 

model because it may be difficult to 

value them with a degree of accuracy 

that allows the CCP to properly manage 

the risk of those positions. Should the 

Commission explore developing 

alternatives to the requirements 

contained in proposed Rule 17Ad– 

22(b)(1) based on the liquidity of 

products a clearing agency clears? What 

effect would any such requirements 

have on the potential development of 

alternative clearing models for highlyilliquid products that would convey 

some of the benefits of clearing (such as 

centralized holding of collateral by a 

third-party custodian, daily adjustment 

of variation margin amounts, daily 

posting and return of variation margin, 

independent valuation of positions, and 

prompt close-out of positions held by a 

defaulting market participant)? 

• Should the Commission consider 

requiring clearing agencies that provide 

CCP services to measure exposures to 

participants more or less frequently than 

a minimum of once daily? 

Proposed Rule 17Ad–22(b)(2): Margin 

Requirements 

Proposed Rule 17Ad–22(b)(2) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to: 

(i) Use margin requirements to limit its 

credit exposures to participants in 

normal market conditions; 38 (ii) use 

risk-based models and parameters to set 

margin requirements; and (iii) review 

the models and parameters at least 

monthly. 

The Commission preliminarily 

believes that use of margin requirements 

by clearing agencies providing CCP 

services to collect assets (e.g., cash or 

securities) from its participants as a way 

to limit exposures to participants in 

normal market conditions would, 

among other things, provide the clearing 

agency with assets it could readily use 

to limit losses incurred by a participant 

in the event of a default. By limiting its 

credit exposure in this manner, a 

clearing agency providing CCP services 

would be less likely to be subject to 

disruptions in its operations as a result 

of a participant default, thereby 

promoting prompt and accurate 

clearance and settlement. 

The Commission also preliminarily 

believes that risk-based models and 

parameters should be used to set margin 

requirements because they permit a 

clearing agency providing CCP services 

to tailor the amount of margin collected 

to the needs of the clearing agency. 

Specifically, models and parameters for 

collecting margin that account for the 

risks the clearing agency providing CCP 

services faces when transacting with a 

participant may be more likely to result 

in effective and efficient margin 

requirements because the level of 

margin collected would be 

commensurate with the level of risk 

presented by the participant to the 

clearing agency. 

In addition, the Commission 

preliminarily believes that the review of 

these models and parameters should be 

required to occur at least monthly. 

Market conditions and risks are 

constantly changing and therefore the 

models and parameters used by a 

clearing agency providing CCP services 

to set margin may not accurately reflect 

the needs of a clearing agency if they are 

permitted to remain static. The 

Commission recognizes, however, that 

there may be benefits to maintaining 

some stability with respect to margin 

levels in order to limit operational 

difficulties. Accordingly, the 

Commission is proposing that clearing 

agencies providing CCP services be 

required to review their models and 

parameters at least monthly because the 

Commission preliminarily believes that 

such time frame would limit the 

potential that such parameters or 

models will become stale while also 

providing the clearing agency flexibility 

to maintain some stability with respect 


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39See proposed Rule 17Ad–22(a)(3), supra 

Section II.A.1 (defining ‘‘participant’’ for purposes 

of proposed Rule 17Ad–22(b)(3)). 

40 Jump-to-default risk relates to the possibility of 

a reference entity unexpectedly experiencing a 

credit event over a short period resulting in 

significant changes in the value of any CDS 

contracts written on that particular reference entity. 

For example, a seller of a CDS could be collecting 

regular premiums with little expectation that the 

reference entity may default. However, if that 

reference entity suddenly experiences a credit 

event, it will trigger an unexpected obligation on 

the protection seller to pay a lump sum, dependent 

on the size of the contract, to the protection buyer. 

See generally Darrell Duffie and Haoxiang Zhu, 

Does a Central Clearing Counterparty Reduce 

Counterparty Risk? (Stanford Univ. 2010), available 

at http://www.stanford.edu/∼duffie/DuffieZhu.pdf. 

to determinations for margin 

requirements. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(b)(2). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding margin requirements 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• How do current practices of 

clearing agencies regarding margin 

requirements compare to the practices 

that the Commission proposes to require 

in this rule? What are the expected 

incremental costs to clearing agencies in 

connection with adding to or revising 

their current practices in order to 

implement the Commission’s proposed 

rule? 

• Should the Commission require 

clearing agencies providing CCP 

services to impose any special margin or 

intraday margin requirements in certain 

circumstances? Are there circumstances 

when special margin or intraday 

margining would not be appropriate? 

Why or why not? 

• Should the Commission allow 

clearing agencies providing CCP 

services to exercise significant 

discretion when establishing margin 

practices? Why or why not? Are there 

circumstances when such discretion 

should be limited? Is there a risk that 

clearing agencies providing CCP 

services may lower margin standards to 

compete for business? If so, how should 

the Commission take such factors into 

account when establishing rules for 

clearing agencies providing CCP 

services? 

• Should the Commission consider 

requiring a clearing agency that 

provides CCP services to review its 

margin model and parameters more or 

less frequently than at least monthly? 

Proposed Rule 17Ad–22(b)(3): Financial 

Resources 

Proposed Rule 17Ad–22(b)(3) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

maintain sufficient financial resources 

to withstand, at a minimum, a default 

by the participant to which it has the 

largest exposure in extreme but 

plausible market conditions, provided 

that a security-based swap clearing 

agency shall maintain sufficient 

financial resources to withstand, at a 

minimum, a default by the two 

participants to which it has the largest 

exposures in extreme but plausible 

market conditions.39

The Commission preliminarily 

believes that requiring a clearing 

agency, other than a security-based 

swap clearing agency, that provides CCP 

services to maintain sufficient financial 

resources to withstand, at a minimum, 

a default by the participant to which it 

has the largest exposure in extreme but 

plausible market conditions would, 

among other things, reduce the 

likelihood that a default would create 

losses that would disrupt the operations 

of the clearing agency and adversely 

affect the clearing agency’s nondefaulting participants. However, the 

Commission preliminarily believes that 

security-based swap clearing agencies 

that provide CCP services face 

additional risk-management challenges 

because of factors unique to the 

security-based swaps market, such as 

more limited historical information on 

pricing and the jump-to-default risk 40

associated with certain security-based 

swaps, such as CDS. The Commission 

preliminarily believes that to promote 

prompt and accurate clearance and 

settlement and maintain higher levels of 

financial resources to account for these 

risks, it is important for security-based 

swap clearing agencies that provide CCP 

services to be able to withstand a default 

by the two participants to which the 

clearing agency has its largest exposures 

in extreme but plausible market 

conditions. Moreover, the Commission 

expects that when a clearing agency that 

provides CCP services determines what 

level of financial resources would be 

sufficient to account for exposures in 

extreme but plausible market 

conditions, the clearing agency would 

consider potential losses that would be 

greater than those resulting from 

observed periods of significant volatility 

or disturbances. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(b)(3). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding requiring clearing agencies 

providing CCP services to maintain 

sufficient financial resources 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• Should the Commission require all 

clearing agencies providing CCP 

services, instead of only those clearing 

security-based swaps, to maintain 

sufficient financial resources to 

withstand a default by the two 

participants to which it has the largest 

exposures in extreme but plausible 

market conditions? Should all or any 

subset of clearing agencies be required 

to maintain sufficient financial 

resources based on more or less than 

two participant defaults? For example, 

should the financial resources 

requirements be different for certain 

clearing agencies, such as security-based 

swap clearing agencies or those 

designated as systemically important 

under the Clearing Supervision Act? 

Should the Commission require that 

financial resources be measured based 

on a different standard than resources 

needed to withstand default by a certain 

number of participants, such as a 

percentage of the total business 

conducted by the clearing agency? 

• How do current practices of 

clearing agencies pertaining to financial 

resources compare to the practices that 

the Commission proposes to require in 

this rule? What are the expected 

incremental costs to clearing agencies in 

connection with adding to or revising 

their current practices in order to 

implement the Commission’s proposed 

rule? 

• Are the financial resources 

standards for clearing agencies 

providing CCP services proposed by the 

Commission sufficient for the proper 

functioning of a clearing agency? 

Should a clearing agency providing CCP 

services be able to mutualize losses 

during a default using financial 

resources designed to cover price 

movements? Should the Commission 

establish more specific rules? For 

example, should the Commission 

establish standards for the level of 

clearing agency resources maintained in 

a guarantee fund as opposed to a margin 

fund, or should clearing agencies 

providing CCP services be given 

discretion to manage the composition of 

their financial resources as they see fit? 

Why or why not? Should the 

Commission establish more prescriptive 

requirements concerning the financial 

resources of certain clearing agencies 

providing CCP services, such as those 


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41Any person responsible for supervising the 

operation of the clearing agency’s margin model 

would be viewed as performing the functions 

associated with the clearing agency’s margin model 

and could not therefore have supervisory authority 

over the person conducting the model validation. 

42Proposed Rule 17Ad–22(b)(4), however, would 

not prevent a person conducting the model 

validation from being employed by the clearing 

agency if the conditions in the proposed rule are 

satisfied. For example, a qualified member of the 

internal audit function that operates under a 

separate reporting line may be able to provide the 

model validation. 

43The term ‘‘dealer’’ is defined in Section 3(a)(5) 

of the Exchange Act and means any person engaged 

in the business of buying and selling securities for 

such person’s own account through a broker or 

otherwise. The definition contains an exception for 

a person that buys or sells securities for such 

person’s own account, either individually or in a 

fiduciary capacity, but not as a part of a regular 

business. There is also an exception for banks 

engaging in certain specified activities. See 15 

U.S.C. 78c(a)(5) for the complete definition. 

44Pursuant to Section 761 of the Dodd-Frank Act, 

the term ‘‘security-based swap dealer’’ is added as 

Section 3(a)(71) of the Exchange Act, 15 U.S.C. 

78c(a), and generally means any person who (A) 

holds itself out as a dealer in security-based swaps; 

(B) makes a market in security-based swaps; (C) 

regularly enters into security-based swaps with 

counterparties as an ordinary course of business for 

that clear security-based swaps or those 

that are designated as systemically 

important under the Clearing 

Supervision Act? 

• Should the Commission provide 

additional guidance regarding what 

constitutes ‘‘extreme but plausible 

market conditions’’? Does allowing 

clearing agencies providing CCP 

services discretion to interpret this term 

create uncertainty or introduce more 

risk into the financial system than might 

otherwise be the case? 

• What are clearing agencies’ 

providing CCP services and their 

participants’ incentives to maintain 

financial resources to withstand the 

foreseeable consequences of participant 

defaults? Are there identifiable 

circumstances in which these selfinterested incentives may vary? For 

example, do clearing agencies providing 

CCP services with public shareholders 

have different incentives than clearing 

agencies providing CCP services that are 

member-owned? Can the capital 

structure of the clearing agency 

providing CCP services and the order in 

which losses are suffered by defaulting 

parties, surviving participants and any 

public shareholders affect the level of 

risk accepted by the clearing agency? If 

so, how should the Commission take 

these factors into account when 

establishing rules for clearing agencies 

providing CCP services? 

Proposed Rule 17Ad–22(b)(4): Model 

Validation 

Proposed Rule 17Ad–22(b)(4) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide for an annual model validation 

process consisting of evaluating the 

performance of the clearing agency’s 

margin models and the related 

parameters and assumptions associated 

with such models by a qualified person 

who does not perform functions 

associated with the clearing agency’s 

margin models (except as part of the 

annual model validation) and does not 

report to a person who performs these 

functions.41

The Commission preliminarily 

believes that clearing agencies that 

provide CCP services need to have a 

qualified person conduct a review of 

models that are used to set margin 

levels, along with related parameters 

and assumptions, in order to assure that 

the models perform in a manner that 

facilitates prompt and accurate 

clearance and settlement of transactions. 

In determining whether a person is 

qualified to conduct the model 

validation, clearing agencies providing 

CCP services could consider several 

factors, including the person’s 

experience in validating margin models, 

expertise in risk management generally, 

and understanding of the clearing 

agency’s operations and procedures. 

In addition, the Commission is 

proposing that the person conducting 

the model validation be a person who 

does not perform functions associated 

with the clearing agency’s margin 

models (except as part of the annual 

model validation) and does not report to 

a person who performs these functions. 

The Commission preliminarily believes 

that a review by a person who is not 

involved in the day-to-day operation of 

the margin model is important to 

identify potential vulnerabilities or 

limitations and to promote a critical 

evaluation of the model. This is because 

a person involved in the functions 

related to the model’s operation, or 

someone who reports to such a person, 

may be less likely to critically evaluate 

the margin model because of 

preconceived views or a desire not to 

find issues with a model that they help 

to operate.42 The Commission 

preliminarily believes that the person 

validating the clearing agency’s margin 

model should be sufficiently free from 

outside influences so that he or she can 

be completely candid in their 

assessment of the model. 

Finally, the Commission is proposing 

that the model validation be conducted 

on an annual basis. The Commission 

preliminarily believes that conducting 

the model validation on an annual basis 

would provide a sufficiently frequent 

evaluation period because model 

performance ordinarily would not be 

expected to vary significantly over short 

periods but should be re-evaluated as 

market conditions change. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(b)(4). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

requiring clearing agencies to provide 

for a model validation sufficiently clear? 

If not, why not and what would be a 

better alternative? 

• What are the advantages and 

disadvantages of requiring an annual 

model validation? Should a more or less 

frequent model validation be required? 

Should the model validation be 

specifically triggered as a result of any 

material change in the clearing agency, 

such as the introduction of new 

products or the addition of portfolio 

margining arrangements with other 

clearing agencies? 

• Should the Commission place more 

or less stringent restrictions on the type 

of person who is permitted to conduct 

the model validation? For example, 

should the Commission prescribe any 

specific qualifications that the person 

conducting the model validation should 

have? Should the Commission require 

an outside consultant be engaged to 

conduct the model validation? Should 

persons that perform functions 

associated with the clearing agency’s 

margin model be able to conduct the 

model validation? 

• Does the proposal provide sufficient 

or excessive separation of the person 

conducting the model validation from 

the persons who develop and 

administer the model? In either case, 

please explain. Should the Commission 

adopt additional requirements to help 

ensure that the persons conducting the 

model validation are free from 

retaliation and influence? If so, please 

explain. What costs or burdens might 

such additional requirements impose on 

the effective validation of models? 

Proposed Rule 17Ad–22(b)(5): NonDealer Member Access 

Proposed Rule 17Ad–22(b)(5) requires 

a clearing agency that provides CCP 

services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide the opportunity for a person 

that does not perform any dealer 43 or 

security-based swap dealer 44 services to 


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its own account; or (D) engages in any activity 

causing it to be commonly known in the trade as 

a dealer or market maker in security-based swaps. 

See Public Law 111–203, Section 761 for the 

complete definition. See also Exchange Act Release 

No. 63452 (December 7, 2010), 75 FR 80174 

(December 21, 2010), supra note 4. 

45See Exchange Act Release No. 63107 (October 

14, 2010), 75 FR 65882 (October 26, 2010) 

(Ownership Limitations and Governance 

Requirements for Security-Based Swap Clearing 

Agencies, Security-Based Swap Execution 

Facilities, and National Securities Exchanges with 

Respect to Security-Based Swaps under Regulation 

MC). 

obtain membership on fair and 

reasonable terms at the clearing agency 

in order to clear securities for itself or 

on behalf of other persons. Dealer and 

security-based swap dealer services 

generally involve services designed to 

facilitate securities transactions by 

buying and selling securities for a 

person’s own account. The Commission 

preliminarily believes that requiring 

clearing agencies that perform CCP 

services to allow persons who are not 

dealers or security-based swap dealers 

to become members of the clearing 

agency will promote more competition 

in and access to clearing through 

facilitating indirect clearing 

arrangements, commonly referred to as 

correspondent clearing. Correspondent 

clearing is an arrangement between a 

current participant of a clearing agency 

and a non-participant that desires to use 

the clearing agency for clearance and 

settlement services. 

The Commission has previously noted 

that in situations where direct access to 

clearing agencies is limited by 

reasonable participation standards firms 

that do not meet these standards may 

still be able to access clearing agencies 

through correspondent clearing 

arrangements with direct participants.45

Such a process would involve the nonparticipant entering into a 

correspondent clearing arrangement 

with a participant so that the transaction 

may be submitted by the participant to 

the clearing agency. Thus, the success of 

correspondent clearing arrangements 

depends on the willingness of 

participants to enter into such 

arrangements with non-participant firms 

which may act as direct competitors to 

the participants in the participants’ 

capacity as dealers or security-based 

swap dealers in the market for buying or 

selling the relevant securities. Given 

that participants that are dealers or 

security-based swap dealers may have 

an incentive to restrict clearing access to 

potential competitors, correspondent 

clearing arrangements may not be 

readily established without providing 

participants that do not provide dealer 

or security-based swap dealer services 

with the ability to become members of 

a clearing agency and thereby help 

develop correspondent clearing 

arrangements. 

At the same time, the Commission 

recognizes that persons who are not 

dealers or security-based swap dealers 

may fail to meet other standards for 

membership at a clearing agency, such 

as the operational capabilities required 

for direct participation. Proposed Rule 

17Ad–22(b)(5) would not prohibit 

clearing agencies that provide CCP 

services from taking these factors into 

account when establishing membership 

criteria for non-dealers. Rather, the 

proposal would prohibit clearing 

agencies that provide CCP services from 

denying membership on fair and 

reasonable terms to otherwise qualified 

persons solely by virtue of the fact that 

they do not perform any dealer or 

security-based swap dealer services. 

The Commission preliminarily 

believes that the incentives of persons 

who do not provide dealer or securitybased swap dealer services to promote 

access at the clearing agency that 

provides CCP services would not be 

limited by a desire to restrict 

competition in the market for buying or 

selling the relevant securities. 

Accordingly, the Commission 

preliminarily believes that permitting 

such persons to become members of a 

clearing agency that provides CCP 

services may foster the development of 

correspondent clearing arrangements 

that would allow dealers and securitybased swap dealers, who may otherwise 

not be able to meet reasonable 

participation standards of a clearing 

agency, to obtain access to the clearing 

agency through correspondent clearing 

arrangements. The Commission 

preliminarily believes this would be 

beneficial because it could result in 

greater competition in and access to 

clearing. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(b)(5). In addition, the 

Commission requests comments on the 

following specific issues: 

• In addition to prohibiting denial of 

membership based on whether a person 

provides dealer or security-based swap 

dealer services as a way to facilitate 

greater indirect access to clearing, 

should the Commission consider other 

measures to promote access to clearing 

at clearing agencies that provide CCP 

services, including any requirements 

designed to promote greater direct 

access to clearing (e.g., adding specific 

membership categories)? 

• Should clearing agencies that 

provide CCP services be required to 

have policies and procedures that are 

designed to promote membership by 

non-dealers? If so, what would be the 

advantages and disadvantages of 

requiring the clearing agency to 

periodically measure its performance 

against the objectives contained in such 

policies and procedures, and who 

within the clearing agency should be 

responsible for conducting such a 

review (for instance the chief 

compliance officer)? 

• Is the Commission’s proposed rule 

requiring clearing agencies that provide 

CCP services to provide the opportunity 

for a person that does not perform any 

dealer or security-based swap dealer 

services to obtain membership at the 

clearing agency to clear securities for 

itself or on behalf of other persons 

sufficiently clear? If not, why not? 

• Should the Commission consider 

more prescriptive regulations to specify 

the criteria that clearing agencies should 

use to grant membership privileges to 

persons that do not perform any dealer 

or security-based swap dealer services 

to clear securities for themselves or on 

behalf of other persons? Please explain 

why or why not. 

• What are the potential advantages 

and disadvantages of having persons 

that do not provide dealer or securitybased swap dealer services as members 

of a clearing agency? 

• If a clearing agency that provides 

CCP services does not have rules that 

facilitate correspondent clearing, should 

the Commission consider requiring that 

clearing agency to justify to the 

Commission why its rules do not 

facilitate correspondent clearing? What 

would be the advantages and 

disadvantages of such a requirement? 

What are the potential reasons why a 

clearing agency may not have rules that 

facilitate correspondent clearing 

arrangements? 

• Should the Commission consider 

limiting the proposed requirement for 

providing membership access to persons 

who do not provide dealer or securitybased swap dealer services to a certain 

category of clearing agencies, such as 

security-based swap clearing agencies 

that provide CCP services or those 

designated as systemically important? 

Please explain why or why not. In 

particular, are there special 

considerations, such as market 

concentration, affecting security-based 

swap clearing agencies that provide CCP 

services that make access to those 

clearing agencies for non-dealers 

particularly important? If not, why not? 

If so, what are those considerations and 

how would this requirement address 


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14482 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

46Proposed Rule 17Ad–22(b)(6) would not 

prohibit a clearing agency from imposing 

maximums portfolio sizes or transaction volume 

amounts. 

47See infra note 59. 

48Proposed Rule 17Ad–22(a)(5) would define 

‘‘net capital’’, for the limited purposes of proposed 

Rule 17Ad–22(b)(7), to have the same meaning as 

set forth in Rule 15c3–1 under the Exchange Act for 

broker-dealers or any similar risk adjusted capital 

calculation for all of other prospective clearing 

members. 

49The Commission notes there are examples of 

capital-related requirements that differentiate 

among types of participants. For instance, the Fixed 

Income Clearing Corporation has maintained a $50 

million net worth requirement and $10 million 

excess net capital requirement for its Category 1 

Dealer Netting Members and a $25 million net 

worth requirement and $10 million excess net 

capital requirement for its Category 2 Dealer Netting 

Members. 

them? Do any similar considerations 

exist, or is there a potential that similar 

considerations could exist in the future, 

with respect to clearing agencies that 

clear securities other than securitybased swaps? Would there be any 

advantages or disadvantages to 

maintaining one standard for all 

clearing agencies that provide CCP 

services? Please explain. 

Proposed Rule 17Ad–22(b)(6): Portfolio 

Size and Transaction Volume 

Thresholds Restrictions 

Proposed Rule 17Ad–22(b)(6) 

prohibits a clearing agency that provides 

CCP services from having membership 

standards that require that participants 

maintain a portfolio of any minimum 

size or that participants maintain a 

minimum transaction volume. The 

Commission notes that the proposed 

rule would not prohibit a clearing 

agency that provides CCP services from 

considering portfolio size and 

transaction volume as one of several 

factors when reviewing a potential 

participant’s operations. Rather, the 

proposed rule would prohibit the 

establishment of minimum portfolio 

sizes or transaction volumes that by 

themselves would act as barriers to 

participation by new participants in 

clearing. Such minimum thresholds 

would not function as a good indicator 

of whether a participant is able to meet 

its obligations to a clearing agency.46

This is because new participants to a 

clearing agency that provides CCP 

services that do not initially intend to 

transact in substantial size or volume 

may nevertheless have the operational 

and financial capacity to perform the 

activities that other participants are able 

to perform. Therefore, the Commission 

preliminarily believes that the proposed 

rule may help to facilitate the 

requirement in Section 17A of the 

Exchange Act that the rules of a clearing 

agency permit fair and open access.47

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(b)(6). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

prohibiting clearing agencies that 

provide CCP services from having 

membership standards that require 

participants to maintain a portfolio of 

any minimum size or to meet a 

minimum transaction volume threshold 

sufficiently clear? If not, why not? 

• What are the potential advantages 

and disadvantages of prohibiting 

clearing agency membership standards 

from requiring participants to maintain 

a minimum portfolio size or meet a 

minimum transaction volume 

threshold? Please explain. 

• Should the Commission consider 

imposing the proposed requirements on 

all clearing agencies, rather than only 

those that provide CCP services? Why or 

why not? 

• Should the Commission consider 

prohibiting only security-based swap 

clearing agencies that provide CCP 

services from having membership 

standards that require participants to 

maintain a minimum portfolio size or to 

maintain a minimum transaction 

volume? Please explain why or why not. 

In particular, are there special 

considerations affecting security-based 

swap clearing agencies that provide CCP 

services that make it particularly 

important to prevent use of these 

specific criteria in their membership 

standards? If so, what are those special 

considerations and how would this 

requirement address them? If not, in 

what ways would such a requirement 

impact the operations of security-based 

swap clearing agencies that provide CCP 

services and other types of clearing 

agencies? Would there be advantages to 

maintaining one standard for all 

clearing agencies that provide CCP 

services? Why or why not? 

Proposed Rule 17Ad–22(b)(7): Net 

Capital Restrictions 

Proposed Rule 17Ad–22(b)(7) requires 

a clearing agency that provides CCP 

services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide a person that maintains net 

capital 48 equal to or greater than $50 

million with the opportunity to obtain 

membership at the clearing agency, with 

any net capital requirements being 

scalable so that they are proportional to 

the risks posed by the participant’s 

activities to the clearing agency. This 

means that while a clearing agency that 

provides CCP services could not restrict 

access to the clearing agency solely 

because a participant does not have a 

net capital level above $50 million, the 

clearing agency’s policies and 

procedures could be reasonably 

designed to limit the activities of the 

participant in comparison to the 

activities of other participants that 

maintained a higher net capital level. 

For example, as a way to help make its 

requirements scalable, a clearing agency 

may elect to place limits on its potential 

exposure to participants operating at 

certain net capital thresholds by 

restricting the maximum size of the 

portfolio such participants are permitted 

to maintain at the clearing agency. The 

Commission preliminarily believes that 

persons that maintain a net capital level 

of $50 million would have sufficient net 

capital to be able to participate at some 

level in a clearing agency that provides 

CCP services, provided that they are 

able to comply with other reasonable 

membership standards. Based on 

broker-dealer reporting data available to 

the Commission, the $50 million 

threshold for net capital is a standard 

that only approximately 4% of the total 

number of broker-dealers could satisfy. 

Accordingly, the Commission 

preliminarily believes that prohibitions 

on membership access that are based 

solely on persons having net capital 

equal to or greater than $50 million 

could introduce unnecessary barriers to 

clearing access. The Commission also 

preliminarily believes that the proposed 

rule would facilitate sound risk 

management practices by the clearing 

agencies by encouraging the clearing 

agencies to examine and articulate the 

benefits of higher net capital 

requirements as a result of having 

clearing agencies develop scalable 

membership standards that link the 

nature and degree of participation with 

the potential risks posed by the 

participant.49

Proposed Rule 17Ad–22(b)(7) also 

permits a clearing agency to provide for 

a higher net capital requirement (i.e., 

higher than $50 million) as a condition 

for membership at the clearing agency if 

the clearing agency demonstrates to the 

Commission that such a requirement is 

necessary to mitigate risks that could 

not otherwise be effectively managed by 

other measures, such as scalable 

limitations on the transactions that the 

participants may clear through the 

clearing agency, and the Commission 

approves the higher net capital 

requirement as part of a rule filing or 


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50See Exchange Act Rule 17a–1 (17 CFR 240.17a– 

1). Clearing agencies may destroy or otherwise 

dispose of records at the end of five years consistent 

with Exchange Act Rule 17a–6 (17 CFR 240.17a–6). 

51The requirements of proposed Rule 17Ad– 

22(c)(2) concerning the audited annual financial 

report would apply individually to each respective 

clearing agency. 

clearing agency registration application. 

The Commission preliminarily believes 

that by providing a method for clearing 

agencies to impose higher net capital 

requirements in circumstances where 

such requirements are necessary to 

mitigate risks, the proposed rule would 

provide appropriate flexibility for risk 

management purposes. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(b)(7). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

limiting the ability of clearing agencies 

that provide CCP services to deny 

membership access to participants with 

$50 million or more in net capital 

sufficiently clear? If not, why not? 

• What are advantages or 

disadvantages of requiring a clearing 

agency that provides CCP services to 

provide a person that maintains a net 

capital equal to or greater than $50 

million with the ability to obtain 

membership at the clearing agency, with 

any net capital requirements being 

scalable so that they are proportional to 

the risks posed by the participant’s 

activities to the clearing agency? 

• Should the Commission consider a 

higher or lower threshold for net capital 

than the proposed $50 million amount? 

Please explain and describe the 

rationale for the desired threshold 

amount. 

• Should the Commission consider 

providing for the adjustment of the $50 

million net capital threshold to reflect 

inflation, deflation or other factors? If 

so, how should the Commission make 

such adjustment? 

• Would access to clearing agencies 

that provide CCP services by dealers or 

security-based swap dealers that are not 

currently members of such clearing 

agencies be significantly improved as a 

result of the proposed requirement? 

• Are there any difficulties that 

clearing agencies that provide CCP 

services may encounter in 

implementing a system that seeks to 

scale net capital to the risk that a 

participant brings to a clearing agency? 

Would clearing agencies be able to 

effectively model such risks to prevent 

the potential of significant losses above 

the amounts of margin collected? How 

would clearing agencies seek to limit 

the activities of participants to prevent 

the risk of significant losses above the 

amounts of margin collected? 

• Does the proposal, to permit a 

clearing agency to provide for a higher 

net capital requirement (i.e., higher than 

$50 million) as a condition for 

membership at the clearing agency if the 

clearing agency demonstrates to the 

Commission that such a requirement is 

necessary to mitigate risks that could 

not otherwise be effectively managed by 

other measures, provide sufficient 

flexibility to be able to address potential 

risk management concerns? Would the 

proposal lead to higher or lower levels 

of risk at clearing agencies? Please 

explain. 

• Should the Commission consider 

requiring only security-based swap 

clearing agencies that provide CCP 

services to be subject to this 

requirement? Please explain why or 

why not. In particular, are there special 

considerations affecting security-based 

swap clearing agencies that provide CCP 

services, such as market concentration, 

that make it particularly important for a 

person that maintains net capital equal 

to or greater than $50 million to have 

the ability to obtain membership? If so, 

what are those special considerations 

and how would this requirement 

address them? If not, in what ways 

would this requirement impact the 

operations of security-based swap 

clearing agencies that provide CCP 

services and other clearing agencies? 

Would there be any advantages or 

disadvantages to maintaining one 

requirement for all clearing agencies 

that provide CCP services? Please 

explain. 

3. Proposed Rule 17Ad–22(c) 

Proposed Rule 17Ad–22(c)(1) would 

provide that each fiscal quarter (based 

on calculations made as of the last 

business day of the clearing agency’s 

fiscal quarter), or at any time upon 

Commission request, a clearing agency 

that performs central counterparty 

services shall calculate and maintain a 

record 50 of the financial resources 

necessary to meet its requirement in 

proposed Rule 17Ad–22(b)(3) and 

sufficient documentation to explain the 

methodology it uses to compute such 

financial resource requirement. 

The Commission preliminarily 

believes that it would be appropriate to 

require clearing agencies that provide 

CCP services to make these calculations 

quarterly or at any time based on the 

request of the Commission because this 

proposed requirement would provide a 

periodic update of the financial 

resources that are needed as market 

conditions change, while also providing 

flexibility for the Commission to request 

such calculations on a real-time basis, 

which may be useful during periods of 

market stress or other circumstances 

where more timely information is 

desired. These calculations and related 

documentation should help the 

Commission in its oversight of clearing 

agencies’ compliance with proposed 

Rule 17Ad–22(b)(3) by providing a clear 

record of the method used by the 

clearing agency providing CCP services 

to maintain sufficient financial 

resources. 

Proposed Rule 17Ad–22(c)(2) would 

require a clearing agency to post on its 

Web site an annual audited financial 

report. Each financial report would be 

required to (i) be a complete set of 

financial statements of the clearing 

agency for the most recent two fiscal 

years of the clearing agency and be 

prepared in accordance with U.S. 

generally accepted accounting 

principles (‘‘U.S. GAAP’’), except that 

for a clearing agency that is a 

corporation or other organization 

incorporated or organized under the 

laws of any foreign country, the 

financial statements may be prepared 

according to U.S. GAAP or International 

Financial Reporting Standards as issued 

by the International Accounting 

Standards Board (‘‘IFRS’’); (ii) be audited 

in accordance with standards of the 

Public Company Accounting Oversight 

Board by a registered public accounting 

firm that is qualified and independent 

in accordance with Rule 2–01 of 

Regulation S–X (17 CFR 210.2–01); and 

(iii) include a report of the registered 

public accounting firm that complies 

with paragraphs (a) through (d) of Rule 

2–02 of Regulation S–X (17 CFR 210.2– 

02). The Commission preliminarily 

believes that requiring the posting of the 

clearing agency’s audited annual 

financial report would provide an 

additional layer of information about 

the activities and financial strength of 

the clearing agency that market 

participants may find useful in 

assessing their use of the clearing 

agency’s services.51

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(c). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding calculating and maintaining a 

record of the financial resources 

necessary pursuant to proposed Rule 

17Ad–22(b)(3) sufficiently clear? If not, 


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52A relevant jurisdiction would include, among 

others, activities (i) in the United States, (ii) 

involving any means of interstate commerce, or (iii) 

in respect to providing clearing services to any U.S. 

person. For clearing agencies that operate in 

multiple jurisdictions, this also could include 

resolving possible conflicts of laws issues that the 

clearing agency may encounter. 

53Clearing agencies are SROs as defined in 

Section 3(a)(26) of the Exchange Act. A stated 

policy, practice, or interpretation of an SRO, such 

as a clearing agency’s written policies and 

procedures, would generally be deemed to be a 

proposed rule change. See 17 CFR 240.19b–4. 

54The Commission preliminarily believes that 

proposed Rule 17Ad–22(d)(1) would augment the 

Exchange Act requirement that the rules of the 

clearing agency must provide that its participants 

shall be appropriately disciplined for any violation 

of any provision of the rules of the clearing agency. 

See 15 U.S.C. 78q–1(b)(3)(G). 

55See generally, RSSS Recommendation 1, Legal 

Framework and RCCP Recommendation 1, Legal 

Risk. 

56 15 U.S.C. 78q–1(a)(1)(A). 

why not and what would be a better 

alternative? 

• How do current practices by 

clearing agencies providing CCP 

services compare to the practices that 

the Commission proposes requiring in 

this rule with respect to determining 

needed financial resources? What are 

the expected incremental costs to 

clearing agencies that provide CCP 

services in connection with adding to or 

revising their current practices in order 

to implement the Commission’s 

proposed rule? 

• Should the Commission require 

calculation of the financial resources 

related information more or less 

frequently than quarterly? Why or why 

not? 

• Should the Commission require any 

other financial statements of a clearing 

agency to be posted on its Web site, 

such as quarterly financial statements? 

• What are the advantages and 

disadvantages of permitting a financial 

report to be in compliance with IFRS as 

an alternative to U.S. GAAP? If the 

Commission adopts the proposal to 

permit certain clearing agencies to 

report using IFRS as published by the 

IASB, should the Commission require a 

reconciliation to U.S. GAAP for 

specified accounts? If so, what accounts 

or items would be most useful to 

participants and other regulators? 

Would permitting only clearing agencies 

that are incorporated or organized under 

the laws of any foreign country to report 

under IFRS create any incentives for 

changing jurisdictions of incorporation 

or organization? If it is permitted, 

should we exclude certain clearing 

agencies, such as those who fall within 

one or more of the following categories: 

(i) Those whose financial reports have 

not been audited by an independent 

public accountant inspected by the 

PCAOB, (ii) those who have not 

received a ‘‘clean’’ audit opinion, or (iii) 

those who have previously had to 

correct a material error in their financial 

statements? 

4. Proposed Rule 17Ad–22(d) 

Proposed Rule 17Ad–22(d) would set 

forth certain standards that relate to 

clearance and settlement processes. The 

areas addressed include: (1) Transparent 

and enforceable rules and procedures; 

(2) participation requirements; (3) 

custody of assets and investment risk; 

(4) operational risk; (5) money 

settlement risk; (6) cost-effectiveness; (7) 

links; (8) governance; (9) information on 

services; (10) immobilization and 

dematerialization of stock certificates; 

(11) default procedures; (12) timing of 

settlement finality; (13) delivery versus 

payment; (14) risk controls to address 

participants’ failures to settle; and (15) 

physical delivery risks. The discussion 

below provides greater detail regarding 

each respective standard covered in 

proposed Rule 17Ad–22(d). 

Proposed Rule 17Ad–22(d)(1): 

Transparent and Enforceable Rules and 

Procedures 

Proposed Rule 17Ad–22(d)(1) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide for a 

well founded, transparent and 

enforceable (legally and practically) 

structure for each aspect of their 

activities in all relevant jurisdictions.52

The clearing agency should have written 

policies and procedures53 in place that, 

at a minimum, address the significant 

aspects of a clearing agency’s operations 

and risk management in order to 

provide a well founded legal framework 

and must be clear, internally consistent, 

and readily accessible by the public in 

order to provide a transparent legal 

framework. In addition, the clearing 

agency must be able to enforce its 

policies and procedures that 

contemplate enforcement by the 

clearing agency. Moreover, policies and 

procedures that govern or create 

remedial measures that a party other 

than the clearing agency (such as a 

clearing member) can undertake to seek 

redress or to promote compliance with 

applicable rules must be enforceable.54

For the clearing agency’s policies and 

procedures to be enforceable, a clearing 

agency must have appropriate means to 

compel parties to comply in a timely 

manner, including members or service 

providers of clearing agencies that are 

non-U.S. persons. The Commission 

preliminarily believes this proposed 

requirement would help to reduce the 

legal risks involved in the clearance and 

settlement process. Such legal risks 

include, among other things, the 

likelihood that the policies and 

procedures of a clearing agency are 

incomplete, opaque, or not enforceable 

and will therefore adversely affect the 

functioning of the clearing agency.55

Because they would function to reduce 

these legal risks, the Commission 

preliminarily believes that well 

founded, transparent and enforceable 

policies and procedures established by 

the clearing agency to underpin the 

clearing agency’s operational and 

business activities are essential to a 

clearing agency’s ability to facilitate the 

prompt and accurate clearance and 

settlement of securities transactions and 

safeguard securities and funds as 

required for the protection of investors 

by Section 17A of the Exchange Act.56

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(1). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding policies and procedures 

providing for a well founded, 

transparent, and enforceable legal 

framework sufficiently clear? If not, why 

not? Is there a better alternative? 

• How would this proposal affect the 

current practices of clearing agencies in 

formulating policies and procedures? 

Would the proposed rule affect the costs 

of providing clearing agency services? 

Please explain. 

• What are the advantages and 

disadvantages of taking into account 

that legal risks may vary by the types of 

services offered by clearing agencies and 

whether the clearing agency operates in 

multiple jurisdictions? Are there any 

considerations, such as issues 

concerning compliance with regulations 

under various jurisdictions, that the 

Commission should take into account 

for clearing agencies operating in 

multiple jurisdictions? 

• Should the Commission consider 

more prescriptive rules to define how 

clearing agencies would provide for a 

well founded, transparent and 

enforceable legal framework? Please 

explain why or why not. Alternatively, 

should the Commission consider more 

prescriptive rules that would apply in 

the context of approval of a clearing 

agency’s application for registration? 

• Should the Commission require a 

clearing agency to submit legal opinions 

or other supporting evidence to 

demonstrate the legal adequacy of the 

mechanisms at the clearing agency that 


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57 15 U.S.C 78q–1(b)(3)(A). 

58Objective criteria would generally include, but 

not be limited to, criteria that are based on 

measureable facts such as capital requirements. 

59Having open access, in part, involves having a 

process for admission of participants that does not 

unfairly discriminate. See 15 U.S.C. 78q–1(b)(3)(F) 

(‘‘The rules of a clearing agency * * * are not 

designed to permit unfair discrimination in the 

admission of participants or among participants in 

the use of the clearing agency’’). In addition, the 

Dodd-Frank Act added Section 3C to the Exchange 

Act which provides in relevant part: ‘‘(2) OPEN 

ACCESS.—The rules of a clearing agency described 

in paragraph (1) shall— (A) prescribe that all 

security-based swaps submitted to the clearing 

agency with the same terms and conditions are 

economically equivalent within the clearing agency 

and may be offset with each other within the 

clearing agency; and (B) provide for nondiscriminatory clearing of a security-based swap 

executed bilaterally or on or through the rules of an 

unaffiliated national securities exchange or 

security-based swap execution facility.’’ Public Law 

111–203 § 763(a) (adding Section 3C to the 

Exchange Act). 

60 15 U.S.C. 78q–1(b)(3)(F). 61 15 U.S.C. 78q–1(b)(3)(F). 

are in place to handle participant 

defaults? 

Proposed Rule 17Ad–22(d)(2): 

Participation Requirements 

Proposed Rule 17Ad–22(d)(2) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to require 

participants to have sufficient financial 

resources and robust operational 

capacity to meet obligations arising from 

participation in the clearing agency. 

This proposed requirement is intended 

to reduce the likelihood of defaults by 

participants, while also providing 

flexibility to tailor standards that are 

linked to the obligations of the 

participant. As a result, the Commission 

preliminarily believes this requirement 

would protect investors and facilitate 

prompt and accurate clearance and 

settlement by promoting membership 

standards at clearing agencies that are 

likely to limit the potential for defaults. 

The proposed rule also would require 

clearing agencies to have procedures in 

place to monitor that participation 

requirements are met on an ongoing 

basis. Operational and financial stability 

of participants is subject to market 

forces and can therefore change over 

time. Because participants collectively 

contribute to the operational and 

financial stability of a clearing agency, 

the Commission preliminarily believes 

that the proposed requirement to 

continue to monitor compliance with 

the clearing agency’s participation 

requirements supports the Exchange Act 

requirement that clearing agencies are 

able to facilitate prompt and accurate 

clearance and settlement.57

In addition, clearing agencies would 

be required to have participation 

requirements that are objective,58

publicly disclosed, and facilitate fair 

and open access.59 The Commission 

preliminarily believes this requirement 

would foster compliance with the 

requirement under Section 17A of the 

Exchange Act that the rules of a clearing 

agency must not be designed to permit 

unfair discrimination in the admission 

of participants by requiring standards 

that are designed to be measurable, open 

and fair.60

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(2). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding participation requirements 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• How do current practices of 

registered clearing agencies with respect 

to participation standards compare to 

the proposed requirements in this rule? 

Are there any expected costs or benefits 

to clearing agencies in connection with 

adding to or revising their participation 

standards in order to implement this 

portion of the Commission’s proposed 

rule? 

• Should the Commission’s proposed 

rule regarding participation 

requirements be more specific? If so, 

why and in what way? Should the 

Commission’s proposed rule regarding 

participation requirements be less 

specific to allow for greater flexibility? 

If so, why and in what way? 

• Should more specific monitoring 

obligations be imposed to ensure 

compliance with participation 

standards? For example, should the 

Commission consider mandating an 

independent review of the process for 

monitoring participants’ compliance 

with the clearing agency’s participation 

requirements? Why or why not? 

Proposed Rule 17Ad–22(d)(3): Custody 

of Assets and Investment Risk 

Proposed Rule 17Ad–22(d)(3) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to hold assets in a 

manner whereby risk of loss or of delay 

in access to them is minimized. 

Minimizing the risk of loss or delay in 

access is intended to refer to holding 

assets in ways that, to the extent 

reasonably practicable, would limit the 

potential for loss of those assets and 

delay in access to them. For example, 

the Commission is aware that clearing 

agencies currently seek to minimize the 

risk of loss or delay in access by holding 

assets that are highly-liquid (e.g., cash, 

U.S. Treasury securities or securities 

issued by a U.S. government agency) 

and engaging banks to custody the 

assets and facilitate settlement. 

Compliance with the proposed 

requirement is intended to improve the 

ability of the clearing agency to meet its 

settlement obligations by reducing the 

likelihood that assets securing 

participant obligations to the clearing 

agency would be unavailable or 

insufficient when the clearing agency 

needs to draw on them. The proposed 

rule would also require clearing 

agencies to invest assets in instruments 

with minimal credit, market, and 

liquidity risks. A requirement that a 

clearing agency hold assets in 

instruments with minimal credit, 

market and liquidity risk may promote 

the clearing agency’s ability to retrieve 

these assets promptly. That, in turn, 

could help to increase the potential for 

a clearing agency to timely meet its 

settlement obligations to its 

participants. 

The Commission preliminarily 

believes that proposed Rule 17Ad– 

22(d)(3) would strengthen the 

requirement in Section 17A(b)(3)(F) of 

the Exchange Act that the rules of a 

clearing agency must be designed to 

ensure the safeguarding of securities 

and funds in the custody or control of 

the clearing agency or for which the 

clearing agency is responsible.61 In this 

way, the Commission preliminarily 

believes the proposed rule would also 

promote protection of the financial 

market served by the clearing agency. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(3). In addition, the 

Commission requests comments on the 

following specific issues: 

• Are the proposed rule’s 

requirements regarding custody and 

investment of assets sufficiently clear? If 

not, why not and what would be a better 

alternative? 

• How do current practices of 

clearing agencies for holding or 

investing in assets compare to the 

Commission’s proposal? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising these current practices in 

order to comply with the Commission’s 

proposed rule? 

• Are there any other factors not 

mentioned that the Commission should 

take into consideration with respect to 


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62See Exchange Act Release Nos. 27445 

(November 16, 1989), 54 FR 48704 (‘‘ARP I’’) and 

29815 (May 9, 1991), 56 FR 22489 (‘‘ARP II’’). 

Generally, the guidance in ARP I and ARP II 

provides for the following activities by clearing 

agencies: (1) Performing periodic risk assessments 

of its automated data processing (‘‘ADP’’) systems 

and facilities; (2) providing for the selection of the 

clearing agency’s independent auditors by nonmanagement directors and authorizing such nonmanagement directors to review the nature, scope, 

and results of all audit work performed; (3) having 

an adequately staffed and competent internal audit 

department; (4) furnishing annually to participants 

audited financial statements and an opinion from 

an independent public accountant as to the clearing 

agency’s system of internal control—including 

unaudited quarterly financial statements also 

should be provided to participants upon request; 

and (5) developing and maintaining plans to assure 

the safeguarding of securities and funds, the 

integrity of the ADP system, and recovery of 

securities, funds, or data under a variety of loss or 

destruction scenarios. 

63See Exchange Act Release No. 47638 (April 7, 

2003), 68 FR 17809 (April 11, 2003), available at 

http://www.sec.gov/news/studies/34-47638.htm. 

64The Board of Governors of the Federal Reserve 

System will determine whether systemically 

important clearing agencies may obtain account 

access from the Federal Reserve System. 

minimizing custody of assets and 

investment risk? 

• Should clearing agencies ever be 

permitted to hold assets in instruments 

that do not have minimal credit, market 

and liquidity risk? If so, why and under 

what circumstances? 

• What measures should clearing 

agencies have in place to minimize risk 

of loss or delay in access to assets? 

Should the proposed rule specify any 

such measures? 

Proposed Rule 17Ad–22(d)(4): 

Identification and Mitigation of 

Operational Risk 

Proposed Rule 17Ad–22(d)(4) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify sources 

of operational risk and minimize these 

risks through the development of 

appropriate systems, controls, and 

procedures. A clearing agency that 

develops systems, controls and 

procedures which, taken as a whole, are 

designed to limit the identified sources 

of operational risk to the extent 

reasonably practicable would be able to 

satisfy this requirement. The proposed 

rule also would require clearing 

agencies to implement systems that are 

reliable, resilient and secure and have 

adequate scalable capacity. This should 

help to ensure that clearing agencies are 

able to operate with minimal 

disruptions, even during times of 

market stress when there may be greater 

demands on their systems due to higher 

volume. In addition, the proposed rule 

would require that clearing agencies 

have business continuity plans that 

allow for timely recovery of operations 

and ensure the fulfillment of a clearing 

agency’s obligations. This requirement 

would be relevant in the event of, 

among other things, deficiencies in 

information systems or internal 

controls, human errors, management 

failures, unauthorized intrusions into 

corporate or production systems, or 

disruptions from external events such as 

natural disasters. 

The Commission preliminarily 

believes that the requirements under 

proposed Rule 17Ad–22(d)(4) should 

collectively help to address risks posed 

by potential operational deficiencies to 

the clearing agency and its participants. 

Specifically, to help limit disruptions 

that may impede the proper functioning 

of a clearing agency, the Commission 

preliminarily believes it is imperative 

that clearing agencies review their 

operations for potential weaknesses and 

develop appropriate systems, controls, 

and procedures to address weaknesses 

contemplated under the proposed rule. 

Moreover, the Commission 

preliminarily believes that maintaining 

reliable, resilient and secure systems 

with adequate backup capability, as 

well as continuity plans providing for 

timely recovery of operations, are 

essential components of facilitating 

prompt and accurate clearance and 

settlement. The Commission intends for 

proposed Rule 17Ad–22(d)(4) to 

complement the existing guidance 

provided by the Commission in its 

Automation Review Policy statements 62

and Interagency White Paper on Sound 

Practices to Strengthen the Resilience of 

the U.S. Financial System.63

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(4). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding identification and mitigation 

of operational risk sufficiently clear? If 

not, why not and what would be a better 

alternative? 

• How do current practices of 

clearing agencies with respect to 

operational risks compare to the 

practices that the Commission proposes 

to require in this rule? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising their current practices 

relating to operational risks in order to 

implement the Commission’s proposed 

rule? 

• Should the Commission’s proposal 

require a specific methodology to 

identify and mitigate operational risk? If 

so, what is the methodology and why 

should this methodology be required? 

• Should the Commission require that 

business continuity plans be tested with 

participants on an ongoing basis or with 

a specified frequency? Should any other 

more prescriptive requirements be 

considered by the Commission? 

• Would a clearing agency’s ability to 

comply with the proposed rule be 

affected if the clearing agency’s 

operations were outsourced to another 

firm? If so, how should the proposed 

rule address these differences in 

compliance? Would the need to 

minimize operational risk require limits 

on the types of operations that can be 

outsourced by clearing agencies? Would 

the answer depend on whether the 

function was outsourced to an affiliated 

or unaffiliated firm? Please explain. 

Proposed Rule 17Ad–22(d)(5): Money 

Settlement Risks 

Proposed Rule 17Ad–22(d)(5) would 

require clearing agencies establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to employ money 

settlement arrangements that eliminate 

or strictly limit the clearing agency’s 

settlement bank risks, that is, its credit 

and liquidity risks from the use of banks 

to effect money settlements with its 

participants, and require funds transfers 

to the clearing agency to be final when 

effected. The Commission notes that 

there are a number of arrangements that 

clearing agencies could establish to 

comply with the proposed rule. For 

example, a clearing agency could 

establish criteria for use of banks to 

effect money settlements with its 

participants that address the banks’ 

creditworthiness, access to liquidity, 

and operational reliability. Where 

practicable, a clearing agency could use 

multiple settlement banks and monitor 

the concentration of payments among its 

settlement banks. A clearing agency also 

could employ agreements with such 

banks to ensure that funds transfers to 

the clearing agency are final when 

effected. In addition, where available, a 

clearing agency could use a central bank 

to effect money settlements with its 

participants. Use of the Federal Reserve 

System in the United States or other 

central bank would eliminate the risks 

associated with using a settlement 

bank.64

These proposed requirements are 

meant to reduce the risk that financial 

obligations related to the activities of a 

clearing agency are not timely settled or 

discharged with finality. Failure by a 

bank to effectuate timely and final 

settlement adversely affects the clearing 


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65 15 U.S.C. 78q–1(b)(3)(F). 

66 15 U.S.C. 78q–1(a)(1)(D). 

67 15 U.S.C. 78q–1(b)(3)(F). 

68For example, The Depository Trust Company’s 

(‘‘DTC’’) Canadian Link Service allows qualifying 

DTC participants to clear and settle valued 

securities transactions with participants of a 

Canadian securities depository. The link is 

designed to facilitate cross-border transactions by 

allowing participants to use a single depository 

interface for U.S. and Canadian dollar transactions 

and eliminate the need for split inventories. See 

Exchange Act Release Nos. 52784 (November 16, 

Continued 

agency by exposing it to credit and 

liquidity pressures that can destabilize 

the clearing agency’s ability to facilitate 

prompt and accurate clearance and 

settlement. Accordingly, the 

Commission is proposing this new rule, 

which is designed to limit the potential 

that the money settlement arrangements 

cause the clearing agency to face higher 

levels of credit and liquidity risks and 

to provide assurance that funds transfers 

are final when effected. In addition, the 

Commission preliminarily believes that 

the proposed rule would assist a 

clearing agency in meeting the 

requirement of Section 17A(b)(3)(F) of 

the Exchange Act, which requires the 

rules of a clearing agency to be designed 

to assure the safeguarding of securities 

and funds which are in the custody or 

control of the clearing agency or for 

which it is responsible.65

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(5). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding money settlement risk 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• How do current practices regarding 

money settlement risk of clearing 

agencies compare to the practices that 

the Commission proposes to require in 

this rule? What are the expected 

incremental costs to clearing agencies in 

connection with adding to or revising 

their current practices regarding money 

settlement risk in order to implement 

the Commission’s proposed rule? 

• Would it be reasonable to eliminate 

the clearing agency’s credit and 

liquidity risks from the use of banks to 

effect money settlements with its 

participants? If so, how? 

• Are there other rules that the 

Commission should establish regarding 

money settlement risk management, for 

example, by mandating the minimum 

number of banks that a clearing agency 

may use to effect money settlements 

with its participants in order to avoid 

reliance on a small number of such 

banks, or by specifying characteristics of 

financial institutions that may be used 

by clearing agencies for settlement 

purposes? If so, what would be the 

appropriate rules and what would be 

the effect of adopting them? 

• Should rules for money settlement 

risk management established by the 

Commission be uniform, or are there 

circumstances in which it would be 

appropriate for clearing agencies to 

accept a higher level of money 

settlement risk, such as when 

transacting in certain product categories 

or with certain types of customers? 

Could the rules proposed by the 

Commission limit the ability of clearing 

agencies to compete for certain types of 

business either within the United States 

or internationally? Why or why not? 

• Should the Commission adopt rules 

to govern the clearing agency’s use of 

banks that are affiliated with 

participants in the clearing agency? 

Should the Commission prohibit this 

practice? Please explain. 

Proposed Rule 17Ad–22(d)(6): CostEffectiveness 

Proposed Rule 17Ad–22(d)(6) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide that 

their operations are cost-effective in 

meeting the requirements of participants 

while maintaining the safety and 

security of operations. To maintain safe 

and secure operations, a clearing agency 

would need to comply with the 

requirements under the Exchange Act 

and the rules thereunder. For example, 

a clearing agency would need to 

maintain the ability to comply with any 

recordkeeping or other regulatory 

requirement. Having clearing agencies 

be mindful of the costs that are incurred 

by their participants, while maintaining 

such compliance, should help to reduce 

inefficiencies in the provision of 

clearing agency services. This is 

particularly important in circumstances 

where clearing agencies may not be 

subject to strong competitive forces 

(such as when there is only one clearing 

agency for an asset class) for the 

provision of their services and therefore 

may have less of an incentive to be costeffective in meeting the requirements of 

participants. Accordingly, the 

Commission preliminarily believes the 

proposed rule is appropriate in the 

public interest, for the protection of 

investors, because it would potentially 

help reduce the costs incurred for 

clearing agency services while also 

maintaining appropriate standards for a 

clearing agency’s operations. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(6). In addition, the 

Commission requests comments on the 

following specific issues: 

• Would the proposed rule help to 

assure that a clearing agency’s 

operations are cost-effective? Does the 

proposed rule establish a standard for 

maintaining cost-effectiveness that is 

sufficiently clear? If not, why not and 

how might the rule be altered? 

• Are there any other requirements 

that the Commission should include in 

the rule to help ensure that clearing 

agencies are cost-effective in providing 

clearing and settlement services while 

also maintaining safe and secure 

operations and compliance with all 

regulatory requirements? 

• Does any specific business model 

for clearing agencies help to promote 

cost-effectiveness? Should the business 

model of a clearing agency affect the 

type of rule regarding cost-effectiveness 

that should apply to the clearing 

agency? 

• Should the Commission consider 

issuing additional guidance on how 

clearing agencies could be cost-effective 

in meeting the requirements of 

participants while maintaining safe and 

secure operations? If so, what type of 

guidance would be helpful? 

Proposed Rule 17Ad–22(d)(7): Links 

Proposed Rule 17Ad–22(d)(7) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to evaluate the 

potential sources of risks that can arise 

when the clearing agency establishes 

links either cross-border or domestically 

to clear trades, and to ensure that these 

risks are managed prudently on an 

ongoing basis. 

Section 17A(a)(1)(D) of the Exchange 

Act states that the linking of all 

clearance and settlement facilities and 

the development of uniform standards 

and procedures for clearance and 

settlement will reduce unnecessary 

costs and increase the protection of 

investors and persons facilitating 

transactions by and acting on behalf of 

investors.66 Further, Section 

17A(b)(3)(F) of the Exchange Act 

requires that the rules of a clearing 

agency foster cooperation and 

coordination with persons engaged in 

the clearance and settlement of 

securities transactions.67 In the 

clearance and settlement process, links 

should help deepen market liquidity 

and enable participants to trade in other 

markets.68 However, by tying the 


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2005), 71 FR 70902 (November 23, 2005) and 55239 

(February 5, 2007), 72 FR 6797 (February 13, 2007) 

(File No. SR–DTC 2006–15). 

69A clearing agency may be required to enter into 

a participant agreement with the other clearing 

organization as part of the link arrangement, which 

includes sharing in the loss allocations of that 

clearing organization. See RCCP 4.10.6, supra note 

29. 

70Section 17A(b)(3)(F) of the Exchange Act 

requires that the rules of a clearing agency be 

designed to protect investors and the public 

interest. 15 U.S.C. 78q–1(b)(3)(F). 

71Proposed Rule 17Ad–22(d)(8) would 

complement other applicable requirements 

concerning governance at clearing agencies that 

may also separately apply. These other 

requirements include the existing regulatory 

framework of Section 17A of the Exchange Act and 

the related requirements contemplated by proposed 

Rule 17Ad–25, as well as Section 765 of the DoddFrank Act with respect to security-based swap 

clearing agencies. See supra Section III.F. 

(proposing that clearing agencies be required to 

establish, implement, maintain and enforce written 

policies and procedures reasonably designed to 

identify and address existing or potential conflicts 

of interest). See also Exchange Act Release No. 

63107, 75 FR 65882, supra note 45. 

72The Exchange Act currently requires that 

certain aspects of a clearing agency’s governance 

arrangements be made clear and transparent. 

Section 19(b) of the Exchange Act requires that 

clearing agencies, as SROs, file with the 

Commission any proposed rule or any proposed 

change in, addition to, or deletion from the rules 

of the clearing agency, accompanied by a concise 

general statement of the basis and purpose of the 

proposed rule change. 15 U.S.C. 78s(b). 

73The role of governance arrangements in 

promoting effective risk management has also been 

a focus of rules recently proposed by the 

Commission to mitigate conflicts of interest at 

security-based swap clearing agencies. See 

Exchange Act Release No. 63107, 75 FR 65882, 

supra note 45. 

clearing operations of different clearing 

agencies together, link arrangements 

potentially expose a clearing agency and 

its members to the risk management 

profile of another clearing organization 

and to the risk of financial loss if that 

clearing organization experiences a 

default or is otherwise unable to meet 

its settlement obligations.69

Although the design and operation of 

each link will present a unique risk 

profile, clearing agencies potentially 

face legal, operational, credit and 

liquidity risks from link arrangements. 

In addition, because links can create 

interdependencies, clearing agencies 

may be affected by systemic risk if there 

are deficiencies in these arrangements. 

The Commission preliminarily believes 

that requiring clearing agencies to 

evaluate and monitor any link 

arrangements they maintain is essential 

to protect the marketplaces that clearing 

agencies serve because the requirement 

would reduce the likelihood that such 

arrangements perpetuate risks that 

could create disruptions in the 

operations of clearing agencies. 

Accordingly, the Commission is 

proposing this rule, which would 

require clearing agencies to evaluate and 

manage the risks associated with its 

links. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(7). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding evaluating link arrangements 

and prudently managing the associated 

risks on an ongoing basis sufficiently 

clear? If not, why not and how might the 

rule be stated more clearly? 

• How do current practices of 

clearing agencies with respect to link 

arrangements meet or fail to meet the 

standard that the Commission proposes 

to require in this rule? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising their current practices for 

link arrangements to comply with the 

Commission’s proposed rule? 

• Should the Commission include 

specific requirements regarding the 

clearing agency’s responsibility to 

evaluate a link for, among other things, 

the other clearing organization’s 

structure, financial strength, regulatory 

and disciplinary history, disaster 

recovery, banking relationships and 

lines of credit, and risk management 

controls? 

• Should the Commission establish 

additional requirements for clearing 

agencies that create linkages with other 

parties, such as information reporting 

requirements to the Commission? 

Would such additional requirements 

reduce or increase the likelihood that 

linkages would be established in 

appropriate circumstances? 

• How could clearing agencies ensure 

that the laws and contractual rules 

governing linked systems support the 

design of the link and provide adequate 

protection to both clearing agencies and 

their participants? Are additional rules 

or requirements needed when a link is 

established with a non-U.S. clearing 

organization? 

• Should the Commission place any 

limits on or promote the use of linked 

arrangements in light of potential effects 

on systemic risk? 

Proposed Rule 17Ad–22(d)(8): 

Governance 

Proposed Rule 17Ad–22(d)(8) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to have governance 

arrangements that are clear and 

transparent to fulfill the public interest 

requirements in Section 17A of 

Exchange Act applicable to clearing 

agencies,70 to support the objectives of 

owners and participants, and to promote 

the effectiveness of the clearing agency’s 

risk management procedures.71

Clear and transparent governance 

arrangements promote accountability 

and reliability in the decisions, rules 

and procedures of the clearing agency 

because they provide interested parties 

(such as owners, participants, and 

general members of the public) with 

information about how such decisions 

are made and what the rules and 

procedures are designed to 

accomplish.72 The key components of a 

clearing agency’s governance 

arrangements include the clearing 

agency’s ownership structure, the 

composition and role of its board, the 

structure and role of board committees, 

reporting lines between management 

and the board, and the processes that 

ensure management is held accountable 

for the clearing agency’s performance. 

Governance arrangements have the 

potential to play an important role in 

making sure that clearing agencies fulfill 

the Exchange Act requirements that the 

rules of a clearing agency be designed to 

protect investors and the public interest 

and to support the objectives of owners 

and participants. Similarly, governance 

arrangements may promote the 

effectiveness of a clearing agency’s risk 

management procedures by creating an 

oversight framework that fosters a focus 

on the critical role that risk management 

plays in promoting prompt and accurate 

clearance and settlement.73

The Commission preliminarily 

believes that the requirements regarding 

governance arrangements contained in 

proposed Rule 17Ad–22(d)(8) would be 

appropriate in the public interest and 

for the protection of investors because 

they would enhance the ability of a 

clearing agency to serve the interests of 

its various constituents and the interests 

of the general public while maintaining 

prudent risk management processes to 

promote prompt and accurate clearance 

and settlement. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(8). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding clear and transparent 

governance arrangements sufficiently 

clear? If not, why not and how might the 

rule be stated more clearly? 

• Would the proposed rule require 

clearing agencies to change their current 


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Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 14489 

74Because clearing agencies are SROs, their rules 

are published by the Commission and are generally 

available on each clearing agency’s Web site. 

Nevertheless, discrete rule proposals may not 

necessarily provide a complete picture of a clearing 

agency’s operations and risk mitigation procedures. 

75See 15 U.S.C. 78q–1(b)(3)(F). 76 Immobilization refers to any circumstance 

where an investor does not receive a physical 

certificate upon the purchase of shares or is 

required to physically deliver a certificate upon the 

sale of shares. 

77 Dematerialization is the process of eliminating 

physical certificates as a record of security 

ownership. 

78See proposed Rule 17Ad–22(a)(2) for definition 

of ‘‘central securities depository services.’’ In the 

U.S., DTC is currently the only registered clearing 

agency that provides central securities depository 

services. 79By concentrating the location of physical 

securities in a single central securities depository, 

clearing agencies are able to centralize the 

operations associated with custody and transfer and 

reduce costs through economies of scale. Virtually 

all mutual fund securities, government securities, 

options, and municipal bonds in the U.S. are 

dematerialized and most of the equity and corporate 

bonds in the U.S. market are either immobilized or 

dematerialized. While the U.S. markets have made 

great strides in achieving immobilization and 

dematerialization for institutional and broker-tobroker transactions, many industry representatives 

believe that the small percentage of securities held 

in certificated form impose unnecessary risk and 

expense to the industry and to investors. See 

Exchange Act Release No. 8398 (March 11, 2004), 

69 FR 12921 (March 18, 2004). 

80 15 U.S.C. 78q–1(b)(3)(F). 

practices with respect to governance 

arrangements? If so, how? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising their current practices with 

respect to governance arrangements in 

order to implement the Commission’s 

proposed rule? 

• Are there any other requirements 

that should be included in the rule to 

promote clear and transparent 

governance arrangements, such as 

mandating specific board or ownership 

structures? If so, what should they be? 

• Should the Commission propose 

more prescriptive requirements for the 

governance of all clearing agencies? If 

so, what should they be? For example, 

should the Commission specify certain 

reporting lines or board composition? 

• How direct should the 

Commission’s role be in the oversight 

and monitoring of the composition and 

activities of clearing agency boards and 

board committees? If the Commission’s 

role should be more direct, what 

mechanisms or structure would 

facilitate the Commission taking such a 

role? For example, should the 

Commission consider any additional 

requirements related to fiduciary duties 

to either enhance mitigation of conflicts 

or address deficiencies? 

Proposed Rule 17Ad–22(d)(9): 

Information on Services 

Proposed Rule 17Ad–22(d)(9) would 

require clearing agencies establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide market 

participants with sufficient information 

for them to identify and evaluate the 

risks and costs associated with using 

clearing agencies’ services. The types of 

information that a clearing agency may 

disclose, as appropriate, to its 

participants to satisfy this requirement 

include the clearing agency rulebook,74

the costs of its services, a description of 

netting and settlement activities the 

clearing agency provides, procedures 

relating to participants’ rights and 

obligations, information regarding the 

clearing agency’s margin methodology, 

and information regarding the ‘‘extreme 

but plausible’’ scenarios that the clearing 

agency uses to stress test its financial 

resources. Requiring a clearing agency 

to disclose information sufficient for 

participants to identify risks and costs 

associated with using the clearing 

agency will allow participants to make 

informed decisions about the use of the 

clearing agency and take appropriate 

actions to mitigate their risks and costs 

associated with the use of the clearing 

agency. Accordingly, the Commission’s 

proposed rule is designed to promote 

participants’ understanding of the risks 

and costs associated with using a 

clearing agency’s services, thereby 

facilitating prompt and accurate 

clearance and settlement, safeguarding 

securities and funds and protecting 

investors.75

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(9). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding providing market participants 

with sufficient information to identify 

and evaluate the risks and costs 

associated with using the clearing 

agency’s services sufficiently clear? If 

not, why not and what would be a better 

alternative? 

• How do current practices of 

clearing agencies with respect to 

providing market participants with 

information meet or fail to meet the 

requirements in the proposed rule? 

What are the expected incremental costs 

to clearing agencies in connection with 

adding to or revising their current 

practices in order to implement the 

proposed requirements? 

• Should the Commission consider 

more detailed requirements concerning 

disclosure of certain matters such as 

pricing information and the cost of 

specific services, as well as default and 

risk management procedures? Why or 

why not? 

• Should any of the examples of the 

types of information that a clearing 

agency may disclose be specifically 

required to be provided by clearing 

agencies to their participants or to the 

public? 

Proposed Rule 17Ad–22(d)(10): 

Immobilization and Dematerialization of 

Stock Certificates 

Proposed Rule 17Ad–22(d)(10) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to immobilize 76

and dematerialize 77 securities 

certificates and transfer them by book 

entry to the greatest extent possible 

when the clearing agency provides 

central securities depository services.78

The Commission preliminarily believes 

that the immobilization and 

dematerialization of securities and their 

transfer by book entry would result in 

reduced costs and risks associated with 

securities settlements and custody by 

removing the need to hold and transfer 

many, if not most, physical 

certificates.79 The Commission also 

preliminarily believes that the proposed 

rule would strengthen the requirement 

in Section 17A(b)(3)(F) of the Exchange 

Act that requires the rules of a clearing 

agency to assure the safeguarding of 

securities and funds that are in the 

custody or control of the clearing agency 

or for which it is responsible.80

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(10). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding immobilization and 

dematerialization of securities 

certificates and transferring them by 

book entry to the greatest extent 

possible sufficiently clear? If not, why 

not and what would be a better 

alternative? 

• How do current practices of 

clearing agencies regarding 

immobilization and dematerialization of 

securities certificates compare to the 

practices that the Commission proposes 

to require in this rule? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising their current practices in 

order to implement the Commission’s 

proposed rule? 

• What advantages or disadvantages 

might certificates have over securities 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
14490 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

81A clearing agency may be able to contain 

liquidity pressures it faces by taking actions to 

secure additional sources of liquidity or limiting 

transactions that potentially serve to drain liquidity 

resources. 

held in book-entry-only form (e.g., proof 

of ownership in the event of a loss of 

electronic records of ownership)? Under 

what circumstances, if any, should the 

Commission encourage or discourage 

the use of physical certifications? 

Proposed Rule 17Ad–22(d)(11): Default 

Procedures 

Proposed Rule 17Ad–22(d)(11) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to make key 

aspects of their default procedures 

publicly available. The Commission 

preliminarily believes that this would 

provide certainty and predictability to 

market participants about the measures 

a clearing agency will take in the event 

of a participant default. Key aspects of 

a clearing agency’s default procedures 

should generally include the following: 

(i) The circumstances in which action 

may be taken (e.g., what events trigger 

mutualization of losses); (ii) who may 

take those actions (e.g., division of 

responsibilities when clearing agencies 

operate links to other clearing agencies); 

(iii) the scope of the actions that may be 

taken (e.g., any limits on the total losses 

that would be mutualized); (iv) the 

mechanisms to address a clearing 

agency’s obligations to non-defaulting 

participants (e.g., process for clearing 

trades guaranteed by the clearing agency 

to which a defaulting participant is a 

party); and (v) the mechanisms to 

address the defaulting participant’s 

obligations to its customers (e.g., 

process for dealing with defaulting 

participants’ customer accounts). The 

proposed rule also would require that 

clearing agencies establish default 

procedures that ensure that the clearing 

agency can take timely action to contain 

losses and liquidity pressures 81 and to 

continue meeting its obligations when 

due in the event of a participant default. 

Default procedures, among other things, 

are meant to reduce the likelihood that 

a default by a participant, or multiple 

participants, will disrupt the clearing 

agency’s operations. By creating a 

framework of default procedures that 

are designed to permit a clearing agency 

to take actions to contain losses and 

liquidity pressures it faces while 

continuing to meet its obligations, the 

clearing agency should be in a better 

position to continue providing its 

services in a manner that promotes 

accurate clearance and settlement 

during times of market stress. 

The Commission preliminarily 

believes that the requirements in 

proposed Rule 17Ad–22(d)(11) would 

increase the possibility that defaults by 

participants, should they occur, would 

proceed in an orderly and transparent 

manner. This is because the 

Commission preliminarily believes that 

the proposed rule would help to ensure 

that all participants are aware of the 

default process and are able to plan 

accordingly and that clearing agencies 

would have sufficient time to take 

corrective actions to mitigate potential 

losses. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(11). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

requiring a clearing agency to establish 

default procedures and make key 

aspects of those default procedures 

publicly available sufficiently clear? If 

not, why not and what would be a better 

alternative? 

• How do current practices of 

clearing agencies with respect to default 

procedures compare to the requirements 

of the proposed rule? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising their current practices in 

order to implement the Commission’s 

proposed rule? 

• Should the Commission require 

specific default procedures for all 

clearing agencies, or should clearing 

agencies have discretion to create their 

own default procedures consistent with 

the proposed rule? Should the default 

procedures include a resolution plan if 

the clearing agency is unable to obtain 

sufficient financial resources? 

• How much flexibility should a 

clearing agency have in the time it takes 

to manage a default and perform any 

liquidation of positions? 

Proposed Rule 17Ad–22(d)(12): Timing 

of Settlement Finality 

Proposed Rule 17Ad–22(d)(12) would 

require clearing agencies establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to ensure that final 

settlement occurs no later than the end 

of the settlement day and that intraday 

or real-time finality is provided where 

necessary to reduce risks. A clearing 

agency would be able to comply with 

this requirement by having a reasonable 

process for facilitating final settlement 

to occur no later than the end of the 

settlement day and for providing 

intraday or real-time finality where 

necessary to reduce risks. Intraday or 

real-time finality may be necessary to 

reduce risk in circumstances where the 

lack of intraday or real-time finality may 

impede the clearing agency’s ability to 

facilitate prompt and accurate clearance 

and settlement, cause the clearing 

agency’s participants to fail to meet 

their obligations, or cause significant 

disruptions in the securities markets. 

The Commission preliminarily 

believes that requiring intraday or realtime finality for settlements, where such 

requirement is necessary to reduce risks, 

would facilitate prompt and accurate 

clearance and settlement by providing 

certainty that a settlement is final and 

irrevocable within a timeframe that is 

commensurate with the level of risk 

created by the lack of settlement 

finality. The risks associated with lack 

of settlement finality stem from the 

undermining of confidence that 

transaction obligations will be 

discharged by the clearing agency or its 

participants. Moreover, the Commission 

preliminarily believes that settlement 

finality should occur not later than the 

end of the settlement day to limit the 

volume of outstanding obligations that 

are subject to settlement at any one time 

and thereby reduce the settlement risk 

exposure of participants and the 

clearing agency. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(12). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding the timing of settlement 

finality sufficiently clear? If not, why 

not and what would be a better 

alternative? 

• How do current practices of 

clearing agencies with respect to 

settlement finality compare to the 

practices that the Commission proposes 

to require in this rule? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising their current practices in 

order to implement the Commission’s 

proposed rule? 

• What changes, if any, would be 

created by the requirement under the 

proposed rule that final settlement 

occur no later than the end of the 

settlement day? Does the proposed rule 

affect certain identifiable categories of 

market participants differently than 

others, such as smaller entities or 

entities with limited operations in the 

U.S.? If so, how? 


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82See Bank for International Settlements, 

Delivery Versus Payment in Securities Settlement 

Systems (1992), available at http://www.bis.org/ 

publ/cpss06.pdf. Three different DVP models can 

be differentiated according to whether the securities 

and/or funds transfers are settled on a gross (tradeby-trade) basis or on a net basis. 

83See proposed Rule 17Ad–22(a)(2) for definition 

of ‘‘central securities depository services.’’ 

84As previously indicated, IOSCO and the CPSS 

are currently in the process of revising their existing 

sets of international standards which include those 

related to a clearing agency’s ability to withstand 

participant failures and to meet payment 

obligations. 

• Are there operational, legal or 

regulatory impediments to intraday or 

real-time settlement? Will the proposed 

standard make it harder for clearing 

agencies to conduct certain types of 

business for which intraday or real-time 

finality may be difficult? Are any 

additional rules or regulations needed to 

encourage intraday or real-time finality 

to reduce risks? 

• Are there circumstances when the 

requirements of intraday, real-time or 

end of day settlement finality proposed 

by the rule are not feasible or are not 

beneficial? If so, in what circumstances? 

Proposed Rule 17Ad–22(d)(13): Delivery 

Versus Payment 

Proposed Rule 17Ad–22(d)(13) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to eliminate 

principal risk by linking securities 

transfers to funds transfers to achieve 

delivery versus payment (‘‘DVP’’). DVP 

is achieved in the settlement process 

when the mechanisms facilitating 

settlement ensure that delivery occurs if 

and only if payment occurs.82

Among other things, DVP eliminates 

the risk that a party would lose some or 

its entire principal because payment is 

made only if securities are delivered. 

The Commission preliminarily believes 

that clearing agencies should be 

required to use this payment method in 

order to reduce the potential that 

delivery of the security is not 

appropriately matched with payment for 

a security, thereby impeding the 

clearing agency’s ability to facilitate 

prompt and accurate clearance and 

settlement. Therefore, the Commission 

is proposing that clearing agencies be 

required to link securities transfers to 

funds transfers in a way that achieves 

DVP. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(13). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding using DVP to eliminate 

principal risk by linking securities 

transfers to funds transfers sufficiently 

clear? If not, why not and what would 

be a better alternative? 

• How do current practices of 

clearing agencies for linking securities 

transfers to funds transfers compare to 

the practices that the Commission 

proposes to require in this rule? What 

are the expected incremental costs to 

clearing agencies in connection with 

adding to or revising their current 

practices in order to implement the 

Commission’s proposed rule? 

• What are the advantages and 

disadvantages of the proposed rule 

mandating a strict DVP standard? Does 

the proposed rule affect certain 

identifiable categories of clearing 

agencies differently than others, such as 

clearing agencies with more diversified 

post-trade services as compared to 

clearing agencies that specialize in 

fewer activities? 

• Are there operational or legal 

impediments to implementing the 

proposed DVP rule? Would the 

proposed rule make it more difficult for 

clearing agencies to conduct certain 

types of business that may require a 

longer settlement cycle, for reasons 

outside of the clearing agency’s control? 

Are any additional rules or regulations 

needed to support achievement of the 

proposed DVP rule? 

• Are there circumstances when DVP 

is not feasible or practicable? If so, 

when? 

Proposed Rule 17Ad–22(d)(14): Risk 

Controls To Address Participants’ 

Failure To Settle 

Proposed Rule 17Ad–22(d)(14) 

requires clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to institute risk 

controls, including collateral 

requirements and limits to cover the 

clearing agency’s credit exposure to 

each participant exposure fully, that 

ensure timely settlement in the event 

that the participant with the largest 

payment obligation is unable to settle 

when the clearing agency provides 

central securities depository services 83

and extends intraday credit to 

participants. 

Clearing agencies that provide central 

securities depository services may 

sometimes extend intraday credit to 

participants to, among other things, 

facilitate timely settlements by 

providing participants with an 

additional tool to meet delivery 

obligations. If a participant fails to settle 

its obligations to the clearing agency, 

the clearing agency must cover those 

obligations to be able to continue to 

facilitate prompt and accurate clearance 

and settlement. 

The Commission preliminarily 

believes it is important for clearing 

agencies that provide central securities 

depository services to institute risk 

controls, including collateral 

requirements and limits to cover the 

clearing agency’s credit exposure to 

each participant exposure fully, that 

ensure timely settlement in these 

circumstances to address the risk that 

the participant may fail to settle after 

credit has been extended. The 

Commission also preliminarily believes 

that requiring the controls to be 

designed to withstand the inability of 

the participant with the largest payment 

obligation to settle, in such 

circumstances, would reduce the 

likelihood of disruptions at the clearing 

agency by having controls in place to 

account for the largest possible loss 

from any individual participant and 

thereby help the clearing agency to 

provide prompt and accurate clearance 

and settlement during times of market 

stress.84

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(14). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding risk controls to ensure timely 

settlement for a clearing agency 

providing central securities depository 

services sufficiently clear? If not, why 

not and what would be a better 

alternative? 

• How do current practices of 

clearing agencies that provide central 

securities depository services compare 

to the practices that the Commission 

proposes to require in this rule? What 

are the expected incremental costs to 

clearing agencies in connection with 

adding to or revising their current 

practices in order to implement the 

Commission’s proposed rule? 

• In addition to collateral 

requirements and limits on credit 

exposure to participants, are there other 

controls on intra-day credit that could 

be effective in managing settlement risk? 

If so, should the Commission require the 

use of any of these other risk controls? 

• What are the advantages and 

disadvantages of requiring that controls 

be designed to withstand a failure to 


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14492 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

85The proposed rule would provide clearing 

agencies with the flexibility to determine the 

method by which the clearing agency will state this 

information to its participants. However, the 

clearing agencies should take care to develop an 

approach that provides sufficient notice to its 

participants regarding the clearing agency’s 

obligations. 

86 15 U.S.C. 78q–1(b)(3)(F). 

87See, e.g., the CDS Clearing Exemption Order 

relating to ICE Trust. ‘‘[T]his temporary extension is 

conditioned on ICE Trust, directly or indirectly, 

making available to the public on terms that are fair 

and reasonable and not unreasonably 

discriminatory: (i) All end-of-day settlement prices 

and any other prices with respect to Cleared CDS 

that ICE Trust may establish to calculate mark-tomarket margin requirements for ICE Trust clearing 

members; and (ii) any other pricing or valuation 

information with respect to Cleared CDS as is 

published or distributed by ICE Trust.’’ Exchange 

Act Release No. 63387 (November 29, 2010) 75 FR 

75502 (December 3, 2010). 

88The extensions of the temporary conditional 

exemptions applied to central clearing of certain 

CDS by ICE Trust, ICE Clear Europe, CME and 

Eurex. See Exchange Act Release Nos. 63389 

(November 29, 2010), 75 FR 75520 (December 3, 

2010); 63390 (November 29, 2010), 75 FR 75518 

(December 3, 2010); 63388 (November 29, 2010), 75 

FR 75522 (December 3, 2010); 63387 (November 29, 

2010) 75 FR 75502 (December 3, 2010) (extending 

the CDS Clearing Exemption Orders for ICE Clear, 

Eurex, CME and ICE Trust respectively). 

89Under the proposed rule, security-based swap 

clearing agencies would be permitted to use 

different approaches to make certain pricing and 

valuation information available to the public. For 

example, some may choose to engage the services 

of a third-party vendor while others may make the 

information directly available through the clearing 

agency’s Web site or some other means. 

90Proposed Rule 17Aj–1 does not prohibit 

charges that may be assessed with respect to 

security-based swap clearing agencies making this 

information available to the public as long as such 

charges are fair, reasonable, and not unreasonably 

discriminatory. The fair, reasonable, and not 

unreasonably discriminatory requirements for open 

access to information pursuant to proposed Rule 

17Aj–1 are consistent with requirements the 

Commission adopted pursuant to the CDS Clearing 

Exemption Orders as well as in Rule 603(a) of 

Regulation NMS which requires all exchanges, 

alternative trading systems, and other brokerdealers that offer individual data feeds to make the 

data available on terms that are fair and reasonable 

and not unreasonably discriminatory. See 17 CFR 

242.603(a). 

91 In this specific context of the margin practices 

of security-based swap clearing agencies, the term 

‘‘mark-to-market’’ refers to the variation margin 

practices used by a clearing agency to account for 

ongoing fluctuations in the market value of its 

participants’ security-based swap positions. 

settle by the participant with the largest 

payment obligation? 

• Should the Commission require that 

the clearing agency be able to withstand 

a settlement failure by more than the 

largest participant? For example, should 

the Commission require the clearing 

agency be able to withstand a settlement 

failure by the participants with the two 

largest payment obligations? Why or 

why not? 

Proposed Rule 17Ad–22(d)(15): Physical 

Delivery Risks 

Proposed Rule 17Ad–22(d)(15) would 

require clearing agencies establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to disclose to their 

participants the clearing agency’s 

obligations with respect to physical 

deliveries.85 For example, if a clearing 

agency (as part of its operations) takes 

physical delivery of securities from its 

participants in return for payments of 

cash, then it must inform its 

participants of the extent of the clearing 

agency’s obligations to make payment. 

A statement by the clearing agency to its 

participants about the clearing agency’s 

obligations with respect to physical 

deliveries, among other things, would 

help to ensure that participants have 

information that is likely to enhance the 

participants’ understanding of their 

rights and responsibilities with respect 

to using the clearance and settlement 

services of the clearing agency. The 

Commission preliminarily believes that 

providing such information to 

participants would promote a shared 

understanding regarding physical 

delivery practices between the clearing 

agency and its participants which could 

help reduce the potential for fails and 

thereby facilitate prompt and accurate 

clearance and settlement. 

The proposed rule would also require 

clearing agencies to reasonably design 

their operations to identify and manage 

the risks that arise in connection with 

their obligations for physical deliveries. 

The risks associated with physical 

deliveries could stem from, among other 

factors, operational limitations with 

respect to assuring receipt of physical 

deliveries and processing of physical 

deliveries. The Commission 

preliminarily believes that requiring 

clearing agencies to identify and manage 

these risks would reduce the potential 

that issues will arise as a result of 

physical deliveries because the clearing 

agency will have acted preemptively to 

deal with potential issues that may 

disrupt the clearance and settlement 

process. Accordingly, the Commission 

preliminarily believes this requirement 

would help a clearing agency to 

facilitate prompt and accurate clearance 

and settlement consistent with Section 

17A of the Exchange Act.86

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–22(d)(15). In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the Commission’s proposed rule 

regarding providing information 

regarding physical delivery and 

identifying and managing risks 

associated with physical delivery 

sufficiently clear? If not, why not and 

what would be a better alternative? 

• How do current practices of 

clearing agencies with respect to 

physical delivery compare to the 

practices that the Commission proposes 

to require in this rule? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising their current practices in 

order to implement the Commission’s 

proposed rule? 

• What type of information would be 

useful for participants to receive from a 

clearing agency regarding the clearing 

agency’s obligations to participants with 

respect to physical deliveries? What are 

the advantages or disadvantages of 

including specific disclosure 

requirements with respect to any of this 

information? 

• Are there physical delivery 

obligations that clearing agencies should 

not assume or for which the 

Commission should consider additional 

restrictions? 

B. Proposed Rule 17Aj–1 Dissemination 

of Pricing and Valuation Information by 

Security-Based Swap Clearing Agencies 

That Perform Central Counterparty 

Services 

The Commission is proposing Rule 

17Aj–1 to incorporate requirements 

regarding dissemination of pricing and 

valuation information in the CDS 

Clearing Exemption Orders into the 

Commission’s rules for security-based 

swap clearing agencies.87 Recently, the 

Commission voted to extend these 

temporary conditional exemptions from 

certain provisions of the Federal 

securities laws until July 16, 2011 to 

continue to facilitate central clearing of 

certain CDS.88 The proposed rule is 

designed in part to continue the existing 

dissemination requirements from the 

CDS Clearing Exemption Orders which 

would otherwise expire along with 

those exemption orders. 

Proposed Rule 17Aj–1 would require 

dissemination of pricing and valuation 

information by security-based swap 

clearing agencies that perform CCP 

services.89 In particular, proposed Rule 

17Aj–1 would require each securitybased swap clearing agency that 

performs CCP services to make available 

to the public, on terms that are fair, 

reasonable, and not unreasonably 

discriminatory,90 all end-of-day 

settlement prices and any other prices 

for security-based swaps that the 

clearing agency may establish to 

calculate its participants’ mark-tomarket 91 margin requirements and any 


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92Clearing agencies may destroy or otherwise 

dispose of records at the end of five years consistent 

with Rule 17a–6 of the Exchange Act. See 17 CFR 

240.17a–6. 

93See discussion supra in Section I. 

94See Public Law 111–203 § 763(b) (adding new 

Section 17A(l) to the Exchange Act. Under this 

Deemed Registered Provision, eligible clearing 

agencies will be required to comply with all 

requirements of the Exchange Act, and the rules 

thereunder, applicable to registered clearing 

agencies to the extent it clears security-based swaps 

after the effective date of the Deemed Registered 

Provision, including, for example, the obligation to 

file proposed rule changes under Section 19(b) of 

the Exchange Act. 

95See Public Law 111–203 § 774. 

96 ICE Trust, ICE Clear Europe and CME are each 

eligible for the Deemed Registered Provision based 

on the specified criteria in Section 763(b) of the 

Dodd-Frank Act. See Exchange Act Release Nos. 

63389 (November 29, 2010), 75 FR 75520 

(December 3, 2010); 63390 (November 29, 2010), 75 

FR 75518 (December 3, 2010); 63388 (November 29, 

2010), 75 FR 75522 (December 3, 2010); 63387 

(November 29, 2010), 75 FR 75502 (December 3, 

2010) (extending the CDS Clearing Exemption 

Orders for ICE Clear, Eurex, CME and ICE Trust 

respectively). 

97See, e.g., CDS Clearing Exemption Order for 

ICE Trust. ‘‘ICE Trust shall establish and maintain 

adequate safeguards and procedures to protect 

clearing members’ confidential trading information. 

Such safeguards and procedures shall include: 

(A) Limiting access to the confidential trading 

information of clearing members to those 

employees of ICE Trust who are operating the 

system or responsible for its compliance with this 

exemption or any other applicable rules; and 

(B) establishing and maintaining standards 

controlling employees of ICE Trust trading for their 

own accounts. ICE Trust must establish and 

Continued 

other price or valuation information 

with respect to security-based swaps as 

is published or distributed by the 

clearing agency to its participants.92 The 

Commission preliminarily believes this 

requirement should apply to securitybased swap clearing agencies that 

perform CCP services because, based on 

the Commission’s oversight experience 

pursuant to the CDS Clearing Exemption 

Orders, price and valuation information 

with respect to security-based swaps 

may often be limited and such a 

requirement could help to provide 

information to market participants that 

may otherwise only be available to the 

participants of a particular clearing 

agency. Clearing agencies that clear 

standard securities may not face similar 

limitations on price and valuation 

information. As a result, the 

Commission is proposing this rule only 

with respect to security-based swap 

clearing agencies that perform CCP 

services but is requesting comment on 

whether the rule should apply more 

broadly. 

As noted above, the Commission 

granted the CDS Clearing Exemption 

Orders to promote the use of CCPs with 

respect to CDS.93 Section 763(b) of the 

Dodd-Frank Act provides that certain 

security-based swap clearing agencies 

will be deemed registered for the 

purpose of clearing security-based 

swaps (‘‘Deemed Registered 

Provision’’).94 The Deemed Registered 

Provision becomes effective on July 16, 

2011.95 After the Deemed Registered 

Provision becomes effective, certain 

clearing agencies would no longer need 

an exemption from registration as a 

clearing agency under Section 17A of 

the Exchange Act in order to clear 

security-based swaps.96 Proposed Rule 

17Aj–1 would require securities-based 

swap clearing agencies that perform 

CCP services, once registered, to make 

publicly available the same pricing and 

valuation information required by the 

CDS Clearing Exemption Orders. 

The clearing agencies operating 

pursuant to the CDS Clearing Exemption 

Orders have been generating model endof-day settlement prices for CDS, which 

they in turn provide to clearing 

members and use to establish margin 

requirements for member positions. 

Pursuant to the terms of the CDS 

Clearing Exemption Orders, these 

clearing agencies have also made this 

information available to the public. The 

Commission preliminarily believes that 

public availability of this information 

and other related pricing data has 

helped to improve fairness, efficiency, 

and market competition by making 

available to all market participants data 

that may otherwise be available to only 

a limited subset of market participants. 

For example, end-of-day settlement 

prices generated by security-based swap 

clearing agencies represent pricing 

during the lifecycle of a security-based 

swap. As a result, this end-of-day 

pricing information would generally not 

be captured as part of any pre- or posttrade market data and may therefore 

provide additional information for 

market participants to consider in 

determining the value of the same or 

similar security-based swap positions. 

Accordingly, the Commission is 

proposing Rule 17Aj–1 to incorporate 

the current requirements for 

dissemination of price and valuation 

information under the CDS Clearing 

Exemption Orders. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Aj–1. In addition, the 

Commission requests comments on the 

following specific issues: 

• Is the current requirement in the 

CDS Clearing Exemption Orders to 

provide certain pricing information 

helpful in promoting price transparency 

and efficiency in the CDS market? If so, 

why? If not, why not? Are there ways in 

which the requirement could be 

improved, for instance to ensure better 

access to those who may want to access 

the information but find it difficult to 

obtain? 

• Have market participants found the 

standard to make information available 

to the public on terms that are fair, 

reasonable, and not unreasonably 

discriminatory sufficiently clear? If not, 

what type of additional guidance would 

be useful? Should it be expanded to 

apply to all clearing agencies? Why or 

why not? 

• Is there any other pricing 

information, such as with respect to 

valuation of security-based swaps by 

clearing agencies, that the Commission 

should consider requiring securitybased swap clearing agencies to make 

available to the public? 

C. Proposed Rule 17Ad–23 Clearing 

Agency Policies and Procedures To 

Protect the Confidentiality of Trading 

Information of Clearing Agency 

Participants 

The Commission is proposing Rule 

17Ad–23 to require all clearing agencies 

to establish, implement, maintain, and 

enforce written policies and procedures 

that are reasonably designed to protect 

the confidentiality of transaction 

information received by the clearing 

agency. Such transaction information 

may include, but is not limited to, trade 

data, position data, and any non-public 

personal information about a clearing 

agency participant or any of its 

participants’ customers. The 

Commission preliminarily believes that 

such policies and procedures would 

help to limit the potential misuse of 

confidential information that could 

impede prompt and accurate clearance 

and settlement and reduce confidence 

in the operations of the clearing agency. 

The proposed rule also provides that 

the required written policies and 

procedures shall include, but are not 

limited to, (a) limiting access to 

confidential trading information of 

clearing members to those employees of 

the clearing agency who are operating 

the system or responsible for its 

compliance with applicable laws or 

rules and (b) limitations on personal 

trading by employees and agents of the 

clearing agency. This proposed 

requirement would incorporate certain 

conditions under the CDS Clearing 

Exemption Orders previously granted to 

security-based swap clearing agencies 

related to the confidential treatment of 

proprietary information of 

participants.97 As an intermediary in 


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14494 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

maintain adequate oversight procedures to ensure 

that the safeguards and procedures established 

pursuant to this condition are followed.’’ Exchange 

Act Release Nos. 59527 (March 6, 2009), 74 FR 

10791 (March 12, 2009), Exchange Act Release No. 

61119 (December 4, 2009), 74 FR 65554 (December 

10, 2009) and Exchange Act Release No. 61662 

(March 5, 2010), 75 FR 11589 (March 11, 2010) and 

63387 (November 29, 2010), 75 FR 75502 

(December 3, 2010). 

98 15 U.S.C. 78c(a)(23)(B). The term ‘‘clearing 

agency’’ does not include (i) any Federal Reserve 

bank, Federal home loan bank, or Federal land 

bank; (ii) any national securities exchange or 

registered securities association solely by reason of 

its providing facilities for comparison of data 

respecting the terms of settlement of securities 

transactions effected on such exchange or by means 

of any electronic system operated or controlled by 

such association; (iii) any bank, broker, dealer, 

building and loan, savings and loan, or homestead 

association, or cooperative bank if such bank, 

broker, dealer, association, or cooperative bank 

would be deemed to be a clearing agency solely by 

reason of functions performed by such institution 

as part of customary banking, brokerage, dealing, 

association, or cooperative banking activities, or 

solely by reason of acting on behalf of a clearing 

agency or a participant therein in connection with 

the furnishing by the clearing agency of services to 

its participants or the use of services of the clearing 

agency by its participants, unless the Commission, 

by rule, otherwise provides as necessary or 

appropriate to assure the prompt and accurate 

clearance and settlement of securities transactions 

or to prevent evasion of this title; (iv) any life 

insurance company, its registered separate 

accounts, or a subsidiary of such insurance 

company solely by reason of functions commonly 

performed by such entities in connection with 

variable annuity contracts or variable life policies 

issued by such insurance company or its separate 

accounts; (v) any registered open-end investment 

company or unit investment trust solely by reason 

of functions commonly performed by it in 

connection with shares in such registered open-end 

investment company or unit investment trust, or 

(vi) any person solely by reason of its performing 

functions described in 15 U.S.C. 78c(a)(25)(E). 

99 15 U.S.C. 78mm. Section 36 of the Exchange 

Act authorizes the Commission to conditionally or 

unconditionally exempt any person, security, or 

transaction, or any class of classes of persons, 

securities, or transactions, from any provision or 

provisions of the Exchange Act or any rule or 

regulation thereunder, by rule, regulation, or order, 

to the extent that such exemption is necessary or 

appropriate in the public interest, and is consistent 

with the protection of investors. 

security transactions, a clearing agency 

receives confidential information 

which, if not protected, could disclose 

the terms of market participant’s trades, 

trading strategies, or non-public 

personal information. The Commission 

believes that the requirement that 

clearing agencies operating under the 

CDS Clearing Exemption Orders 

develop policies and procedures to limit 

access to confidential information and 

develop standards restricting trading 

that may be based on confidential 

information has contributed to the 

formation of more robust controls 

limiting the potential misuse of 

confidential information (such as 

trading based on non-public 

information) and therefore preliminarily 

believes that it would be appropriate for 

all clearing agencies to be subject to 

these requirements. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–23. In addition, the 

Commission requests comments on the 

following specific issues: 

• How do clearing agencies currently 

maintain confidentiality of the 

transaction information they receive? 

How do those practices compare to what 

the proposed rule requires? What are the 

expected incremental costs to clearing 

agencies in connection with adding to 

or revising their current practices to 

implement the Commission’s proposed 

rule? 

• Is the current requirement in the 

CDS Clearing Exemption Orders helpful 

in restricting the misuse of confidential 

information in the CDS market? If so, 

why? If not, why not? Are there ways in 

which the requirement could be 

improved, for instance by permitting 

fewer restrictions on access to 

information within a clearing agency? 

• In addition to the types of 

transaction information discussed, what 

other kinds of transaction information 

do clearing agencies receive? To what 

extent would this information be nonpublic? 

• How do clearing agencies monitor 

or restrict their employees’ and agents’ 

trading activities? What are the 

advantages or disadvantages of such 

methods? 

• Should the Commission propose 

any specific restrictions (such as 

prohibitions on trading) instead of 

having clearing agencies develop their 

own policies and procedures? 

• Should the Commission require the 

written policies and procedures of the 

clearing agency to provide for a clear 

audit trail of transaction information 

that is processed by the clearing agency? 

Please explain. 

• Instead of applying this proposed 

rule to all clearing agencies, should the 

Commission consider requiring that 

only certain types of clearing agencies 

be subject to this requirement (e.g., 

security-based swap clearing agencies)? 

Why or why not? 

D. Proposed Rule 17Ad–24: Exemption 

From Clearing Agency Definition for 

Certain Registered Securities-Based 

Swap Dealers and Registered SecurityBased Swap Execution Facilities 

Section 3(a)(23)(B) of the Exchange 

Act currently excludes from the 

definition of clearing agency certain 

national securities exchanges, dealers, 

and certain other entities.98 These 

exclusions are designed to limit the 

potential for overlapping or duplicative 

requirements that may otherwise be 

imposed on these regulated entities. 

Because the Dodd-Frank Act creates 

new categories of entities in the 

security-based swap markets that may 

perform functions similar to the 

functions performed by the excluded 

entities under Section 3(a)(23)(B) of the 

Exchange Act in the traditional 

securities markets, the Commission is 

considering whether a similar exclusion 

from the definition of clearing agency 

may be warranted. 

The Commission preliminarily 

believes that exemptions from the 

clearing agency definition with respect 

to registered security-based swap 

dealers’ and registered security-based 

swap execution facilities’ activities, 

which are comparable to functions 

carved out from the definition of 

clearing agency for dealers and 

exchanges in the traditional securities 

markets, is necessary and appropriate, 

in the public interest, and is consistent 

with the protection of investors because 

it would mitigate the potential for 

overlapping or duplicative requirements 

consistent with prior exclusions from 

the definition of the term clearing 

agency. Accordingly, pursuant to the 

Commission’s authority under Section 

36 of the Exchange Act,99 the 

Commission is proposing Rule 17Ad–24 

to exempt certain registered securitybased swap dealers and registered 

security-based swap execution facilities 

from the definition of clearing agency. 

Specifically, proposed Rule 17Ad–24 

would provide that a registered securitybased swap dealer would not be 

considered a clearing agency solely by 

reason of functions it performs as part 

of customary dealing activities, or solely 

because it acts on behalf of a clearing 

agency or a participant in connection 

with services performed by the clearing 

agency. For example, a security-based 

swap dealer that acts as an intermediary 

in making payments or deliveries or 

both in connection with transactions in 

securities as part of its customary 

dealing activities would not be 

considered a clearing agency. The 

exemptions in proposed Rule 17Ad–24 

for security-based swap dealers mirror 

exclusions already applicable to dealers 

under Section 3(a)(23)(B) of the 

Exchange Act. 

In addition, proposed Rule 17Ad–24 

provides that a registered security-based 

swap execution facility would not be 

considered a clearing agency solely 

because it provides facilities for 

comparison of data relating to the terms 


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100 15 U.S.C. 78c(a)(23)(A). 

101The Commission stresses that the functions 

highlighted herein are not an exhaustive list and 

urges each security-based swap lifecycle event 

service provider to consider whether its functions 

place it within the clearing agency definition. 

102See supra note 98 and accompanying text. 

103See also Exchange Act Release No. 39829 

(April 6, 1998), 63 FR 17943 (April 13, 1998) (File 

No. S7–10–98) (‘‘A vendor that provides a matching 

service will actively compare trade and allocation 

information and will issue the affirmed 

confirmation that will be used in settling the 

transaction.’’). 

104See supra note 98 and accompanying text. 

105See Exchange Act Release No. 63727 (January 

14, 2011) 76 FR 3859 (January 21, 2011) (discussing 

generally, at footnotes 20 through 22 and the 

accompanying text, the confirmation process for 

security-based swap transactions and the 

Commission’s preliminary expectations about the 

role of matching services in that setting). 

106Tear-up or multilateral portfolio trade 

compression services for OTC derivatives seek to 

eliminate unnecessary or duplicative trades from 

the market while maintaining a market participant’s 

overall exposure or risk in the market. This allows 

dealers to reduce operational risk, freeing up 

liquidity and capital. By reducing the gross notional 

outstanding of OTC derivatives in normal times, 

portfolio trade compression provides effective 

measures to address the risk associated with 

uncoordinated, disorderly close-out transactions in 

individual dealers of the positions of a defaulting 

major dealer. Compression is offered by several 

vendors and major market participants are now 

engaged in regular compression exercises. See 

Financial Stability Board, Implementing OTC 

Derivatives Market Reforms, (October 25, 2010), 

available at http://www.Financialstabilityboard.org/ 

publications/r_101025.pdf. 

of settlement of securities transactions 

effected on such registered securitybased swap execution facility. The 

exemptions in proposed Rule 17Ad–24 

for security-based swap execution 

facilities mirror exclusions applicable to 

national securities exchanges under 

Section 3(a)(23)(B) of the Exchange Act. 

The Commission cautions, however, 

that security-based swap dealers and 

security-based swap execution facilities 

that engage in clearing agency activities 

beyond the scope of the proposed 

exemptions could be considered a 

clearing agency under the broad 

definition in Section 3(a)(23) of the 

Exchange Act. Moreover, other 

participants in the security-based swap 

market could also qualify as a clearing 

agency given the broad definition of 

clearing agency under the Exchange Act. 

If a participant in the security-based 

swap market qualified as a clearing 

agency, it would be required to register 

with the Commission. Section 763(b) of 

the Dodd-Frank Act adds a new Section 

17A(g) to the Exchange Act, which 

directs entities that use 

instrumentalities of interstate commerce 

to perform clearing agency functions for 

security-based swaps to register with the 

Commission. The Commission notes 

that the definition of clearing agency 

under Section 3(a)(23)(A) of Exchange 

Act is defined broadly to include any 

person who: 

• Acts as an intermediary in making 

payments or deliveries or both in 

connection with transactions in 

securities; 

• Provides facilities for the 

comparison of data regarding the terms 

of settlement of securities transactions, 

to reduce the number of settlements of 

securities transactions, or for the 

allocation of securities settlement 

responsibilities; 

• Acts as a custodian of securities in 

connection with a system for the central 

handling of securities whereby all 

securities of a particular class or series 

of any issuer deposited within the 

system are treated as fungible and may 

be transferred, loaned, or pledged by 

bookkeeping entry, without physical 

delivery of securities certificates (such 

as a securities depository); or 

• Otherwise permits or facilitates the 

settlement of securities transactions or 

the hypothecation or lending of 

securities without physical delivery of 

securities certificates (such as a 

securities depository).100

Based on this broad definition, the 

Commission preliminarily believes that 

certain service providers that facilitate 

security-based swap contract 

management may meet the clearing 

agency definition. The Commission 

preliminarily believes the following 

activities, if engaged in by securitybased swap market participants, would 

qualify these participants as clearing 

agencies and therefore trigger the 

statutory requirement to register as 

clearing agencies: 101

• Collateral Management Activities. 

Collateral management involves 

calculating collateral requirements and 

facilitating the transfer of collateral 

between counterparties. Entities that 

calculate net payment obligations 

among counterparties for security-based 

swaps and provide instructions for 

payments, including with respect to 

quarterly interest, credit events, and 

upfront fees, are likely acting as an 

intermediary in making payments or 

deliveries or both in connection with 

transactions in securities. As a result of 

acting as such an intermediary in 

making payments or deliveries or both 

in connection with transactions in 

securities, the Commission 

preliminarily believes that these entities 

would fall within the definition of a 

clearing agency 102 and would generally 

need to register. 

• Trade Matching Services. ‘‘Matching 

service’’ is the term that is used to 

describe the process whereby an 

intermediary compares each market 

participant’s trade data regarding the 

terms of settlement of securities 

transactions, in order to reduce the 

number of settlements of securities 

transactions, or to allocate securities 

settlement responsibilities. An 

intermediary that captures trade 

information regarding a securities 

transaction and performs an 

independent comparison of that 

information which results in the 

issuance of binding matched terms to 

the transaction is providing matching 

services and falls within the definition 

of clearing agency.103 As a result of 

comparing each market participant’s 

trade data regarding the terms of 

settlement of securities transactions, in 

order to reduce the number of 

settlements of securities transactions, or 

to allocate securities settlement 

responsibilities, the Commission 

preliminarily believes that entities 

providing these trade ‘‘matching 

services’’ with respect to security-based 

swaps would meet the statutory 

definition of a clearing agency 104 and 

would generally need to register.105

However, the Commission also 

preliminarily believes that providing 

preliminary comparisons, such as those 

provided by certain affirmation and 

novation service providers that are 

followed by independent comparisons 

that result in the issuance of legally 

binding matched terms, would generally 

not fall within the definition of clearing 

agency. Similarly, the Commission 

preliminarily believes that 

reconciliation service providers that 

function solely to permit parties to 

reconcile trade information records with 

their counterparties would generally not 

fall within the definition of clearing 

agency. 

• Tear Up/Compression Services 

(‘‘Tear Up services’’).106 Based on 

discussions between the Commission 

staff and market participants, the 

Commission understands that Tear Up 

service providers generally operate in 

the following manner: 

Æ Tear Up services execute an 

algorithm seeking to reduce the gross 

notional value of trades and the total 

number of trades but do not alter the 

counterparty risk or market risk 

associated with the trades beyond 

specified parameters. 

Æ When using a Tear Up service, the 

users send all transactions they are 

willing to terminate to the service. Each 

user sets tolerances for counterparty 

exposures it is willing to absorb and 

how much money it is willing to pay in 

trade termination costs. The submitted 

transactions are matched using an 


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107See supra note 98 and accompanying text. 

108See Exchange Act Release No. 63107, 75 FR 

65882, supra note 45. 

algorithm and tolerances specified by 

the user. 

Æ The service then proposes 

terminations across all parties who 

participated, including, payments for 

termination. The users consider the 

proposal, check their own records, and, 

if they choose to accept the proposal, 

fax or otherwise notify their acceptance 

to the service. If the service receives 

acceptances from all users, the 

transaction is considered binding and 

the relevant transactions are considered 

terminated. 

Æ The users generally exchange 

payments and confirmations outside the 

service. The Tear Up service will send 

the completed files to a third party 

service provider for matching and the 

‘‘torn up’’ transactions are terminated in 

bulk at the security-based swap data 

repository. The security-based swap 

data repository maintains a record of 

which parties terminated the ‘‘torn up’’ 

trades. 

The Commission preliminarily 

believes that a Tear Up service provider 

that performs these functions would 

generally fall within the definition of 

clearing agency and would need to 

register because, among other activities, 

it would be acting as an intermediary 

that provides facilities for the 

comparison of data regarding the terms 

of settlement of securities transactions, 

to reduce the number of settlements of 

securities transactions, or the allocation 

of securities settlement 

responsibilities.107

The Commission requests comment 

on all aspects of the proposed 

exemptions from the definition of 

clearing agency for registered securitybased swap dealers and registered 

security-based swap execution facilities 

in proposed Rule 17Ad–24. The 

Commission also requests comments on 

which activities fall within the 

definition of clearing agency, 

particularly within the context of 

activities in the security-based swap 

market. In addition, the Commission 

requests comments on the following 

specific issues: 

• What are the advantages or 

disadvantages of the Commission 

granting the proposed exemptions from 

the definition of clearing agency? If 

there are disadvantages to these 

proposed exemptions, what are they and 

how do they compare to the benefits? 

• Under what circumstances are 

market participants likely to use the 

proposed exemptions for registered 

security-based swap dealers and 

registered security-based swap 

execution facilities? Are there any 

additional terms or conditions that the 

Commission should consider imposing 

with respect to the proposed 

exemptions? Are there any advantages 

or disadvantages related to the proposed 

exemptions that the Commission should 

consider? 

• Under Section 17A(b)(3)(I) of the 

Exchange Act, the rules of a clearing 

agency should not impose any undue 

burden on competition. Should the 

Commission augment this statutory 

requirement by adopting rules that 

prohibit clearing agencies from entering 

into certain types of arrangements? If so, 

which arrangements, and why? In 

particular, should the Commission 

promulgate rules concerning any 

revenue sharing arrangements used by 

clearing agencies? Please explain why or 

why not. Are revenue sharing 

arrangements common among clearing 

agencies? How are they used? Are 

revenue sharing arrangements a manner 

of directing funds to a subset of clearing 

members, which funds otherwise could 

support a general reduction of clearing 

costs that could be equitably distributed 

among members? If the Commission 

adopts rules regarding revenue sharing, 

what aspects of the revenue sharing 

arrangements should the rules address 

and how might the rules be designed to 

promote competition and fair access to 

the clearing agency? If the Commission 

promulgates rules regarding certain 

arrangements, how should the 

Commission mitigate the potential risk 

of unduly limiting the ability of clearing 

agencies to develop new commercial 

arrangements? 

• Are there any additional entities for 

which the Commission should consider 

providing exemptions with respect to 

the definition of clearing agency, 

particularly in the context of the 

security-based swap market? If so, why 

would providing such exemptions be 

necessary or appropriate in the public 

interest, and consistent with the 

protection of investors? Under what 

terms and conditions should the 

Commission consider providing such 

exemptions? 

• Is there additional information 

about any of the security-based swap 

services described by the Commission 

that would affect the consideration of 

whether these activities trigger the 

definition of clearing agency? 

• Are there any other security-based 

swap services that may fall within the 

clearing agency definition? If so, what 

are those services? Why would they be 

appropriately classified as clearing 

agency functions? 

• If a security-based swap clearing 

agency that does not provide CCP 

services is required to register with the 

Commission as a clearing agency, are 

there certain requirements that are 

applicable or proposed to be applicable 

to other clearing agencies that should 

not apply to these security-based swap 

clearing agencies? For example: 

Æ Should non-CCP security-based 

swap clearing agencies be subject to 

proposed Regulation MC,108 which the 

Commission proposed on October 14, 

2010 to mitigate the potential conflicts 

of interest that could exist at certain 

entities, including security-based swap 

clearing agencies, through conditions 

and structures relating to ownership, 

voting, and governance of these entities? 

Why or why not? Should proposed 

Regulation MC apply to some but not all 

security-based swap clearing agencies 

that do not provide CCP services? If so, 

which ones? 

Æ Should non-CCP security-based 

swap clearing agencies be subject to 

proposed Rule 17Ad–25, which would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify and 

address existing or potential conflicts of 

interest? Why or why not? Should 

proposed Rule 17Ad–25 apply to some 

but not all security-based swap clearing 

agencies that do not provide CCP 

services? If so, which ones? 

Æ Should non-CCP security-based 

swap clearing agencies be subject to 

proposed Rule 17Ad–26, which would 

require each clearing agency to establish 

governance standards for its board or 

board committee members? Why or why 

not? Should proposed Rule 17Ad–26 

apply to some but not all security-based 

swap clearing agencies that do not 

provide CCP services? If so, which ones? 

• What are the costs associated with 

requiring the types of entities described 

above that do not offer CCP services to 

register as a clearing agency and operate 

as an SRO (including compliance with 

ongoing SRO rule filings requirements)? 

Please consider both the initial and 

ongoing costs, and please consider the 

burdens that such requirements may 

place on the ability of these entities to 

operate in a commercially viable 

manner. Are there competitors who 

might offer competing services (either in 

the United States or abroad) without 

being subject to these requirements? Are 

these costs offset by regulatory 

requirements or industry commitments 

to use certain security-based swap 

service providers that fall within the 

definition of a clearing agency? What 

implications would registration of these 

entities have for the security-based swap 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 14497 

109See Section 772 of Public Law 111–203, 124 

Stat. 1376 (2010) amending Section 36 of the 

Exchange Act. 

110 Id. 

111See 15 U.S.C. 78q–1(d). 

112This change would also include a conforming 

change to the timing for granting a non-temporary 

registration. 

113Proposed Rule 17Ad–25 would complement 

other applicable requirements concerning conflicts 

of interests at clearing agencies that may also 

separately apply. These other requirements include 

the existing regulatory framework of Section 17A of 

the Exchange Act and the conflicts-related 

requirements contemplated by proposed Rule 

17Ad–22(d)(8) as well as Section 765 of the DoddFrank Act with respect to security-based swap 

clearing agencies. See supra Section III.A. 

(proposing that clearing agencies be required to 

have governance arrangements that are clear and 

transparent to fulfill Exchange Act requirements 

and to support the objectives of owners and 

participants and promote the effectiveness of the 

clearing agency’s risk management procedures). See 

also Exchange Act Release No. 63107, 75 FR 65882, 

supra note 45. 

markets more generally, and for the 

availability of their services to market 

participants? 

E. Proposed Amendment of Rule 

17Ab2–1: Registration of Clearing 

Agencies 

The Commission is proposing to 

amend Rule 17Ab2–1(c) regarding the 

registration of clearing agencies. Rule 

17Ab2–1(c) currently provides that, if 

requested by an applicant, the 

Commission may grant a temporary 

registration providing for exemptions 

from certain registration requirements in 

Section 17A(b)(3) of the Exchange Act. 

Prior to the Dodd-Frank Act’s 

amendments to the Exchange Act, the 

Commission was not restricted in its 

ability to grant exemptions from 

registration requirements to any 

category of clearing agencies. Therefore, 

the exemptions discussed in Rule 

17Ab2–1(c) applied with respect to all 

clearing agencies. 

The Dodd-Frank Act amended Section 

36 of the Exchange Act and altered the 

Commission’s authority to provide 

exemptions from the registration 

requirements applicable to securitybased swap clearing agencies pursuant 

to Section 17A(g) of the Exchange 

Act.109 Accordingly, the Commission 

proposes to amend Rule 17Ab2–1 to 

reflect these changes. Specifically, the 

proposal would amend Rule 17Ab2–1(c) 

to clarify that when granting a 

temporary registration, the Commission 

may do so for ‘‘a specific period of time 

and may exempt, other than for 

purposes of section 17A(g) of the Act, 

the registrant from one or more of the 

requirements * * * ’’. The Commission 

preliminarily believes this proposed 

amendment to Rule 17Ab2–1(c), 

clarifying how the rule would operate in 

light of changes to the Commission’s 

exemptive authority under Section 36 of 

the Exchange Act with respect to 

Section 17A(g) of the Exchange Act, is 

appropriate given the change to the 

Commission’s exemptive authority 

under Section 36 of the Exchange Act 

effected by the Dodd-Frank Act.110

The Commission also proposes other 

technical changes to Rule 17Ab2–1(c) 

unrelated to the Dodd-Frank Act that 

the Commission preliminarily believes 

would help in the administration of the 

rule pertaining to temporary 

registrations and would thereby be 

appropriate in the public interest, for 

the protection of investors.111

Specifically, the Commission proposes 

to amend Rule 17Ab2–1(c) to clarify that 

the temporary registration may be 

issued at the discretion of the 

Commission. The Commission 

preliminarily believes that the ability to 

grant a temporary registration provides 

useful flexibility to further evaluate 

whether a clearing agency is meeting 

required standards before granting a 

permanent registration. Operational, 

resource, internal control or other issues 

may only become apparent after a 

clearing agency has commenced 

operations. In addition, the proposal 

would amend the current provision 

indicating that the Commission may 

grant the temporary registration for 

eighteen months or such longer period 

as the Commission may provide by 

order, to state that the Commission may 

grant the temporary registration for 

twenty-four months or such longer 

period as the Commission may provide 

by order.112 The Commission 

preliminarily believes that the 

temporary registration process should 

explicitly provide greater time to allow 

the clearing agency to operate before 

registration becomes final because doing 

so would enhance the Commission’s 

capacity to provide oversight that 

promotes prompt and accurate clearance 

and settlement. 

Request for Comment 

The Commission generally requests 

comments on all aspects of the proposed 

amendments to Rule 17Ab2–1. In 

addition, the Commission requests 

comments on the following specific 

issues: 

• Are the proposed changes to Rule 

17Ab2–1 setting forth the restrictions on 

providing exemptions with respect to 

security-based swap clearing agencies 

sufficiently clear? 

• Would any additional changes to 

Rule 17Ab2–1 regarding how the 

clearing agency registration 

requirements apply with respect to 

security-based swap clearing agencies 

be beneficial to market participants? 

• What are the advantages and 

disadvantages of the proposed changes 

to the temporary registration process, 

such as stating the temporary 

registration may be issued at the 

discretion of the Commission and the 

revisions to the timeframe for the 

temporary registration? 

F. Proposed Rule 17Ad–25: Clearing 

Agency Procedures To Identify and 

Address Conflicts of Interest 

The Commission is proposing Rule 

17Ad–25 to require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to identify and 

reasonably existing or potential conflicts 

of interest.113 For example, there may be 

actual or potential conflicts of interest 

between the activities of a clearing 

agency and the interests of its 

participants or board members, which 

could affect decision making by officers 

or directors or actions by participants in 

seeking to influence its operations. The 

proposed rule also would require the 

clearing agency’s policies and 

procedures to be reasonably designed to 

minimize conflicts of interest in 

decision making by the clearing agency. 

The Commission preliminarily 

believes it is important for clearing 

agencies to evaluate their activities and 

determine potential sources for conflicts 

of interests that exist within their 

organization and to reasonably address 

such conflicts so that they do not 

disrupt the clearing agency’s ability to 

facilitate prompt and accurate clearance 

and settlement. The Commission also 

preliminarily believes that requiring 

clearing agencies, under proposed Rule 

17Ad–25, to have reasonably designed 

policies and procedures to minimize 

conflicts of interest in decision making 

by the clearing agency would facilitate 

the development of tailored policies and 

procedures that mitigate conflicts 

specific to the clearing agency’s 

business. Moreover, the Commission 

preliminarily believes the proposed rule 

would be useful in facilitating its 

oversight of clearing agencies by 

providing a documented plan against 

which the Commission could evaluate a 

clearing agency’s efforts to mitigate 

conflicts and potentially provide the 

Commission with a better 

understanding of the potential sources 

of conflicts for a specific clearing 

agency. 


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114The Commission notes that in other contexts 

under the Exchange Act certain persons have been 

required to meet qualification standards. For 

example, Section 15(b)(7) requires all Commissionregistered brokers and dealers to meet such 

standards of operational capability and all natural 

persons associated with registered brokers and 

dealers to meet such standards of training, 

experience, competence, and such other 

qualifications as the Commission finds necessary or 

appropriate in the public interest or for the 

protection of investors. See 15 U.S.C. 78o(b)(7). 

Section 15(b)(7) permits the Commission to rely on 

the rules of certain SROs in devising and 

administering these requirements. For example, the 

NASD Rule 1000 series contains registration and 

qualification requirements for registered 

representatives and principals associated with 

FINRA-member firms. In addition, NASD Rule 3010 

requires all FINRA members to have a supervisory 

system that provides for, among other things, 

reasonable efforts to determine that all supervisory 

personnel are qualified by virtue of experience or 

training to carry out their assigned responsibilities. 

115The Exchange Act and the rules promulgated 

thereunder contain a number of restrictions on the 

ability of certain registered entities, including 

clearing agencies, brokers, dealers, transfer agents 

and other SROs, to be associated with persons 

subject to a ‘‘statutory disqualification,’’ as such 

term is defined in Section 3(a)(39) of the Exchange 

Act. 15 U.S.C. 78c(a)(39). For example, Section 

17A(b)(4) of the Exchange Act provides that a 

‘‘registered clearing agency may, and in cases in 

which the Commission, by order, directs as 

appropriate in the public interest shall, deny 

participation to any person subject to a statutory 

disqualification.’’ 12 U.S.C. 78q–1(b)(4). 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–25. In addition, the 

Commission requests comments on the 

following specific issues: 

• Under the proposal, clearing 

agencies would be required to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify and 

address existing or potential conflicts of 

interest. Such policies and procedures 

would also be required to be reasonably 

designed to minimize conflicts of 

interest in decision making by the 

clearing agency. Should the 

Commission require any specific 

measures to address conflicts of 

interests, such as mandating certain 

boards or board committee 

compositions with respect to all clearing 

agencies instead of using a policies and 

procedures approach? What are the 

advantages and disadvantages of a more 

prescriptive approach? 

• What, if any, additional guidance 

by the Commission would be helpful 

regarding how clearing agencies should 

evaluate their own activities and 

determine the potential sources of 

conflicts? 

• Should the Commission consider 

requiring only certain types of clearing 

agencies (e.g., security-based swap 

clearing agencies) to be subject to this 

requirement? Please explain why or 

why not. Are there special 

considerations, such as market 

concentration, affecting security-based 

swap clearing agencies that make it 

particularly important for them to 

establish, implement, maintain and 

enforce written policies and procedures 

to identify and address existing or 

potential conflicts of interest? If so, 

what are those special considerations 

and how would this requirement 

address them? If not, how would 

various types of clearing agencies be 

affected by this requirement? Would 

there be advantages to maintaining one 

requirement for all clearing agencies? 

Why or why not? 

G. Proposed Rule 17Ad–26: Standards 

for Board or Board Committee Directors 

The Commission is proposing Rule 

17Ad–26 to require clearing agencies to 

establish governance standards for their 

directors serving on the board or board 

committees. The Commission 

preliminarily believes that directors 

serving on the board and board 

committees of a clearing agency play a 

vital role in creating a framework that 

supports prompt and accurate clearance 

and settlement because of their role in 

the decision-making process within a 

clearing agency. Accordingly, the 

expertise, diversity of perspectives, 

conduct and incentives of directors 

serving on the board and board 

committees of a clearing agency are 

likely to affect its effective operation. 

For example, a lack of expertise by 

board members or board committee 

members may deter them from 

challenging decisions by management 

and lessen the potential that 

management will escalate appropriate 

issues for the board’s consideration. In 

addition, clearing agencies should 

consider the extent to which persons 

who have been found to have violated 

the securities laws, or other similar laws 

or statutes, may not be fit to serve on the 

clearing agency’s board or board 

committees. Moreover, a lack of clear 

guidance as to the roles and 

responsibilities of directors and 

procedures for assessing their 

performance may negatively impact the 

efficient functioning of the clearing 

agency. 

Therefore, the Commission is 

proposing Rule 17Ad–26 to require that 

clearing agencies establish and 

articulate baseline standards for 

appointing and retaining their directors, 

which may help to increase the 

potential that directors’ actions will 

benefit the clearing organization. The 

proposed rule specifies that the clearing 

agency’s standards must address the 

following areas: 

• A clear articulation of the roles and 

responsibilities of directors serving on 

the clearing agency’s board and any 

board committees; 

• Director qualifications providing 

criteria for expertise in the securities 

industry, clearance and settlement of 

securities transactions, and financial 

risk management; 114

• Disqualifying factors concerning 

serious legal misconduct, including 

violations of the Federal securities laws; 

and 115

• Policies and procedures for the 

periodic review by the board or board 

committees of the performance of 

individual members. 

The proposed rule would require the 

clearing agency to clearly articulate the 

roles and responsibilities of directors 

serving on the clearing agency’s board 

and any board committees. This would 

involve the clearing agency setting forth 

the duties of directors and the functions 

within the clearing agency for which 

they are responsible. The Commission 

preliminarily believes that such a 

delineation of responsibilities will help 

to focus directors’ efforts to areas that 

promote the effective operations of a 

clearing agency. 

The proposed rule would also require 

that the clearing agency establish 

director qualifications that address the 

clearing agency’s criteria for expertise in 

the securities industry, clearance and 

settlement of securities transactions and 

financial risk management because each 

of these would have a bearing on the 

director’s ability to understand the 

operations and risks of a clearing 

agency. When developing these criteria, 

clearing agencies could consider the 

specialized needs of individual board 

committees, the overall mix of expertise 

within the board or on a committee, and 

the benefits of having members with 

different backgrounds (e.g., regulatory, 

trading, and risk management 

experience). The Commission 

preliminarily believes that this 

requirement would be beneficial 

because it could provide greater focus 

within a clearing agency for the 

selection of directors that have 

appropriate expertise, as determined by 

the clearing agency, which would 

facilitate the ability of the clearing 

agency to provide prompt and accurate 

clearance and settlement. 

In addition, the proposed rule would 

require the development of 

disqualifying factors concerning serious 

legal misconduct, including violations 

of the Federal securities laws. For 

example, a clearing agency might 

consider whether to preclude a person 


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116Public Law 111–203, § 763(a) (adding 

Exchange Act Section 3C(j)). 117 Id. 

who has had a securities license denied, 

suspended, revoked or restricted by a 

regulatory authority from serving as a 

director. The Commission preliminarily 

believes that such qualification criteria 

are important with respect to identifying 

potential issues that would call into 

question the ability of the persons who 

are responsible for the governance of the 

clearing agency to ensure that it 

complies with applicable laws and 

regulations. 

Finally, the proposed rule would 

require the clearing agency to establish 

policies and procedures for the periodic 

review by the board or a board 

committee of the performance of its 

individual members. As previously 

noted, the Commission preliminarily 

believes that directors serving on the 

board or board committees of a clearing 

agency play a vital role in creating a 

framework that supports prompt and 

accurate clearance and settlement 

because of their role in decision-making 

processes. Therefore, the Commission 

preliminarily believes that the board, or 

a board committee, should establish 

policies and procedures for the periodic 

review of the performance of the 

relevant directors. Such a review should 

consider the contributions that the 

directors are making to the clearing 

agency and to its ability to operate in an 

effective manner. The policies and 

procedures for such a review, to be 

developed by the clearing agency as 

appropriate given its particular 

circumstances, might include selfassessments, peer review procedures, or 

the use of internal or external parties or 

consultants to facilitate an evaluation of 

the performance of each relevant 

director. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 17Ad–26. In addition, the 

Commission requests comments on the 

following specific issues: 

• Are there any additional standards 

for director or board committee 

members that the Commission should 

consider requiring? Should any of the 

requirements in proposed Rule 17Ad–26 

be modified or changed? If so, how? 

• How direct should the 

Commission’s role be in the oversight 

and monitoring of the composition and 

activities of clearing agency boards and 

board committees? If the Commission’s 

role should be more direct, what 

mechanisms or structure would 

facilitate the Commission taking such a 

role? For example, should the 

Commission consider any additional 

requirements related to fiduciary duties 

to either enhance mitigation of conflicts 

or address deficiencies? 

• What, if any, additional guidance 

by the Commission would be helpful 

regarding standards for a clearing 

agency’s directors? 

• Should the Commission develop 

more or less prescriptive requirements 

regarding standards for directors or 

board committee members? What are 

the advantages or disadvantages of any 

contemplated approach? 

• The Commission has previously 

proposed independence requirements 

with respect to the board and board 

committees of security-based swap 

clearing agencies. Should the boards of 

all clearing agencies consist of a certain 

proportion of independent directors? 

Please explain why or why not. 

• Should the Commission require 

clearing agencies to develop any limits 

on the type or amount of compensation 

that directors may receive, such as 

including prohibiting compensation of 

independent and other nonmanagement directors from being linked 

to the business performance of the 

clearing agency, or being subject to 

discretion of management? Please 

explain. 

• Should the Commission consider 

requiring only certain types of clearing 

agencies (e.g., security-based swap 

clearing agencies) to be subject to this 

requirement? Please explain why or 

why not. Are there special 

considerations, such as market 

concentration, affecting security-based 

swap clearing agencies that make these 

governance requirements particularly 

important for them? If so, what are those 

special considerations and how would 

this requirement address them? If not, 

how would clearing agencies that 

provide different types of clearing 

services be affected by the application of 

this requirement? Would there be 

advantages to maintaining one 

requirement for all clearing agencies? 

Why or why not? 

H. Proposed Rule 3Cj–1 Designation of 

Chief Compliance Officer 

The Dodd-Frank Act amended the 

Exchange Act to require each clearing 

agency to appoint a chief compliance 

officer (‘‘CCO’’) and specifies the CCO’s 

duties.116 The Commission is proposing 

Rule 3Cj–1 to establish requirements 

concerning a clearing agency’s CCO. In 

particular, proposed Rule 3Cj–1 would 

incorporate the duties of a clearing 

agency’s CCO that are enumerated in 

Exchange Act Section 3C(j) 117 and 

impose additional requirements. 

Consistent with the requirements 

under Section 3C(j) of the Exchange Act, 

proposed Rule 3Cj–1(a) would require 

each clearing agency to designate a 

CCO. The Commission preliminarily 

believes that a clearing agency would 

not necessarily need to hire an 

additional person to serve as its CCO. 

Instead, a clearing agency could 

designate an individual already 

employed by the clearing agency as its 

CCO. 

Consistent with the requirements 

under Section 3C(j) of the Exchange Act, 

under proposed Rule 3Cj–1(b), each 

CCO shall: (1) Report directly to the 

board or to a senior officer of the 

clearing agency; (2) in consultation with 

its board or the senior officer of the 

registered clearing agency, resolve any 

conflicts of interest that may arise; (3) be 

responsible for administering each 

policy and procedure that is required to 

be established pursuant to Section 3C of 

the Exchange Act and rules and 

regulations thereunder; (4) ensure 

compliance with the Exchange Act and 

the rules and regulations thereunder; (5) 

establish policies and procedures for the 

prompt remediation of any compliance 

issues identified by the CCO, and (6) 

establish and follow appropriate 

procedures for the prompt handling of 

management response, remediation, 

retesting, and closing of non-compliance 

issues. 

In order to clarify the requirements 

under Section 3C(j) of the Exchange Act, 

the Commission is also proposing (as 

part of proposed Rule 3Cj–1(e)) to define 

the term senior officer for purposes of 

proposed Rule 3Cj–1 to include the 

chief executive officer, or other 

equivalent officer. As the chief 

executive officer is generally the most 

senior officer in a clearing agency, the 

Commission preliminarily believes that 

such officer should be identified as the 

responsible individual for purposes of 

the proposed rule because it would help 

to promote enhanced focus on 

compliance issues and thereby 

potentially lead to more effective 

operations at a clearing agency. 

Consistent with the requirements 

under Section 3C(j) of the Exchange Act, 

proposed Rule 3Cj–1(c) would require 

the CCO to prepare, sign and submit an 

annual compliance report that describes 

(i) the compliance of the clearing agency 

with the Federal securities laws and the 

rules and regulations thereunder, and 

(ii) each policy and procedure of the 

clearing agency (including the code of 

ethics and conflict of interest policies of 


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14500 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

118The term ‘‘tag’’ (including the term ‘‘tagged’’) 

refers to an identifier that highlights specific 

information submitted to the Commission that is in 

the format required by the EDGAR Filer Manual, as 

described in Rule 301 of Regulation S–T. See 17 

CFR 32.301. The term ‘‘EDGAR Filer Manual’’ is 

defined in Rule 11 of Regulation S–T as ‘‘the current 

version of the manual prepared by the Commission 

setting out the technical format requirements for an 

electronic submission.’’ See 17 CFR 232.11. If the 

Commission adopts Rule 3Cj–1 as proposed, it is 

possible that clearing agencies might be required to 

file the annual compliance report in paper until 

such time as an electronic filing system is 

operational and capable of receiving the annual 

compliance report. The Commission would notify 

clearing agencies as soon as the electronic filing 

system can accept filings of annual compliance 

reports. 

the registered clearing agency). Also 

consistent with the requirements under 

Section 3C(j) of the Exchange Act, 

proposed Rule 3Cj–1(c) would require 

the annual compliance report to 

accompany each appropriate financial 

report of the clearing agency that is 

required to be furnished to the 

Commission pursuant to the Exchange 

Act and the rules thereunder. Finally, 

the CCO must certify under penalty of 

law that the compliance report is 

accurate and complete. 

In addition, to clarify and enhance the 

requirements under Section 3C(j) of the 

Exchange Act, the Commission is 

proposing to require that each annual 

compliance report: 

• Be submitted to the board of 

directors and audit committee (or 

equivalent bodies) of the clearing 

agency promptly after the date of 

execution of the required certification 

and prior to filing of the report with the 

Commission; 

• Be filed with the Commission in a 

tagged data format in accordance with 

the instructions contained in the 

EDGAR Filer Manual, as described in 

Rule 301 of Regulation S–T; 118 and 

• Be filed with the Commission 

within 60 days after the end of the fiscal 

year covered by such report. 

The Commission preliminarily 

believes it would be appropriate to 

require that the annual compliance 

report be submitted to the board of 

directors and audit committee (or 

equivalent bodies) prior to filing of the 

report with the Commission because it 

would help to focus attention at senior 

levels of the clearing agency on the 

contents of the report that is being filed 

with the Commission. This in turn 

could help to promote a robust 

compliance program at the clearing 

agency by ensuring appropriate 

attention and response at the Board 

level. 

In addition, the Commission 

preliminarily believes that it would be 

appropriate for clearing agencies to file 

the report with the Commission in a 

tagged data format in accordance with 

the instructions contained in the 

EDGAR Filer Manual in order to provide 

an electronic system for submitting this 

report that builds on an existing 

framework for filings to the 

Commission. This in turn should help 

to ease the potential administrative 

burdens on clearing agencies. As 

previously noted, the proposed rule 

would also require that the annual 

compliance report be filed with the 

Commission within 60 days after the 

end of the fiscal year covered by such 

report. The report would be subject to 

public availability and the Commission 

anticipates making such report available 

through its EDGAR system. The 

Commission preliminarily believes such 

time frame would be appropriate 

because it should give clearing agencies 

adequate time to review and draft a 

report based on actions that occurred 

during the prior year, while also 

limiting the potential that the 

information would be stale and thus not 

be as useful in the Commission’s 

oversight of the clearing agency. 

Request for Comment 

The Commission generally requests 

comments on all aspects of proposed 

Rule 3Cj–1. In addition, the Commission 

requests comments on the following 

specific issues: 

• Is the definition of ‘‘senior officer’’ 

appropriate? If not, is it over-inclusive 

or under-inclusive and how should it be 

defined? 

• Should the Commission include in 

its proposed rule a requirement that a 

CCO’s compensation must be approved 

by the board? 

• Should the Commission include in 

its proposed rule a requirement that a 

CCO may only be removed by action of 

the board? 

• Are there other measures that 

would further enhance the 

independence and effectiveness of a 

CCO and that should be prescribed in a 

rule, such as requiring that a CCO not 

perform any other functions? 

• Should the Commission impose any 

additional duties on a CCO of a clearing 

agency? 

• Should the Commission provide 

guidance in its proposed rules about the 

CCO’s procedures for the remediation of 

non-compliance issues? 

• What is the likely effect of the 

Commission’s proposed rule on the 

development of the financial markets? 

Would the proposed rule impede the 

establishment of clearing agencies? 

• Does requiring the compliance 

report to be filed annually with the 

Commission within sixty days after the 

end of the fiscal year covered by such 

report give a clearing agency enough 

time to prepare the report? Should the 

Commission consider a longer or short 

time frame? Please explain. 

• Should the Commission require 

submission of the CCO compliance 

report to the board before or after 

submission to the Commission? How 

would submission of the compliance 

report to the board before or after 

submission to the Commission affect the 

board’s review of the compliance 

report? 

• Should the Commission prescribe 

any specific method of review by the 

board with respect to the CCO 

compliance report? For example, should 

the Commission require that (i) the CCO 

compliance report include, as 

appropriate, recommended actions to be 

taken by the clearing agency to improve 

compliance or correct any compliance 

deficiencies, (ii) the board review any 

such recommendations and determine 

whether to approve them, and (iii) the 

clearing agency notify the Commission 

if the board declines to approve such 

recommendations, or approves different 

actions than those recommended in the 

CCO compliance report? What are the 

advantages and disadvantages of such 

an approach? Should clearing agencies 

be required to have the CCO report 

directly to the board instead of also 

permitting reporting to a senior officer 

of the clearing agency? What would be 

the advantages and disadvantages of 

requiring the CCO to report to the 

board? 

IV. General Request for Comments 

The Commission seeks comment on 

all aspects of the proposed rules with 

respect to clearing agencies. The 

Commission particularly requests 

comment from the point of view of 

investors, entities that are registered as 

clearing agencies, are likely to become 

registered clearing agencies, entities 

operating platforms that currently trade 

or clear security-based swaps, brokerdealers, and financial institutions. 

Title VII requires that the SEC consult 

and coordinate to the extent possible 

with the CFTC for the purposes of 

assuring regulatory consistency and 

comparability, to the extent possible, 

and states that in adopting rules, the 

CFTC and SEC shall treat functionally 

or economically similar products or 

entities in a similar manner. In the 

process of developing the proposed 

rules the Commission staff has 

consulted with the CFTC staff. 

The CFTC is adopting rules related to 

derivatives clearing organizations 

(‘‘DCO’’) in connection with Section 725 


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119See 75 FR 63113 (October 14, 2010) and 75 FR 

77576 (December 13, 2010). 

120 44 U.S.C. 3501 et seq. 

of the Dodd-Frank Act.119

Understanding that the Commission and 

the CFTC regulate different products 

and markets, and as such, appropriately 

may be proposing alternative regulatory 

requirements, we request comments on 

the effect of any differences between the 

Commission and CFTC approaches to 

the regulation of clearing agencies and 

DCOs respectively. Specifically, would 

the regulatory approaches under the 

Commission’s proposed rulemaking 

pursuant to Sections 17A(d), 17A(j) and 

3C(j) under the Exchange Act and the 

CFTC’s proposed rulemaking pursuant 

to Section 725 of the Dodd-Frank Act 

result in duplicative or inconsistent 

requirements for market participants 

subject to both regulatory regimes or 

result in gaps between those regimes? If 

so, in what ways do commenters believe 

that such duplication, inconsistencies, 

or gaps should be minimized? Do 

commenters believe the approaches 

proposed by the Commission and the 

CFTC to govern clearing agencies and 

DCOs are comparable? If not, why? Do 

commenters believe there are 

approaches that would result in more 

comparable treatment? If so, what are 

they and what would be the advantages 

and disadvantages of adopting such 

approaches? Do commenters believe 

that it would be appropriate for the 

Commission to adopt an approach 

proposed by the CFTC that differs from 

our proposal? If so, which one? 

Commenters should, when possible, 

provide the Commission with empirical 

data to support their views. Commenters 

suggesting alternative approaches 

should provide comprehensive 

proposals, including any conditions or 

limitations that they believe should 

apply, the reasons for their suggested 

approaches, and their analysis regarding 

why their suggested approaches would 

satisfy the statutory mandates of the 

Exchange Act with respect to clearing 

agencies. 

V. Paperwork Reduction Act 

Certain provisions of the proposed 

rules would impose new ‘‘collection of 

information’’ requirements within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).120 Accordingly, the 

Commission has submitted the 

information to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with 44 U.S.C. 

3507 and 5 CFR 1320.11. The title of the 

new collection of information is 

Clearing Agency Standards for 

Operation and Governance. An agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a currently valid OMB control 

number. 

A. Summary of Collection of 

Information 

1. Standards for Clearing Agencies 

a. Measurement and Management of 

Credit Exposures 

Proposed Rule 17Ad–22(b)(1) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(b)(1) 

would require a clearing agency that 

provides CCP services to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to measure its 

credit exposures to its participants at 

least once each day, and limit its 

exposures to potential losses from 

defaults by its participants in normal 

market conditions so that the operations 

of the clearing agency would not be 

disrupted and non-defaulting 

participants would not be exposed to 

losses that they cannot anticipate or 

control. 

b. Margin Requirements 

Proposed Rule 17Ad–22(b)(2) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(b)(2) 

would require a clearing agency that 

provides CCP services to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to: (i) Use margin 

requirements to limit its credit 

exposures to participants in normal 

market conditions; (ii) use risk-based 

models and parameters to set margin 

requirements; and (iii) review the 

models and parameters at least monthly. 

c. Financial Resources 

Proposed Rule 17Ad–22(b)(3) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(b)(3) 

would require a clearing agency that 

provides CCP services to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to maintain 

sufficient financial resources to 

withstand, at a minimum, a default by 

the participant to which it has the 

largest exposure in extreme but 

plausible market conditions, and if the 

clearing agency provides CCP services 

for security-based swaps then a default 

by the two participants to which it has 

the largest exposures in extreme but 

plausible market conditions; provided 

that if a participant controls another 

participant or is under common control 

with another participant, then the 

affiliated participants shall be 

collectively deemed to be a single 

participant. 

d. Model Validation 

Proposed Rule 17Ad–22(b)(4) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(b)(4) 

would require a clearing agency that 

provides CCP services to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide for an 

annual model validation consisting of 

evaluating the performance of the 

clearing agency’s margin models and the 

related parameters and assumptions 

associated with such models by a 

qualified person who does not perform 

functions associated with the clearing 

agency’s margin models (except as part 

of the annual model validation) and 

does not report to such a person. 

e. Non-Dealer Access 

Proposed Rule 17Ad–22(b)(5) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(b)(5) 

would require a clearing agency that 

provides CCP services to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide the 

opportunity for a person that does not 

perform any dealer or security-based 

swap dealer services to obtain 

membership at the clearing agency to 

clear securities for itself or on behalf of 

other persons. 

f. Portfolio Size and Transaction 

Volume Thresholds Restrictions 

Proposed Rule 17Ad–22(b)(6) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(b)(6) 

would require a clearing agency that 

provides CCP services to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to have 

membership standards that do not 

require that participants maintain a 

portfolio of any minimum size or that 

participants maintain a minimum 

transaction volume. 

g. Net Capital Restrictions 

Proposed Rule 17Ad–22(b)(7) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(b)(7) 

would require a clearing agency that 

provides CCP services to establish, 


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implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide a person 

that maintains net capital equal to or 

greater than $50 million with the ability 

to obtain membership at the clearing 

agency, with any net capital 

requirements being scalable so that they 

are proportional to the risks posed by 

the participant’s activities to the 

clearing agency. The proposed rule also 

permits a clearing agency to provide for 

a higher net capital requirement (i.e., 

higher than $50 million) as a condition 

for membership at the clearing agency if 

the clearing agency demonstrates to the 

Commission that such a requirement is 

necessary to mitigate risks that could 

not otherwise be effectively managed by 

other measures, such as scalable 

limitations on the transactions that the 

participants may clear through the 

clearing agency, and the Commission 

approves the higher net capital 

requirement as part of a rule filing or 

clearing agency registration application. 

h. Record of Financial Resources 

Proposed Rule 17Ad–22(c)(1) contains 

‘‘collection of information requirements’’ 

within the meaning of the PRA. 

Proposed Rule 17Ad–22(c)(1) would 

require that each fiscal quarter (based on 

calculations made as of the last business 

day of the clearing agency’s fiscal 

quarter), or at any time upon 

Commission request, a clearing agency 

that performs CCP services shall 

calculate and maintain a record of the 

financial resources necessary to meet 

the requirement in proposed Rule 

17Ad–22Ad–22(b)(3) and sufficient 

documentation to explain the 

methodology it uses to compute such 

financial resource requirement. 

i. Annual Audited Financial Report 

Proposed Rule 17Ad–22(c)(2) contains 

‘‘collection of information requirements’’ 

within the meaning of the PRA. 

Proposed rule 17Ad–22(c)(2) would 

require a clearing agency to post on its 

Web site an annual financial report 

which must (i) be a complete set of 

financial statements of the clearing 

agency for the most recent two fiscal 

years and be prepared in accordance 

with U.S. GAAP, except that for a 

clearing agency that is a corporation or 

other organization incorporated or 

organized under the laws of any foreign 

country the financial statements may be 

prepared according to U.S. GAAP or 

IFRS, (ii) be audited in accordance with 

standards of the Public Company 

Accounting Oversight Board by a 

registered public accounting firm that is 

qualified and independent in 

accordance with rule 2–01 of Regulation 

S–X (17 CFR 210.2–01), (iii) include a 

report of the registered public 

accounting firm that complies with 

paragraphs (a) through (d) of Rule 2–02 

of Regulation S–X (17 CFR 210.2–02). 

j. Transparent and Enforceable Rules 

and Procedures 

Proposed Rule 17Ad–22(d)(1) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(1) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to provide for a 

well founded, transparent, and 

enforceable legal framework for each 

aspect of its activities in all relevant 

jurisdictions. 

k. Participation Requirements 

Proposed Rule 17Ad–22(d)(2) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(2) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to require 

participants to have sufficient financial 

resources and robust operational 

capacity to meet obligations arising from 

participation in the clearing agency. 

Clearing agencies would also be 

required to have procedures in place to 

monitor that participation requirements 

are met on an ongoing basis, and to have 

participation requirements that are 

objective, publicly disclosed, and 

permit fair and open access. 

l. Custody of Assets and Investment 

Risk 

Proposed Rule 17Ad–22(d)(3) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(3) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to hold assets in a 

manner that minimizes risk of loss or 

delay in access to them and to invest 

assets in instruments with minimal 

credit, market, and liquidity risks. 

m. Identification and Mitigation of 

Operational Risk 

Proposed Rule 17Ad–22(d)(4) 

contains ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(4) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to: (i) Identify 

sources of operational risk and 

minimize them through the 

development of appropriate systems, 

controls, and procedures; (ii) implement 

systems that are reliable, resilient and 

secure, and have adequate, scalable 

capacity; and (iii) have business 

continuity plans that allow for timely 

recovery of operations and fulfillment of 

a clearing agency’s obligations. 

n. Money Settlement Risks 

Proposed Rule 17Ad–22(d)(5) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(5) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to employ money 

settlement arrangements that eliminate 

or strictly limit the clearing agency’s 

settlement bank risks, that is, its credit 

and liquidity risks from the use of banks 

to effect money settlements with its 

participants, and require funds transfers 

to the clearing agency to be final when 

effected. 

o. Cost-Effectiveness 

Proposed Rule 17Ad–22(d)(6) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(6) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to be cost-effective 

in meeting the requirements of 

participants while maintaining safe and 

secure operations. 

p. Links 

Proposed Rule 17Ad–22(d)(7) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(7) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to evaluate the 

potential sources of risks that can arise 

when the clearing agency establishes 

links either cross-border or domestically 

to clear trades and ensure that the risks 

are managed prudently on an ongoing 

basis. 

q. Governance 

Proposed Rule 17Ad–22(d)(8) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(8) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to have governance 

arrangements that are clear and 

transparent to fulfill the public interest 

requirements in Section 17A of the 

Exchange Act applicable to clearing 


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121See generally note 6 (providing citations to the 

CDS Clearing Exemption Orders). 

122See supra note 91 (explaining that in the 

specific context of the margin practices of securitybased swap clearing agencies, the term ‘‘mark-tomarket’’ implies the variation margin practices used 

by the clearing agency to account for ongoing 

fluctuations in the market value of its participants’ 

security-based swap positions). 

agencies, to support the objectives of 

owners and participants, and to promote 

the effectiveness of the clearing agency’s 

risk management procedures. 

r. Information on Services 

Proposed Rule 17Ad–22(d)(9) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(9) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to provide market 

participants with sufficient information 

for them to identify and evaluate the 

risks and costs associated with using 

their services. 

s. Immobilization and Dematerialization 

of Stock Certificates 

Proposed Rule 17Ad–22(d)(10) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(10) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to immobilize or 

dematerialize securities certificates and 

transfer them by book entry to the 

greatest extent possible if the clearing 

agency performs central securities 

depository services. 

t. Default Procedures 

Proposed Rule 17Ad–22(d)(11) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(11) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to make key 

aspects of the clearing agency’s default 

procedures publicly available and to 

establish default procedures that ensure 

that the clearing agency can take timely 

action to contain losses and liquidity 

pressures and to continue meeting its 

obligations in the event of a participant 

default. 

u. Timing of Settlement Finality 

Proposed Rule 17Ad–22(d)(12) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(12) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to ensure that final 

settlement occurs no later than the end 

of the settlement day and that intraday 

or real-time finality is provided where 

necessary to reduce risks. 

v. Delivery Versus Payment 

Proposed Rule 17Ad–22(d)(13) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(13) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to eliminate 

principal risk linking securities transfers 

to funds transfers in a way that achieves 

DVP. 

w. Risk Controls To Address 

Participants’ Failure To Settle 

Proposed Rule 17Ad–22(d)(14) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(14) 

would require clearing agencies that 

perform central securities depository 

services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

institute risk controls when the clearing 

agency extends intraday credit to 

participants, including collateral 

requirements and limits to cover the 

clearing agency’s credit exposure to 

each participant fully, and that ensure 

timely settlement in the event that the 

participant with the largest payment 

obligation is unable to settle. If a 

participant controls another participant 

or is under common control with 

another participant, then the affiliated 

participants shall be collectively 

deemed to be a single participant. 

x. Physical Delivery Risks 

Proposed Rule 17Ad–22(d)(15) would 

contain ‘‘collection of information 

requirements’’ within the meaning of the 

PRA. Proposed Rule 17Ad–22(d)(15) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to state to its 

participants the clearing agency’s 

obligations with respect to physical 

deliveries. Clearing agencies would also 

be required to identify and manage the 

risks that arise in connection with these 

obligations. 

2. Dissemination of Pricing and 

Valuation Information by SecurityBased Swap Clearing Agencies That 

Perform Central Counterparty Services 

Proposed Rule 17Aj–1 contains 

‘‘collection of information requirements’’ 

within the meaning of the PRA. 

Proposed Rule 17Aj–1 is designed to 

preserve the information dissemination 

requirement from the CDS Clearing 

Exemption Orders.121 The proposed rule 

would require every security-based 

swap clearing agency that performs CCP 

services to make available to the public 

all end-of-day settlement prices and any 

other prices with respect to securitybased swaps that it may use to calculate 

mark-to-market 122 margin requirements 

for its participants. Proposed Rule 17Aj– 

1 also would require every securitybased swap clearing agency that 

performs CCP services to make available 

to the public any other pricing or 

valuation information with respect to 

security-based swaps that it otherwise 

publishes or makes available to its 

participants. Proposed Rule 17Aj–1 

would not require that this information 

be made available to the public free of 

charge. Instead, it would require that the 

information be provided to the public 

on terms that are fair, reasonable and 

not unreasonably discriminatory. 

3. Clearing Agency Policies and 

Procedures To Protect the 

Confidentiality of Trading Information 

of Clearing Agency Participants 

Proposed Rule 17Ad–23 contains 

‘‘collection of information requirements’’ 

within the meaning of the PRA. 

Proposed Rule 17Ad–23 would require 

each registered clearing agency to 

establish, implement, maintain and 

enforce written policies and procedures 

designed to protect the confidentiality 

of any and all transaction information 

that the clearing agency receives. Such 

transaction information may include, 

but is not limited to, trade data, position 

data, and any non-public personal 

information about a clearing agency 

member or participant or any of its 

members’ or participants’ customers. 

The proposed rule also provides that the 

required policies and procedures shall 

include, but are not limited to, (a) 

limiting access to confidential trading 

information of clearing members to 

those employees of the clearing agency 

who are operating the system or 

responsible for its compliance with any 

other applicable laws or rules and (b) 

standards controlling employees and 

agents of the clearing agency trading for 

their personal benefit or the benefit of 

others. 


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4. Exemption From Clearing Agency 

Definition for Certain Registered 

Securities-Based Swap Dealers and 

Registered Security-Based Swap 

Execution Facilities 

Proposed Rule 17Ad–24 provides that 

a registered security-based swap dealer 

would not be considered a clearing 

agency solely by reason of functions 

performed by such institution as part of 

customary dealing activities, or solely 

because it acts on behalf of a clearing 

agency or a participant in connection 

with services performed by the clearing 

agency. In addition, proposed Rule 

17Ad–24 provides that a registered 

security-based swap execution facility 

would not be considered a clearing 

agency solely because it provides 

facilities for comparison of data relating 

to the terms of settlement of securities 

transactions. Accordingly, the rule does 

not impose recordkeeping or 

information collection requirements, or 

other collections of information that 

require approval of the OMB under 44 

U.S.C. 3501, et seq. Thus, it would not 

be a ‘‘collection of information’’ within 

the meaning of the PRA. 

5. Registration of Clearing Agencies 

The proposed amendment to Rule 

17Ab2–1 would mainly clarify that 

when granting a temporary registration 

the Commission may do so for ‘‘a 

specific period of time and may exempt, 

other than for purposes of Section 

17A(g) of the Act, the registrant from 

one or more of the requirements * * *’’. 

Accordingly, the proposed rule does not 

impose recordkeeping or information 

collection requirements, or other 

collections of information that require 

approval of the OMB under 44 U.S.C. 

3501, et seq. Thus, it would not be a 

‘‘collection of information’’ within the 

meaning of the PRA. 

6. Clearing Agency Procedures To 

Identify and Address Conflicts of 

Interest 

Proposed Rule 17Ad–25 contains 

‘‘collection of information requirements’’ 

within the meaning of the PRA. 

Proposed Rule 17Ad–25 would require 

each clearing agency to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify and 

address existing or potential conflicts of 

interest, as well as that address methods 

of minimizing conflicts of interest in 

decision-making at the clearing agency. 

7. Standards for Board or Board 

Committee Directors 

Proposed Rule 17Ad–26 contains 

‘‘collection of information requirements’’ 

within the meaning of the PRA. 

Proposed Rule 17Ad–26 outlines the 

proposed standards that would a 

registered clearing agency would be 

required to establish for its board 

members and board committee 

members. These standards include at 

least the following areas: (i) A clear 

articulation of the roles and 

responsibilities of directors serving on 

the clearing agency’s board and any 

board committees; (ii) director 

qualifications providing criteria for 

expertise in the securities industry, 

clearance and settlement of securities 

transactions, and financial risk 

management; (iii) disqualifying factors 

concerning serious legal misconduct, 

including violations of the Federal 

securities laws; and (iv) policies and 

procedures for the periodic review by 

the board or a board committee of the 

performance of its individual members. 

8. Designation of Chief Compliance 

Officer 

Proposed Rule 3Cj–1 contains 

‘‘collection of information requirements’’ 

within the meaning of the PRA. 

Proposed Rule 3Cj–1 would require 

each registered clearing agency to 

designate a CCO. Under proposed Rule 

3Cj–1(b), the CCO would be responsible 

for, among other matters, establishing 

policies and procedures for the 

remediation of non-compliance issues 

identified by the CCO and establishing 

and following appropriate procedures 

for the prompt handling of management 

response, remediation, retesting, and 

closing of compliance issues. 

Under Proposed Rule 3Cj–1(c), the 

CCO would also be responsible for 

preparing and signing an annual 

compliance report that contains a 

description of (i) the compliance of the 

clearing agency with respect to the 

Federal securities laws and the rules 

and regulations thereunder, and (ii) 

each policy and procedure of the 

clearing agency of the compliance 

officer (including the code of ethics and 

conflict of interest policies of the 

registered clearing agency). This 

compliance report must accompany 

each appropriate financial report of the 

clearing agency that is required to be 

furnished to the Commission pursuant 

to the Exchange Act and the rules 

thereunder and include a certification 

that, under penalty of law, the 

compliance report is accurate and 

complete. 

Additionally, the compliance report 

would be required to: (i) Be submitted 

to the board of directors and audit 

committee (or equivalent bodies) of the 

clearing agency promptly after the date 

of execution of the required certification 

and prior to filing of the report with the 

Commission, (ii) be filed with the 

Commission in a tagged data format in 

accordance with the instructions 

contained in the EDGAR Filer Manual 

as described in Rule 301 of Regulation 

S–T, and (iii) be filed with the 

Commission within 60 days after the 

end of the fiscal year covered by such 

report. 

B. Proposed Use of Information 

1. Standards for Clearing Agencies 

a. Measurement and Management of 

Credit Exposures 

As discussed above, proposed Rule 

17Ad–22(b)(1) would require a clearing 

agency that provides CCP services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to measure its 

credit exposures to its participants at 

least once each day, and limit its 

exposures to potential losses from 

defaults by its participants in normal 

market conditions so that the operations 

of the clearing agency would not be 

disrupted and non-defaulting 

participants would not be exposed to 

losses that they cannot anticipate or 

control. The purpose of the collection of 

information is to enable the clearing 

agency to monitor and limit its 

exposures to its participants. 

b. Margin Requirements 

As discussed above, proposed Rule 

17Ad–22(b)(2) would require a clearing 

agency that provides CCP services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to: (i) Use margin 

requirements to limit its credit 

exposures to participants in normal 

market conditions; (ii) use risk-based 

models and parameters to set margin 

requirements; and (iii) review the 

models and parameters at least monthly. 

The purpose of the collection of 

information is to enable the clearing 

agency to maintain sufficient collateral 

or margin. 

c. Financial Resources 

As discussed above, proposed Rule 

17Ad–22(b)(3) would require a clearing 

agency that provides CCP services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to maintain 

sufficient financial resources to 

withstand, at a minimum, a default by 

the participant to which it has the 

largest exposure in extreme but 

plausible market conditions, and if the 

clearing agency provides CCP services 

for security-based swaps then a default 

by the two participants to which it has 

the largest exposures in extreme but 


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plausible market conditions; provided 

that if a participant controls another 

participant or is under common control 

with another participant, the affiliated 

participant and the participant shall be 

deemed to be a single participant. The 

purpose of the collection of information 

is to enable the clearing agency to 

satisfy all of its settlement obligations in 

the event of a participant default. 

d. Model Validation 

As discussed above, proposed Rule 

17Ad–22(b)(4) would require a clearing 

agency that provides CCP services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to provide for an 

annual model validation. The purpose 

of the collection of information is to 

enable the clearing agency to obtain an 

assessment of its margin model by a 

qualified, independent person. 

e. Non-Dealer Access 

As discussed above, proposed Rule 

17Ad–22(b)(5) would require a clearing 

agency that provides CCP services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to provide the 

opportunity for a person that does not 

perform any dealer or security-based 

swap dealer services to obtain 

membership at the clearing agency to 

clear securities for itself or on behalf of 

other persons. The purpose of the 

collection of information is to enable 

more market participants to obtain 

indirect access to clearing agencies. 

f. Portfolio Size and Transaction 

Volume Restrictions 

As discussed above, proposed Rule 

17Ad–22(b)(6) would require a clearing 

agency that provides CCP services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to have 

membership standards that do not 

require that participants maintain a 

portfolio of any minimum size or that 

participants maintain a minimum 

transaction volume. The purpose of the 

collection of information is to remove 

unnecessary barriers to participation in 

clearing agencies that provide CCP 

services. 

g. Net Capital Restrictions 

As discussed above, proposed Rule 

17Ad–22(b)(7) would require a clearing 

agency that provides CCP services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to provide a person 

that maintains net capital equal to or 

greater than $50 million with the ability 

to obtain membership at the clearing 

agency, with any net capital 

requirements being scalable so that they 

are proportional to the risks posed by 

the participant’s activities to the 

clearing agency. The rule also permits a 

clearing agency to provide for a higher 

net capital requirement (i.e., higher than 

$50 million) as a condition for 

membership at the clearing agency if the 

clearing agency demonstrates to the 

Commission that such a requirement is 

necessary to mitigate risks that could 

not otherwise be effectively managed by 

other measures, such as scalable 

limitations on the transactions that the 

participants may clear through the 

clearing agency, and the Commission 

approves the higher net capital 

requirement as part of a rule filing or 

clearing agency registration application. 

The purpose of the collection of 

information is to remove unnecessary 

barriers to clearing access by market 

participants with a net capital level 

above $50 million, while at the same 

time facilitating sound risk management 

practices by clearing agencies by 

encouraging them to examine and 

articulate the benefits that higher net 

capital requirements would create 

through having clearing agencies 

develop scalable membership standards 

that links the activities any participants 

could potentially engage in with the 

potential risks posed by the participant. 

h. Record of Financial Resources 

As discussed above, proposed Rule 

17Ad–22(c)(1) would require that each 

fiscal quarter (based on calculations 

made as of the last business day of the 

clearing agency’s fiscal quarter), or at 

any time upon Commission request, a 

clearing agency that performs CCP 

services shall calculate and maintain a 

record of the financial resources 

necessary to meet the requirement in 

proposed Rule 17Ad–22c)(3) and 

sufficient documentation to explain the 

methodology it uses to compute such 

financial resource requirement. The 

purpose of the collection of information 

is to enable the Commission to monitor 

the financial resources of clearing 

agencies that provide CCP services. 

i. Annual Audited Financial Report 

As discussed above, proposed Rule 

17Ad–22(c)(2) would require a clearing 

agency that provides CCP services to 

post on its Web site an annual audited 

financial report that must (i) be a 

complete set of financial statements of 

the clearing agency for the most recent 

two fiscal years and be prepared in 

accordance with U.S. GAAP, except that 

for a clearing agency that is a 

corporation or other organization 

incorporated or organized under the 

laws of any foreign country the financial 

statements may be prepared according 

to U.S. GAAP or IFRS; (ii) be audited in 

accordance with standards of the Public 

Company Accounting Oversight Board 

by a registered public accounting firm 

that is qualified and independent in 

accordance with rule 2–01 of Regulation 

S–X (17 CFR 210.2–01); and (iii) include 

a report of the registered public 

accounting firm that complies with 

paragraphs (a) through (d) of Rule 2–02 

of Regulation S–X (17 CFR 210.2–02). 

The purpose of the collection of 

information is to enable the Commission 

to monitor the financial resources of 

clearing agencies that provide CCP 

services. 

j. Transparent and Enforceable Rules 

and Procedures 

As discussed above, proposed Rule 

17Ad–22(d)(1) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide for a well founded, transparent, 

and enforceable legal framework for 

each aspect of their activities in all 

relevant jurisdictions. The purpose of 

the collection of information is to help 

ensure that clearing agencies’ policies 

and procedures do not cause confusion 

or legal uncertainty among their 

participants because they are unclear, 

incomplete or conflict with other 

applicable laws or judicial precedent. 

k. Participation Requirements 

As discussed above, proposed Rule 

17Ad–22(d)(2) has three principle 

requirements related to establishing, 

implementing, maintaining and 

enforcing written policies and 

procedures for participation 

requirements. First, it would require 

clearing agencies to require participants 

to have sufficient financial resources 

and robust operational capacity to meet 

their obligations. The purpose of the 

collection of information is to enable 

clearing agencies to ensure that only 

persons with sufficient financial and 

operational capacity are direct 

participants. Second, clearing agencies 

would be required to have procedures in 

place to monitor that participation 

requirements are met on an ongoing 

basis. The purpose of the collection of 

information is to help clearing agencies 

identify a participant experiencing 

financial difficulties before the 

participant fails to meet its settlement 

obligations. Third, a clearing agency’s 

participation requirements would have 

to be objective, publicly disclosed, and 

permit fair and open access. The 

purpose of the collection of information 

is to ensure that all qualified persons 


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14506 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

can access a clearing agency’s services 

on an equivalent basis. 

l. Custody of Assets and Investment 

Risk 

As discussed above, proposed Rule 

17Ad–22(d)(3) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

hold assets in a manner that minimizes 

risk of loss or delay in access to them, 

and to invest assets in instruments with 

minimal credit, market, and liquidity 

risks. The purpose of the collection of 

information is to enable clearing 

agencies to access their financial 

resources quickly so that they settle 

securities transactions on time and at 

the agreed upon terms. 

m. Identification and Mitigation of 

Operational Risk 

As discussed above, proposed Rule 

17Ad–22(d)(4): Would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to: 

(i) Identify sources of operational risk 

and minimize them through the 

development of appropriate systems, 

controls, and procedures; (ii) implement 

systems that are reliable, resilient and 

secure, and have adequate, scalable 

capacity; and (iii) have business 

continuity plans that allow for timely 

recovery of operations and fulfillment of 

a clearing agency’s obligations. The 

purpose of the collection of information 

is to ensure that clearing agencies can 

maintain operations in the event of an 

operational problem, natural disaster or 

other similar event. 

n. Money Settlement Risks 

As discussed above, proposed Rule 

17Ad–22(d)(5) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

employ money settlement arrangements 

that eliminate or strictly limit the 

clearing agency’s settlement bank risks, 

that is, its credit and liquidity risks from 

the use of banks to effect money 

settlements with its participants, and 

require funds transfers to the clearing 

agency to be final when effected. The 

purpose of the collection of information 

is to promote reliability in a clearing 

agency’s settlement operations. 

o. Cost-Effectiveness 

As discussed above, proposed Rule 

17Ad–22(d)(6) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

be cost-effective in meeting the 

requirements of participants while 

maintaining safe and secure operations. 

The purpose of the collection of 

information is to help ensure that the 

services of clearing agencies do not 

become too expensive. 

p. Links 

As discussed above, proposed Rule 

17Ad–22(d)(7) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

evaluate the potential sources of risks 

that can arise when the clearing agency 

establishes links either cross-border or 

domestically to clear trades, and ensure 

that the risks are managed prudently on 

an ongoing basis. The purpose of the 

collection of information is to help 

ensure that clearing agencies adequately 

assess the risks associated with 

establishing a link with another clearing 

organization. 

q. Governance 

As discussed above, proposed Rule 

17Ad–22(d)(8) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

have governance arrangements that are 

clear and transparent to fulfill the 

public interest requirements in Section 

17A of the Exchange Act applicable to 

clearing agencies; to support the 

objectives of owners and participants; 

and to promote the effectiveness of the 

clearing agency’s risk management 

procedures. The purpose of the 

collection of information is to promote 

boards of directors that exercise 

sufficient oversight of the clearing 

agency’s management and appropriately 

represent the interests of relevant 

stakeholders. 

r. Information on Services 

As discussed above, proposed Rule 

17Ad–22(d)(9) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide market participants with 

sufficient information for them to 

identify and evaluate the risks and costs 

associated with using their services. The 

purpose of the collection of information 

is to help market participants identify 

the risks and costs associated with using 

the clearing agency and would allow 

market participants to make informed 

decisions about the use of the clearing 

agency and take appropriate actions to 

mitigate their risks and costs associated 

with the use of the clearing agency. 

s. Immobilization and Dematerialization 

of Stock Certificates 

As discussed above, proposed Rule 

17Ad–22(d)(10) would require clearing 

agencies that perform central securities 

depository services to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to immobilize or 

dematerialize securities certificates and 

transfer them by book entry to the 

greatest extent possible. The purpose of 

the collection of information is to enable 

clearing agencies to promote greater 

efficiency in the settlement of securities 

transactions and reduce risk by 

transferring securities by book entry 

movements. 

t. Default Procedures 

As discussed above, proposed Rule 

17Ad–22(d)(11) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

make key aspects of their default 

procedures publicly available and to 

establish default procedures that ensure 

that the clearing agency can take timely 

action to contain losses and liquidity 

pressures and to continue meeting its 

obligations in the event of a participant 

default. The purpose of the collection of 

information is to foster a greater 

understanding by market participants of 

possible steps a clearing agency may 

take when a participant defaults and 

possibly reduce the likelihood of market 

participants taking actions based on 

incorrect information. 

u. Timing of Settlement Finality 

As discussed above, proposed Rule 

17Ad–22(d)(12) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

ensure that final settlement occurs no 

later than the end of the settlement day 

and require that intraday or real-time 

finality be provided where necessary to 

reduce risks. The purpose of the 

proposed rule is to promote consistent 

standards of timing and reliability in the 

settlement process. 

v. Delivery Versus Payment 

As discussed above, proposed Rule 

17Ad–22(d)(13) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

eliminate principal risk by linking 

securities transfers to funds transfers in 

a way that achieves delivery versus 

payment. The purpose of the proposed 

rule is to eliminate principal risk in the 

transfer of securities and funds. 


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123See supra note 6. 

124The Commission preliminarily believes that 

there is a potential for new security-based swap 

clearing agencies to form but does not expect there 

to be a large number based on the significant level 

of capital and other financial resources needed for 

the formation of a clearing agency. 

125There are four clearing agencies with active 

operations currently registered with the 

Commission, plus seven registered clearing 

agencies that are inactive. Although the inactive 

entities may not be acting as clearing agencies, for 

purposes of the PRA the Commission is estimating 

11 total clearing agencies. 

126This figure was calculated as follows: 6 

clearing agencies providing CCP services for 

security-based swaps + 3 registered clearing 

agencies providing CCP services = 9 respondent 

clearing agencies. 

w. Risk Controls To Address 

Participant’s Failure To Settle 

As discussed above, proposed Rule 

17Ad–22(d)(14) would require clearing 

agencies that perform central securities 

depository services and extend intraday 

credit to participants to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to institute risk 

controls, including collateral 

requirements and limits to cover the 

clearing agency’s credit exposure to 

each participant fully, and ensure 

timely settlement in the event that the 

participant with the largest payment 

obligation is unable to settle. The 

purpose of the collection of information 

is to enable clearing agencies to satisfy 

their settlement obligations on time and 

for the agreed upon terms. 

x. Identification and Management of 

Physical Delivery Risks 

As discussed above, proposed Rule 

17Ad–22(d)(15) would require clearing 

agencies to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

state to their participants the clearing 

agency’s obligations with respect to 

physical deliveries and to identify and 

manage the risks that arise in 

connection with these obligations. The 

purpose of the collection of information 

is to provide the clearing agency’s 

participants with sufficient information 

to evaluate the risks and costs 

associated with participation in the 

clearing agency. 

2. Dissemination of Pricing and 

Valuation Information by SecurityBased Swap Clearing Agencies That 

Perform Central Counterparty Services 

As discussed above, proposed Rule 

17Aj–1 would require security-based 

swap clearing agencies that perform 

CCP services to make available to the 

public all end-of-day settlement prices 

and any other prices with respect to 

security-based swaps that it may use to 

calculate mark-to-market margin 

requirements for its participants and 

any other pricing or valuation 

information with respect to securitybased swaps that it otherwise publishes 

or makes available to its participants. 

The purpose of the collection of 

information is to help improve fairness, 

efficiency and market competition by 

providing market participants and, more 

generally, the public with a source of 

pricing data on security-based swaps 

that may otherwise be difficult to 

obtain. 

3. Clearing Agency Policies and 

Procedures To Protect the 

Confidentiality of Trading Information 

of Clearing Agency Participants 

As discussed above, proposed Rule 

17Ad–23 would require each registered 

clearing agency to establish, implement, 

maintain and enforce written policies 

and procedures designed to protect the 

confidentiality of any and all 

transaction information that the clearing 

agency receives. Such transaction 

information may include, but is not 

limited to, trade data, position data, and 

any non-public personal information 

about a clearing agency member or 

participant or any of its members or 

participant’s customers. The proposed 

rule also provides that the required 

policies and procedures shall include, 

but are not limited to: (a) Limiting 

access to confidential trading 

information of clearing members to 

those employees of the clearing agency 

who are operating the system or 

responsible for its compliance with any 

other applicable laws or rules and (b) 

standards controlling employees and 

agents of the clearing agency trading for 

their personal benefit or the benefit of 

others. The purpose of the collection of 

information is to foster confidence in 

clearing agencies by market 

participants. 

4. Clearing Agency Procedures To 

Identify and Address Conflicts of 

Interest 

As discussed above, proposed Rule 

17Ad–25 would require each registered 

clearing agency to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

identify and address existing or 

potential conflicts of interest and that 

are reasonably designed to minimize 

conflicts of interest in decision-making 

at the clearing agency. The purpose of 

the collection of information is to enable 

the Commission to examine and 

evaluate a clearing agency’s efforts to 

minimize conflicts and help to ensure 

the transparent, equitable operation of 

the clearing agency. 

5. Standards for Board or Board 

Committee Directors 

As discussed above, proposed Rule 

17Ad–26 would require that a registered 

clearing agency establish certain 

governance standards applicable to its 

board or board committee members. The 

proposed collection of information is to 

help improve the effectiveness of a 

clearing agency’s board of directors. 

6. Designation of Chief Compliance 

Officer 

As discussed above, proposed Rule 

3Cj–1 would require each registered 

clearing agency to designate a CCO who 

would establish and oversee the 

implementation of certain policies and 

procedures relating to non-compliance 

issues, as well as prepare, sign and 

submit an annual compliance report. 

The proposed collection of information 

should promote better compliance by 

clearing agencies with all applicable 

laws, regulations and policies. 

C. Respondents 

1. Standards in Proposed Rule 17Ad– 

22(b) That Impose a PRA Burden 

The standards in proposed Rule 

17Ad–22(b) that the Commission 

preliminarily believes impose a PRA 

burden are 17Ad–22(b)(1), (2), (3), (4), 

(5), (6) and (7). The requirements in 

proposed Rules 17Ad–22(b)(1), (2), (3), 

(4), (5), (6) and (7) would apply to all 

clearing agencies that perform central 

counterparty services. There are 

currently four clearing agencies 

authorized to provide CCP services for 

security-based swap transactions 

pursuant to the CDS Clearing Exemption 

Orders.123 The Commission estimates, 

based on staff discussions with industry 

representatives, that there could 

conceivably be one or two more entities 

that clear security-based swaps in the 

future. Thus, the Commission estimates 

that four to six clearing agencies may 

seek to clear security-based swaps.124

The Commission is using the higher 

estimate of six security-based swap 

clearing agencies for this PRA analysis. 

There are also eleven additional clearing 

agencies currently registered with the 

Commission,125 of which only three are 

currently performing central 

counterparty services. Thus, for these 

provisions, the Commission estimates 

that there would be nine 

respondents.126


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127See supra note 6. 

128See supra note 124 and accompanying text. 

129See supra note 125. 

130See supra note 126. 

131See supra note 6. 

132See supra note 124 and accompanying text. 

133See supra note 125. 

134This figure was calculated as follows: 6 

clearing agencies providing CCP services for 

security-based swaps + 11 additional registered 

clearing agencies = 17 respondent clearing agencies. 

135See supra note 6. 

136See supra note 124. 

137See supra note 125. 

138See supra note 134. 

139See supra note 6. 

140See supra note 124 and accompanying text. 

141See supra note 6. 

142See supra note 124 and accompanying text. 

143See supra note 125. 

144See supra note 134. 

145See supra note 6. 

146See supra note 124 and accompanying text. 

147See supra note 125. 

148See supra note 134. 

2. Standards in Proposed Rule 17Ad– 

22(c) That Impose a PRA Burden 

The standards in proposed Rule 

17Ad–22(c) that the Commission 

preliminarily believes impose a PRA 

burden are 17Ad–22(c)(1) and (2). The 

requirements of proposed Rule 17Ad– 

22(c)(1) would apply to all clearing 

agencies that perform CCP services. As 

noted above, there are currently four 

clearing agencies authorized to provide 

CCP services for security-based swap 

transactions pursuant to the CDS 

Clearing Exemption Orders,127 and there 

could conceivably be one or two more 

entities that clear security-based swaps 

in the future. Thus, the Commission 

estimates that four to six clearing 

agencies may seek to clear securitybased swaps.128 The Commission is 

using the higher estimate of six 

respondent clearing agencies for this 

PRA analysis. There are also eleven 

additional clearing agencies currently 

registered with the Commission,129 of 

which only three are currently 

performing central counterparty 

services. Thus, for proposed Rule 17Ad– 

22(c)(1), the Commission estimates that 

there would be nine respondents.130

The requirements of proposed Rule 

17Ad–22(c)(2) would apply to all 

clearing agencies. Therefore, the 

Commission preliminarily believes that 

these PRA burdens would be imposed 

on all clearing agencies registered with 

the Commission. As noted above, there 

are currently four clearing agencies 

authorized to clear security-based swaps 

pursuant to the CDS Clearing Exemption 

Orders.131 The Commission estimates, 

based on staff discussions with industry 

representatives, that there could 

conceivably be one or two more entities 

that clear security-based swaps in the 

future. Thus, the Commission estimates 

that four to six clearing agencies may 

seek to clear security-based swaps.132

The Commission is using the higher 

estimate of six for the PRA analysis. 

There are also eleven additional clearing 

agencies currently registered with the 

Commission.133 Thus, for proposed Rule 

17Ad–22(c)(2), the Commission 

estimates that there would be seventeen 

respondents.134

3. Standards in Proposed Rule 17Ad– 

22(d) That Impose a PRA Burden 

In proposed Rule 17Ad–22(d), the 

requirements that the Commission 

preliminarily believes impose a PRA 

burden are 17Ad–22(d)(1), (2), (3), (4), 

(5), (6), (7), (8), (9), (10), (11), (12), (13), 

(14) and (15). The Commission 

preliminarily believes that these PRA 

burdens would be imposed on all 

clearing agencies registered with the 

Commission. As noted above, there are 

currently four clearing agencies 

authorized to clear security-based swaps 

pursuant to the CDS Clearing Exemption 

Orders.135 The Commission estimates 

based on staff discussions with industry 

representatives, that there could 

conceivably be one or two more entities 

that clear security-based swaps in the 

future. Thus, the Commission estimates 

that four to six clearing agencies may 

seek to clear security-based swaps.136

The Commission is using the higher 

estimate of six for the PRA analysis. 

There are also eleven additional clearing 

agencies currently registered with the 

Commission.137 Thus, for these 

provisions, the Commission estimates 

that there would be seventeen 

respondents.138

4. Dissemination of Pricing and 

Valuation Information by SecurityBased Swap Clearing Agencies That 

Perform Central Counterparty Services 

The requirements of proposed Rule 

17Aj–1 to disseminate pricing and 

valuation information with respect to 

security-based swaps would apply to 

every security-based swap clearing 

agency that performs CCP services. As 

noted above, there are currently four 

entities providing CCP services for 

security-based swaps that are authorized 

to do so pursuant to the CDS Clearing 

Exemption Orders,139 and there could 

conceivably be one or two more entities 

that clear security-based swaps in the 

future. Thus, the Commission estimates 

that four to six clearing agencies that 

provide CCP services may seek to clear 

security-based swaps.140 The 

Commission is using the higher estimate 

of six respondent clearing agencies for 

this PRA analysis. 

5. Clearing Agency Policies and 

Procedures To Protect the 

Confidentiality of Trading Information 

of Clearing Agency Participants 

The safeguards and procedures 

applicable to the confidential treatment 

of trading information received by a 

clearing agency under proposed Rule 

17Ad–23 would apply to all clearing 

agencies registered with the 

Commission. As noted above, there are 

currently four clearing agencies 

authorized to clear security-based swaps 

pursuant to the CDS Clearing Exemption 

Orders,141 and there could conceivably 

be one or two more entities that clear 

security-based swaps in the future. 

Thus, the Commission estimates that 

four to six clearing agencies may seek to 

clear security-based swaps.142 The 

Commission is using the higher estimate 

of six respondent clearing agencies for 

this PRA analysis. There are also eleven 

additional clearing agencies currently 

registered with the Commission.143

Thus, for this provision, the 

Commission estimates that there would 

be seventeen respondents.144

6. Clearing Agency Procedures To 

Identify and Address Conflicts of 

Interest 

The conflicts of interest policies and 

procedures to be adopted by clearing 

agencies pursuant to proposed Rule 

17Ad–25 would apply to all clearing 

agencies registered with the 

Commission. As noted above, there are 

currently four clearing agencies 

authorized to clear security-based swaps 

pursuant to the CDS Clearing Exemption 

Orders,145 and that there could 

conceivably be one or two more entities 

that clear security-based swaps in the 

future. Thus, the Commission estimates 

that four to six clearing agencies may 

seek to clear security-based swaps.146

The Commission is using the higher 

estimate of six respondent clearing 

agencies for this PRA analysis. There are 

also eleven additional clearing agencies 

currently registered with the 

Commission.147 Thus, for this provision, 

the Commission estimates that there 

would be seventeen respondents.148

7. Standards for Board or Board 

Committee Directors 

The board and board committee 

directors governance standards to be 


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149See supra note 6. 

150See supra note 124 and accompanying text. 

151See supra note 125. 

152See supra note 134. 

153See supra note 6. 

154See supra note 124 and accompanying text. 

155See supra note 125. 

156See supra note 134. 

157See Exchange Act Release Nos. 51808 (June 9, 

2005), 70 FR 37496 (June 29, 2005) (discussing in 

Section VIII.A.4. the time needed from legal, 

compliance, information technology and business 

operations personnel to create policies and 

procedures for preventing and monitoring tradethroughs) and 63347 (November 19, 2010), 75 FR 

77306 (December 10, 2010) (discussing in Section 

V.D.7. the time needed for SDRs to establish and 

enforce written policies and procedures reasonably 

designed to minimize conflicts of interest). 

158See 17 CFR 242.611. 

159See infra note 291. 

160This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 9 respondent 

clearing agencies = 1,890 hours. See Exchange Act 

Release Nos. 51808 (June 9, 2005), 70 FR 37496 

(June 29, 2005) (Section VIII.A.4. finding a burden 

of 210 hours needed for non-SRO trading centers to 

create one policy and procedure) and 63347 

(November 19, 2010), 75 FR 77306 (December 10, 

2010) (Section V.D.7. finding a burden of 210 hours 

needed for an SDR to create one policy and 

procedure). 

Continued 

established by clearing agencies 

pursuant to proposed Rule 17Ad–26 

would apply to all clearing agencies 

registered with the Commission. As 

noted above, there are currently four 

clearing agencies authorized to clear 

security-based swaps pursuant to the 

CDS Clearing Exemption Orders,149 and 

there could conceivably be one or two 

more entities that clear security-based 

swaps in the future. Thus, the 

Commission estimates that four to six 

clearing agencies may seek to clear 

security-based swaps.150 The 

Commission is using the higher estimate 

of six respondent clearing agencies for 

this PRA analysis. There are also eleven 

additional clearing agencies currently 

registered with the Commission.151

Thus, for this provision, the 

Commission estimates that there would 

be seventeen respondents.152

8. Designation of Chief Compliance 

Officer 

The provisions regarding CCOs of 

proposed Rule 3Cj–1 would apply to all 

clearing agencies registered with the 

Commission. As noted above, there are 

currently four clearing agencies 

authorized to clear security-based swaps 

pursuant to the CDS Clearing Exemption 

Orders,153 and there could conceivably 

be one or two more entities that clear 

security-based swaps in the future. 

Thus, the Commission estimates that 

four to six clearing agencies may seek to 

clear security-based swaps.154 The 

Commission is using the higher estimate 

of six respondent clearing agencies for 

this PRA analysis. There are also eleven 

additional clearing agencies currently 

registered with the Commission.155

Thus, for this provision, the 

Commission estimates that there would 

be seventeen respondents.156

D. Total Annual Reporting and 

Recordkeeping Burden 

1. Standards for Clearing Agencies 

Reporting Requirements 

a. Measurement and Management of 

Credit Exposures 

Proposed Rule 17Ad–22(b)(1) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

measure its credit exposures to its 

participants at least once a day and limit 

its exposures to potential losses from 

defaults by its participants in normal 

market conditions so that the operations 

of the clearing agency would not be 

disrupted and non-defaulting 

participants would not be exposed to 

losses that they cannot anticipate or 

control. The exact nature of any rules 

and procedures a clearing agency would 

likely establish to support this 

requirement is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories 

(‘‘SDRs’’).157 Specifically, Rule 611 of 

Regulation NMS, referred to as the 

‘‘Order Protection Rule’’, requires 

trading centers to establish, maintain, 

and enforce written policies and 

procedures that are reasonably designed 

to prevent trade-throughs on that 

trading center of protected quotations in 

NMS stocks, unless an exception 

applies.158 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes the 

requirement for policies and procedures 

to be created and maintained by SRO 

and non-SRO trading centers in Rule 

611 of Regulation NMS is similar in 

nature and scope to this requirement for 

clearing agencies to create policies and 

procedures. 

Accordingly, the Commission believes 

that the burdens imposed on 

respondents to create policies and 

procedures in both contexts would be 

roughly equivalent. In its adoption of 

the final Order Protection Rule, the 

Commission estimated the approximate 

hourly burdens imposed on trading 

centers that are SROs and on trading 

centers that are not SROs to establish 

written policies and procedures that are 

reasonably designed to prevent 

execution of trade-throughs. For SRO 

trading centers, the Commission 

estimated that creating written policies 

and procedures would require 

approximately 270 hours and require 

efforts from the various skill sets of the 

clearing agency’s legal, compliance, 

information technology and business 

operations personnel. For non-SRO 

trading centers, the Commission 

estimated an approximate hourly 

burden of 210 hours to meet the same 

requirement. This difference between 

the hourly burden imposed on non-SRO 

trading centers and SRO trading centers 

is primarily due to a slightly lower 

expectation for the hourly burden 

imposed on the legal and compliance 

staff at a non-SRO trading center. 

The Commission preliminarily 

believes that this hourly burden 

estimate of 210 hours for non-SRO 

trading centers under Regulation NMS 

is an appropriate estimate for the 

burden that would be imposed on 

clearing agencies to create policies and 

procedures because, as discussed below, 

recent assessments of the registered U.S. 

clearing agencies support the 

conclusion that clearing agencies and 

their rule books generally meet or 

exceed analogous standards of operation 

and governance to those standards 

within proposed Rule 17Ad–22.159

Therefore, those findings and the 

Commission’s experience in oversight of 

clearing agencies support a preliminary 

view that the requirements in the rules 

for clearing agencies proposed by the 

Commission would in many cases 

impose a burden on legal and 

compliance personnel at clearing 

agencies that would involve 

adjustments to a registered clearing 

agency’s rule book and its policies and 

procedures rather than creation of 

entirely separate policies and 

procedures to support entirely new 

operations and practices. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(b)(1) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 1,890 hours.160 The 


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The Commission based these estimates on the 

estimates for non-SRO trading centers that appear 

in Exchange Act Release Nos. 51808 and 63347 

because the Commission preliminarily believes that 

the existing clearing agency requirements under 

Section 17A of the Exchange Act make these 

proposed burdens more similar to the less 

burdensome requirements for non-SRO trading 

centers than the burdens for SRO trading centers. 

161This figure was calculated as follows: 

Compliance Attorney at 60 hours × 9 respondent 

clearing agencies = 540 hours for all respondent 

clearing agencies. See Exchange Act Release Nos. 

51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) 

(Section VIII.A.4. estimating that it would take the 

average SRO and non-SRO trading center 

approximately two hours per month of internal 

legal time and three hours of internal compliance 

time to ensure that its written policies and 

procedures are up-to-date and remain in 

compliance amounting to an annual burden of 60 

hours per year per respondent) and 63347 

(November 19, 2010), 75 FR 77306 (December 10, 

2010) (Section V.D.7. estimating the time needed for 

SDRs to establish and enforce written policies and 

procedures). 

162See supra note 157. 

163This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 9 respondent 

clearing agencies = 1,890 hours. See supra note 160. 

164This figure was calculated as follows: 

Compliance Attorney at 60 hours × 9 respondent 

clearing agencies = 540 hours for all respondent 

clearing agencies. See supra note 161. 

165See supra note 157. 

166This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 9 respondent 

clearing agencies = 1,890 hours. See supra note 160. 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies that provide CCP 

services would be required to measure 

their credit exposures as required by 

proposed Rule 17Ad–22(b)(1) on an 

ongoing basis. The Commission expects 

that the exact burden of administering 

the procedures for monitoring custody 

and investment standards would vary 

depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 540 hours.161 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

b. Margin Requirements 

Proposed Rule 17Ad–22(b)(2) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

use margin requirements to limit its 

credit exposures to participants in 

normal market conditions and use riskbased models and parameters to set 

margin requirements and review them at 

least monthly. The exact nature of any 

rules and procedures a clearing agency 

would likely establish to support this 

requirement is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.162 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(b)(2) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 1,890 hours.163 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their custody and 

investment standards required by 

proposed Rule 17Ad–22(b)(2) on an 

ongoing basis. The Commission expects 

that the exact burden of administering 

the procedures for monitoring custody 

and investment standards would vary 

depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 540 hours.164 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

c. Financial Resources 

Proposed Rule 17Ad–22(b)(3) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

maintain sufficient financial resources 

to withstand, at a minimum, a default 

by the participant to which it has the 

largest exposure in extreme but 

plausible market conditions, and if the 

clearing agency provides CCP services 

for security-based swaps then a default 

by the two participants to which it has 

the largest exposures in extreme but 

plausible market conditions; provided 

that if a participant controls another 

participant or is under common control 

with another participant, the affiliated 

participant and the participant shall be 

deemed to be a single participant. The 

exact nature of any rules and procedures 

a clearing agency would likely establish 

to support this requirement is likely to 

vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.165 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(b)(3) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 1,890 hours.166 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their financial resources 

standards required by proposed Rule 

17Ad–22(b)(3) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for financial resources standards would 

vary depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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167This figure was calculated as follows: 

Compliance Attorney at 60 hours × 9 respondent 

clearing agencies = 540 hours for all respondent 

clearing agencies. See supra note 161. 

168See supra note 157. 

169This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 9 respondent 

clearing agencies = 1,890 hours. See supra note 160. 

170This figure was calculated as follows: 

Compliance Attorney at 60 hours × 9 respondent 

clearing agencies = 540 hours for all respondent 

clearing agencies. See supra note 161. 

171This figure was calculated as follows: 

Consultant at 30 hours per week × 12 weeks × 2 

Consultants × 9 respondent clearing agencies = 

6,480 hours. 

172See supra note 157. 

173This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 9 respondent 

clearing agencies = 1,890 hours. See supra note 160. 

174This figure was calculated as follows: 

Compliance Attorney at 60 hours × 9 respondent 

clearing agencies = 540 hours for all respondent 

clearing agencies. See supra note 161. 

175See supra note 157. 

agencies of 540 hours.167 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

d. Model Validation 

As discussed above, proposed Rule 

17Ad–22(b)(4) would require a clearing 

agency that provides CCP services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to provide for an 

annual model validation. The 

Commission preliminarily believes this 

requirement would help to ensure that 

a clearing agency’s margin model 

remains effective in determining the 

appropriate margin level. The exact 

nature of any rules and procedures a 

clearing agency would likely establish 

to support this requirement is likely to 

vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.168 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(b)(4) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 1,890 hours.169 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their model validation 

standards required by proposed Rule 

17Ad–22(b)(4) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for model validation standards would 

vary depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 540 hours.170 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Based on its oversight of clearing 

agencies, the Commission preliminarily 

estimates that proposed Rule 17Ad– 

22(b)(4) would impose an annual 

burden on all respondent clearing 

agencies of 6,480 hours.171 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

e. Non-Dealer Access 

Proposed Rule 17Ad–22(b)(5) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide the opportunity for a person 

that does not perform any dealer or 

security-based swap dealer services to 

obtain membership at the clearing 

agency to clear securities for itself or on 

behalf of other persons. The exact 

nature of the procedures a clearing 

agency would establish to support this 

requirement is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.172 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(b)(5) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 1,890 hours.173 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their membership 

standards required by proposed Rule 

17Ad–22(b)(5) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for granting membership to persons that 

do not perform any dealer or securitybased swap dealer services would vary 

depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 540 hours.174 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

f. Portfolio Size and Transaction 

Volume Thresholds Restrictions 

Proposed Rule 17Ad–22(b)(6) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

have membership standards that do not 

require that participants maintain a 

portfolio of any minimum size or that 

participants maintain a minimum 

transaction volume. The exact nature of 

the procedures a clearing agency would 

establish to support this requirement is 

likely to vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.175 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
14512 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

176This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 9 respondent 

clearing agencies = 1,890 hours. See supra note 160. 

177This figure was calculated as follows: 

Compliance Attorney at 60 hours × 9 respondent 

clearing agencies = 540 hours for all respondent 

clearing agencies. See supra note 161. 

178See supra note 157. 

179This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × nine respondent 

clearing agencies = 1,890 hours. See supra note 160. 

180See supra note 157. 

181This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × nine respondent 

clearing agencies = 1,890 hours. See supra note 160. 

182This figure was calculated as follows: 

Compliance Attorney at 60 hours × 9 respondent 

clearing agencies = 540 hours for all respondent 

clearing agencies. See supra note 161. 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(b)(6) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 1,890 hours.176 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their membership 

standards required by proposed Rule 

17Ad–22(b)(6) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for not having membership standards 

that require participants to maintain a 

portfolio of any minimum size or that 

participants maintain a minimum 

transaction volume would vary 

depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 540 hours.177 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

g. Net Capital Requirements 

Proposed Rule 17Ad–22(b)(7) would 

require a clearing agency that provides 

CCP services to establish, implement, 

maintain and enforce written policies 

and procedures reasonably designed to 

provide a person that maintains a net 

capital equal to or greater than $50 

million with the ability to obtain 

membership at the clearing agency, with 

any net capital requirements being 

scalable so that they are proportional to 

the risks posed by the participant’s 

activities to the clearing agency. The 

exact nature of the procedures a clearing 

agency would establish to support this 

requirement is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.178 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(b)(7) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 1,890 hours.179 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies may need to update 

these policies and procedures over time, 

particularly due to the fact that 

proposed Rule 17Ad–22(b)(7) permits a 

clearing agency to provide for a higher 

net capital requirement (i.e., higher than 

$50 million) as a condition for 

membership at the clearing agency if the 

clearing agency demonstrates to the 

Commission that such a requirement is 

necessary to mitigate risks that could 

not otherwise be effectively managed by 

other measures, such as scalable 

limitations on the transactions that the 

participants may clear through the 

clearing agency, and the Commission 

approves the higher net capital 

requirement as part of a rule filing or 

clearing agency registration application. 

While the number of times each clearing 

agency will need to update its policies 

and procedures to revise its net capital 

requirements is likely to vary, both over 

time and between clearing agencies, 

such changes may occur as a result of 

an annual review of a clearing agency’s 

operations and default mechanisms. For 

the same reasons as discussed above, 

the Commission believes that the 

estimates of the burden imposed by the 

policies and procedures requirements in 

Regulation NMS and in proposed 

requirements for security-based swap 

data repositories 180 are sufficiently 

similar to serve as a basis for these 

estimates. Accordingly, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(b)(7) would impose an 

annual burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate annual 

burden on all respondent clearing 

agencies of 1,890 hours.181 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies that provide CCP 

services would be required to 

administer their net capital 

requirements required by proposed Rule 

17Ad–22(b)(7) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the net capital 

requirements would vary depending on 

how frequently each clearing agency 

providing CCP services may need to 

update its procedures. Based on the 

analogous policies and procedures 

requirements and the corresponding 

burden estimates in Regulation NMS 

and for security-based swap data 

repositories, the Commission estimates 

that the ongoing requirements of this 

rule would impose an aggregate annual 

burden of 60 hours on each respondent 

clearing agency, corresponding to an 

aggregate annual burden for all 

respondent clearing agencies of 540 

hours.182 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

h. Record of Financial Resources 

As detailed above, pursuant to 

proposed Rule 17Ad–22(c)(1), clearing 

agencies that perform central 

counterparty services would be required 

each fiscal quarter (based on 

calculations made as of the last business 

day of the clearing agency’s fiscal 

quarter), or at any time upon 

Commission request, to calculate and 

maintain a record of the financial 

resources necessary to meet the 

requirement in proposed Rule 17Ad– 

22(c)(1) and sufficient documentation to 

explain the methodology it uses to 

compute such financial resource 

requirement. 

The exact nature of the procedures a 

clearing agency would establish to 

support this requirement is likely to 

vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 14513 

183See supra note 157. 

184This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 9 respondent 

clearing agencies = 1,890 hours. See supra note 160. 

185See, e.g., International Monetary Fund, 

Publication of Financial Sector Assessment 

Program Documentation—Detailed Assessment of 

Observance of the National Securities Clearing 

Corporation’s Observance of the CPSS–IOSCO 

Recommendations for Central Counterparties, 10 

(2010) (assessing National Securities Clearing 

Corporation’s observance of Recommendation 5 

from the RCCP that a CCP should maintain 

sufficient financial resources to withstand, at a 

minimum, the default of a participant to which it 

has the largest exposure in extreme but plausible 

market conditions and noting that NSCC began 

evaluating itself against this standard in 2009 and 

has back-testing results to support that during the 

period from January through April 2009 there was 

sufficient liquidity to cover the needs of the failure 

of the largest affiliated family 99.98 percent of the 

time), available at http://www.imf.org/external/ 

pubs/ft/scr/2010/cr10129.pdf. 

186This figure was calculated as follows: ((Chief 

Compliance Officer at 40 hours) + (Computer 

Operations Department Manager at 40 hours) + 

(Senior Programmer at 20 hours)) = 100 hours × 9 

respondent clearing agencies = 900 hours. See infra 

note 253 and accompanying text. 

187This figure was calculated as follows: 

((Compliance Attorney at 1 hour) + (Computer 

Operations Department Manager at 2 hours)) = 3 

hours per quarter × 4 quarters per year = 12 hours 

per year × 9 respondent clearing agencies = 108 

hours. 

188This figure was calculated as follows: 

Compliance Attorney at 60 hours × 9 respondent 

clearing agencies = 540 hours for all respondent 

clearing agencies. See supra note 161. 

189See supra note 157. 

190This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 160. 

NMS and in proposed requirements for 

security-based swap data 

repositories.183 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(c)(1) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 1,890 hours.184 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Based on its oversight of clearing 

agencies, the Commission believes that 

the respondent clearing agencies already 

have methodologies designed to ensure 

that in providing CCP services the 

clearing agency can withstand a default 

by the participant to which the clearing 

agency has the largest exposure in 

extreme but plausible market 

conditions.185 Because clearing agencies 

that provide CCP services already use 

such methodologies, the Commission 

preliminarily believes the one-time 

burden imposed would involve 

adjustments needed to synthesize and 

format existing information in a manner 

sufficient to explain the methodology 

the clearing agency uses to meet the 

requirement of proposed Rule 17Ad– 

22(c)(1). The Commission preliminarily 

believes these adjustments would 

impose a one-time burden of 100 hours 

on each clearing agency, corresponding 

to an aggregate one-time burden 

imposed on all clearing agencies of 900 

hours.186 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

On an ongoing basis, the Commission 

estimates that for a clearing agency to 

generate the required reports concerning 

its financial resources would impose a 

burden of three hours per respondent 

clearing agency per quarter. This 

amounts to an annual burden of 12 

hours for each clearing agency and 

corresponds to an aggregate annual 

burden of 108 hours for all respondent 

clearing agencies.187 The Commission 

solicits comment regarding the accuracy 

of this estimate. 

Clearing agencies providing CCP 

services would also be required to 

administer any procedures used to 

support compliance with Rule 17Ad– 

22(c)(1) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for granting membership to persons that 

do not perform any dealer or securitybased swap dealer services would vary 

depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 540 hours.188 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

i. Annual Audited Financial Report 

Proposed Rule 17Ad–22(c)(2) would 

also require that a clearing agency post 

on its Web site an annual financial 

report. Each financial report shall (i) be 

a complete set of financial statements of 

the clearing agency for the most recent 

two fiscal years and be prepared in 

accordance with U.S. GAAP, except that 

for a clearing agency that is a 

corporation or other organization 

incorporated or organized under the 

laws of any foreign country the financial 

statements may be prepared according 

to U.S. GAAP or IFRS; (ii) be audited in 

accordance with standards of the Public 

Company Accounting Oversight Board 

by a registered public accounting firm 

that is qualified and independent in 

accordance with Rule 2–01 of 

Regulation S–X; and (iii) include report 

of the registered public accounting firm 

that complies with paragraphs (a) 

through (d) of Rule 2–02 of Regulation 

S–X. 

The exact nature of the procedures a 

clearing agency would establish to 

support this requirement is likely to 

vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.189 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(c)(2) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.190 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

The Commission preliminarily 

believes, based on its oversight of 

clearing agencies, that the one-time 

burden imposed by the rule would 

involve systems adjustments at the 

clearing agency needed to facilitate 

posting of the annual audited financial 

report to the clearing agency’s Web site. 

The Commission preliminarily believes 

these adjustments would impose a onetime burden of 100 hours on each 

clearing agency, corresponding to an 

aggregate one-time burden imposed on 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
14514 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

191This figure was calculated as follows: ((Chief 

Compliance Officer at 40 hours) + (Computer 

Operations Department Manager at 40 hours) + 

(Senior Programmer at 20 hours)) = 100 hours × 9 

respondent clearing agencies = 900 hours. See infra 

note 253 and accompanying text. 

192This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours for all respondent 

clearing agencies. See supra note 161. 

193See Exchange Act Release No. 63347 

(November 19, 2010), 75 FR 77306 (December 10, 

2010) (Section VI.F.2. discussing the time the 

Commission preliminarily estimates an SDR would 

need to prepare and file annual financial reports 

with the Commission pursuant to proposed Rule 

13n–11(f) and (g)). This figure was calculated as 

follows: Senior Accountant at 500 hours × 17 

respondent clearing agencies = 8,500 hours. 

194See supra note 157. 

195This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. 

196This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours. 

197See supra note 157. 

198This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

199This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours. See supra note 196. 

all clearing agencies of 1,700 hours.191

The Commission solicits comment 

regarding the accuracy of this estimate. 

On an ongoing basis, clearing agencies 

would be required to administer any 

policies and procedures used to support 

compliance with Rule 17Ad–22(c)(2). 

The Commission expects that the exact 

burden of administering the procedures 

for facilitating an annual audit report of 

the clearing agency and posting that 

annual audit report to the clearing 

agency’s Web site would vary. However, 

based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and for security-based 

swap data repositories, the Commission 

estimates that the ongoing requirements 

of this rule would impose an aggregate 

annual burden of 60 hours on each 

respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.192 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

The Commission estimates based on 

its experience with entities of similar 

size to the respondents to this 

collection, that these reports would 

generally require on average 500 hours 

annually per respondent clearing agency 

to generate and cost $500,000 for 

independent public accounting services. 

Thus, the Commission preliminarily 

believes this corresponds to an aggregate 

annual burden to all clearing agencies of 

8,500 hours and $8,500,000.193 The 

Commission solicits comment as to the 

accuracy of this estimate. 

j. Transparent and Enforceable Rules 

and Procedures 

Proposed Rule 17Ad–22(d)(1) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide for a 

well founded, transparent and 

enforceable legal framework. The exact 

nature of the policies and procedures a 

clearing agency would establish is likely 

to vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

SDRs.194 Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(1) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.195 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their rules and procedures 

to ensure they provide for a well 

founded, transparent and enforceable 

legal framework on an ongoing basis. 

The Commission expects that the exact 

burden of administering the procedures 

for monitoring participation standards 

would vary depending on how 

frequently each clearing agency may 

need to update its rules and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and for security-based 

swap data repositories, the Commission 

estimates that the ongoing requirements 

of this rule would impose an aggregate 

annual burden of 60 hours on each 

respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.196 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

k. Participation Requirements 

Proposed Rule 17Ad–22(d)(2) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to have procedures 

in place to monitor that their 

participation requirements are met on 

an ongoing basis. The exact nature of 

the procedures a clearing agency would 

establish is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.197 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(2) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.198 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their participation 

requirements required by proposed Rule 

17Ad–22(d)(2) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for monitoring participation 

requirements would vary depending on 

how frequently each clearing agency 

may need to update its procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and for security-based 

swap data repositories, the Commission 

estimates that the ongoing requirements 

of this rule would impose an aggregate 

annual burden of 60 hours on each 

respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.199 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Additionally, proposed Rule 17Ad– 

22(d)(2) would require clearing agencies 

to publicly disclose their participation 

requirements. Based on staff discussions 

with respondents that are already 

subject to a similar requirement in the 

CDS Clearing Exemption Orders to make 

publicly available certain pricing and 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 14515 

200See infra notes 251–254 and accompanying 

text. 

201This figure was calculated as follows: ((Chief 

Compliance Officer at 40 hours) + (Computer 

Operations Department Manager at 40 hours) + 

(Senior Programmer at 20 hours)) = 100 hours × 17 

respondent clearing agencies = 1,700 hours. See 

infra note 253 and accompanying text. 

202This figure was calculated as follows: 

Computer Operations Department Manager at 60 

hours annually × 17 respondent clearing agencies 

= 1,020 hours for all respondent clearing agencies. 

See supra note 196. 

203See supra note 157. 

204This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

205This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours for all respondent 

clearing agencies. See supra note 196. 

206See supra note 157. 

207This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

valuation information for security-based 

swaps,200 the Commission estimates 

that the one-time burden for a securitybased swap clearing agency to comply 

with the requirements of proposed Rule 

17Ad–22(d)(2) would involve slight 

adjustments to computer data systems 

that would already be in place as part 

of its clearing agency operations under 

Exchange Act Section 17A. The 

Commission preliminarily believes that 

a similar analysis would apply to each 

of the other registered clearing agencies. 

Therefore, the Commission does not 

anticipate that new hardware, such as 

additional computer equipment, would 

be required. Instead, the Commission 

broadly estimates that a clearing 

agency’s adjustments to its systems to 

meet the requirements of proposed Rule 

17Ad–22(d)(2) would impose a one-time 

burden of 100 hours on each respondent 

clearing agency, corresponding to an 

aggregate one-time burden imposed on 

all respondent clearing agencies of 1,700 

hours.201 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

Respondent clearing agencies would 

also have an ongoing responsibility to 

make their participation requirements 

available. Also based on staff discussion 

with respondents that are already 

subject to the requirement in the CDS 

Clearing Exemption Orders to make 

certain pricing and valuation 

information publicly available, the 

Commission preliminarily believes that 

the ongoing burden would be limited 

and would likely involve maintenance 

and troubleshooting of computer 

systems used to facilitate dissemination 

of participant requirements. Therefore, 

the Commission preliminarily estimates 

this would impose an annual aggregate 

burden of 60 hours for each respondent 

clearing agency, which corresponds to 

an ongoing aggregate annual burden of 

1,020 hours for all respondent clearing 

agencies.202 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

l. Identification and Mitigation of 

Custody of Assets and Investment Risk 

Proposed Rule 17Ad–22(d)(3) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to hold assets in a 

manner that minimizes risk of loss or 

delay in access to them, and to invest 

assets in instruments with minimal 

credit, market, and liquidity risks. The 

exact nature of any rules and procedures 

a clearing agency would likely establish 

to support this requirement is likely to 

vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.203 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(3) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.204 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their custody and 

investment standards required by 

proposed Rule 17Ad–22(d)(3) on an 

ongoing basis. The Commission expects 

that the exact burden of administering 

the procedures for monitoring custody 

and investment standards would vary 

depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.205 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

m. Identification and Mitigation of 

Operational Risk 

Proposed Rule 17Ad–22(d)(4) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify and 

have procedures in place, including 

business continuity plans, to minimize 

sources of operational risk. The exact 

nature of the procedures a clearing 

agency would establish is likely to vary 

between clearing agencies. However, 

there are estimates of the burden 

imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.206 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(4) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.207 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their operational 

standards required by proposed Rule 

17Ad–22(d)(4) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for monitoring operational risks would 

vary depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
14516 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

208This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours for all respondent 

clearing agencies. See supra note 196. 

209See supra note 157. 

210This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

211This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours for all respondent 

clearing agencies. See supra note 196. 

212See supra note 157. 

213This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

214This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours for all respondent 

clearing agencies. See supra note 196. 215See supra note 157. 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.208 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

n. Money Settlement Risks 

Proposed Rule 17Ad–22(d)(5) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to employ money 

settlement arrangements that eliminate 

or strictly limit the clearing agency’s 

settlement bank risks, that is, its credit 

and liquidity risks from the use of banks 

to effect money settlements with its 

participants; and require funds transfers 

to the clearing agency to be final when 

effected. The exact nature of any rules 

and procedures a clearing agency would 

likely establish to support this 

requirement is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.209 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(5) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.210 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their settlement 

arrangements required by proposed Rule 

17Ad–22(d)(5) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for monitoring settlement arrangements 

would vary depending on how 

frequently each clearing agency may 

need to update its procedures. Based on 

the analogous policies and procedures 

requirements and the corresponding 

burden estimates in Regulation NMS 

and for security-based swap data 

repositories, the Commission estimates 

that the ongoing requirements of this 

rule would impose an aggregate annual 

burden of 60 hours on each respondent 

clearing agency, corresponding to an 

aggregate annual burden for all 

respondent clearing agencies of 1,020 

hours.211 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

o. Cost-Effectiveness 

Proposed Rule 17Ad–22(d)(6) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to be cost effective 

in meeting the requirements of 

participants while maintaining safe and 

secure operations. The exact nature of 

any rules and procedures a clearing 

agency would likely establish to support 

this requirement is likely to vary 

between clearing agencies. However, 

there are estimates of the burden 

imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.212 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(6) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.213 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their cost-effectiveness 

standards required by proposed Rule 

17Ad–22(d)(6) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for monitoring cost-effectiveness 

standards would vary depending on 

how frequently each clearing agency 

may need to update its procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and for security-based 

swap data repositories, the Commission 

estimates that the ongoing requirements 

of this rule would impose an aggregate 

annual burden of 60 hours on each 

respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.214 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

p. Links 

Proposed Rule 17Ad–22(d)(7) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to evaluate the 

potential sources of risks that can arise 

when the clearing agency establishes 

links either cross-border or domestically 

to clear trades and ensure that the risks 

are managed prudently on an ongoing 

basis. The exact nature of any rules and 

procedures a clearing agency would 

likely establish to support this 

requirement is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.215 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(7) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 14517 

216This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

217This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours for all respondent 

clearing agencies. See supra note 196. 

218See supra note 157. 

219This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

220This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours for all respondent 

clearing agencies. See supra note 196. 

221See infra notes 251–254 and accompanying 

text. 

222This figure was calculated as follows: ((Chief 

Compliance Officer at 40 hours) + (Computer 

Operations Department Manager at 40 hours) + 

(Senior Programmer at 20 hours)) × 17 respondent 

clearing agencies = 1,700 hours. See infra note 253 

and accompanying text. 

223See supra note 157. 

224This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

burden on all respondent clearing 

agencies of 3,570 hours.216 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their links arrangements 

as required by proposed Rule 17Ad– 

22(d)(7) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 

for monitoring links arrangements 

would vary depending on how 

frequently each clearing agency may 

need to update its procedures. Based on 

the analogous policies and procedures 

requirements and the corresponding 

burden estimates in Regulation NMS 

and for security-based swap data 

repositories, the Commission estimates 

that the ongoing requirements of this 

rule would impose an aggregate annual 

burden of 60 hours on each respondent 

clearing agency, corresponding to an 

aggregate annual burden for all 

respondent clearing agencies of 1,020 

hours.217 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

q. Governance 

Proposed Rule 17Ad–22(d)(8) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to have governance 

arrangements that are clear and 

transparent to fulfill the public interest 

requirements in Section 17A of the Act 

applicable to clearing agencies, to 

support the objectives of owners and 

participants, and to promote the 

effectiveness of the clearing agency’s 

risk management procedures. The exact 

nature of any rules and procedures a 

clearing agency would likely establish 

to support this requirement is likely to 

vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.218 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(8) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.219 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their governance 

arrangements as required by proposed 

Rule 17Ad–22(d)(8) on an ongoing basis. 

The Commission expects that the exact 

burden of administering the procedures 

for monitoring governance arrangements 

would vary depending on how 

frequently each clearing agency may 

need to update its procedures. Based on 

the analogous policies and procedures 

requirements and the corresponding 

burden estimates in Regulation NMS 

and for security-based swap data 

repositories, the Commission estimates 

that the ongoing requirements of this 

rule would impose an aggregate annual 

burden of 60 hours on each respondent 

clearing agency, corresponding to an 

aggregate annual burden for all 

respondent clearing agencies of 1,020 

hours.220 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

Based on information from 

respondents that are already subject to 

a similar requirement in the CDS 

Clearing Exemption Orders to make 

publicly available certain pricing and 

valuation information with respect to 

security-based swaps,221 the 

Commission estimates that the one-time 

burden for a clearing agency to provide 

transparency about its governance 

arrangements to fulfill the public 

interest requirements in Section 17A of 

the Exchange Act would involve slight 

adjustments to data systems that would 

already be in place as part of the 

clearing agency’s operations. Therefore, 

the Commission does not anticipate that 

new hardware, such as additional 

computer equipment, would be 

required. Instead, the Commission 

broadly estimates that for a clearing 

agency to adjust its systems to meet the 

requirements of proposed Rule 17Ad– 

22(d)(8) would impose a one-time 

burden of 100 hours on each respondent 

clearing agency, corresponding to an 

aggregate one-time burden imposed on 

all respondent clearing agencies of 1,700 

hours.222 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

r. Information on Services 

Proposed Rule 17Ad–22(d)(9) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to provide market 

participants with sufficient information 

for them to identify and evaluate the 

risks and costs associated with using 

their services. The exact nature of any 

rules and procedures a clearing agency 

would likely establish to support this 

requirement is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.223 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(9) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.224 The 

Commission solicits comment regarding 

the accuracy of this estimate. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
14518 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

225This figure was calculated as follows: 

Computer Operations Department Manager at 60 

hours annually × 17 respondent clearing agencies 

= 1,020 hours for all respondent clearing agencies. 

See supra note 196. 

226See infra notes 251–254 and accompanying 

text. 

227This figure was calculated as follows: ((Chief 

Compliance Officer at 40 hours) + (Computer 

Operations Department Manager at 40 hours) + 

(Senior Programmer at 20 hours)) × 17 respondent 

clearing agencies = 1,700 hours. See infra note 253 

and accompanying text. 

228See supra note 157. 

229This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

230This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agency = 1020 hours for all respondent 

clearing agencies. See supra note 196. 

231See supra note 157. 

232This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

Respondent clearing agencies would 

also have an ongoing responsibility to 

make this information available. Also 

based on informal comments from 

respondents already subject to a similar 

requirement in the CDS Clearing 

Exemption Orders to make certain 

pricing and valuation information with 

respect to security-based swaps publicly 

available, the Commission preliminarily 

believes that the ongoing burden would 

be limited and would likely involve 

maintenance and troubleshooting of 

computer systems used to facilitate 

dissemination of information responsive 

to Rule 17Ad–22(d)(9). Therefore, the 

Commission preliminarily estimates this 

would impose an annual aggregate 

burden of 60 hours for each respondent 

clearing agency, which corresponds to 

an ongoing aggregate annual burden of 

1,020 hours for all respondent clearing 

agencies.225 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

Based on information from 

respondents that are already subject to 

a similar requirement in the CDS 

Clearing Exemption Orders to make 

publicly available certain pricing and 

valuation information with respect to 

security-based swaps,226 the 

Commission estimates that the one-time 

burden to provide market participants 

with sufficient information for them to 

identify and evaluate accurately the 

risks and costs associated with using a 

clearing agency’s services would 

involve slight adjustments to data 

systems that would already be in place 

as part of the clearing agency’s 

operations under Exchange Act Section 

17A. Therefore, the Commission does 

not anticipate that new hardware, such 

as additional computer equipment, 

would be required. Instead, the 

Commission broadly estimates that for a 

clearing agency to adjust its systems to 

meet the requirements of proposed Rule 

17Ad–22(d)(9) would impose a one-time 

burden of 100 hours on each respondent 

clearing agency, corresponding to an 

aggregate one-time burden imposed on 

all respondent clearing agencies of 1,700 

hours.227 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

s. Immobilization and Dematerialization 

of Stock Certificates 

Proposed Rule 17Ad–22(d)(10) would 

require clearing agencies that provide 

central securities depository services to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to immobilize or 

dematerialize securities certificates and 

transfer them by book entry to the 

greatest extent possible. The exact 

nature of any rules and procedures a 

clearing agency would likely establish 

to support this requirement is likely to 

vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.228 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17AAd–22d)(10) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.229 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies that provide central 

securities depository services would be 

required to administer their standards 

for immobilizing or dematerializing 

securities certificates as required by 

proposed Rule 17AAd–22d)(10) on an 

ongoing basis. The Commission expects 

that the exact burden of administering 

the procedures for immobilizing and 

dematerializing securities certificates 

would vary depending on how 

frequently each clearing agency may 

need to update its procedures. Based on 

the analogous policies and procedures 

requirements and the corresponding 

burden estimates in Regulation NMS 

and for security-based swap data 

repositories, the Commission estimates 

that the ongoing requirements of this 

rule would impose an aggregate annual 

burden of 60 hours on each respondent 

clearing agency, corresponding to an 

aggregate annual burden for all 

respondent clearing agencies of 1020 

hours.230 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

t. Default Procedures 

Proposed Rule 17AAd–22d)(11) 

would require clearing agencies to 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to make key 

aspects of the clearing agency’s default 

procedures publicly available and to 

establish default procedures that ensure 

that the clearing agency can take timely 

action to contain losses and liquidity 

pressures and to continue meeting its 

obligations in the event of a participant 

default. The exact nature of the 

procedures a clearing agency would 

establish is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.231 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17AAd–22d)(11) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.232

Clearing agencies would be required 

to administer their default standards 

required by proposed Rule 17AAd– 

22d)(11) on an ongoing basis. The 

Commission expects that the exact 

burden of administering the procedures 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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233This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours. See supra note 196. 234See infra notes 251–254 and accompanying 

text. 

235This figure was calculated as follows: ((Chief 

Compliance Officer at 40 hours) + (Computer 

Operations Department Manager at 40 hours) + 

(Senior Programmer at 20 hours)) × 17 respondent 

clearing agencies = 1,700 hours. See infra note 253 

and accompanying text. 

236This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

237This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours. See supra note 196. 

238See supra note 157. 

239This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

240This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours. See supra note 196. 

for monitoring default standards would 

vary depending on how frequently each 

clearing agency may need to update its 

procedures. Based on the analogous 

policies and procedures requirements 

and the corresponding burden estimates 

in Regulation NMS and for securitybased swap data repositories, the 

Commission estimates that the ongoing 

requirements of this rule would impose 

an aggregate annual burden of 60 hours 

on each respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.233 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Based on information from 

respondents that are already subject to 

a similar requirement in the CDS 

Clearing Exemption Orders to make 

publicly available certain pricing and 

valuation information with respect to 

security-based swaps,234 the 

Commission estimates that the one-time 

burden for a clearing agency to make 

key aspects of its default procedures 

publicly available would involve slight 

adjustments to data systems that would 

already be in place as part of the 

clearing agency’s operations under 

Section 17A of the Exchange Act. 

Therefore, the Commission does not 

anticipate that new hardware, such as 

additional computer equipment, would 

be required. Instead, the Commission 

broadly estimates that for a clearing 

agency to adjust its systems to meet the 

requirements of proposed Rule 17AAd– 

22d)(11) would impose a one-time 

burden of 100 hours on each respondent 

clearing agency, corresponding to an 

aggregate one-time burden imposed on 

all respondent clearing agencies of 1,700 

hours.235 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

u. Timing of Settlement Finality 

Proposed Rule 17Ad–22(d)(12) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to ensure that final 

settlement occurs no later than the end 

of the settlement day and require that 

intraday or real-time finality be 

provided where necessary to reduce 

risks. The exact nature of the procedures 

a clearing agency would establish is 

likely to vary between clearing agencies. 

However, there are estimates of the 

burden imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data repositories. 

While the requirements underlying 

those estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(12) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.236

Clearing agencies would be required 

to administer their settlement finality 

standards required by proposed Rule 

17Ad–22(d)(12) on an ongoing basis. 

The Commission expects that the exact 

burden of administering the procedures 

for ensuring the timing of settlement 

finality would vary depending on how 

frequently each clearing agency may 

need to update its procedures. Based on 

the analogous policies and procedures 

requirements and the corresponding 

burden estimates in Regulation NMS 

and for security-based swap data 

repositories, the Commission estimates 

that the ongoing requirements of this 

rule would impose an aggregate annual 

burden of 60 hours on each respondent 

clearing agency, corresponding to an 

aggregate annual burden for all 

respondent clearing agencies of 1,020 

hours.237 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

v. Delivery Versus Payment 

Proposed Rule 17Ad–22(d)(13) would 

require clearing agencies to establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to eliminate 

principal risk by linking securities 

transfers to funds transfers in a way that 

achieves delivery versus payment. The 

exact nature of the procedures a clearing 

agency would establish is likely to vary 

between clearing agencies. However, 

there are estimates of the burden 

imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.238 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(13) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.239

Clearing agencies would be required 

to administer their delivery versus 

payment standards required by 

proposed Rule 17Ad–22(d)(13) on an 

ongoing basis. The Commission expects 

that the exact burden of administering 

the procedures for delivery versus 

payment would vary depending on how 

frequently each clearing agency may 

need to update its procedures. Based on 

the analogous policies and procedures 

requirements and the corresponding 

burden estimates in Regulation NMS 

and for security-based swap data 

repositories, the Commission estimates 

that the ongoing requirements of this 

rule would impose an aggregate annual 

burden of 60 hours on each respondent 

clearing agency, corresponding to an 

aggregate annual burden for all 

respondent clearing agencies of 1,020 

hours.240 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

w. Risk Controls To Address 

Participants’ Failure To Settle 

Proposed Rule 17Ad–22(d)(14) would 

require clearing agencies to establish, 

implement, maintain and enforce 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
14520 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

241See supra note 157. 

242This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

243This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours for all respondent 

clearing agencies. See supra note 196. 

244See supra note 157. 

245This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

246This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours. See supra note 196. 247See infra notes 251–254 and accompanying 

text. 

248This figure was calculated as follows: ((Chief 

Compliance Officer at 40 hours) + (Computer 

Operations Department Manager at 40 hours) + 

(Senior Programmer at 20 hours)) × 17 respondent 

clearing agencies = 1,700 hours. See infra note 253 

and accompanying text. 

written policies and procedures 

reasonably designed to institute risk 

controls, including collateral 

requirements and limits to cover the 

clearing agency’s credit exposure to 

each participant exposure fully, and that 

ensure timely settlement in the event 

that the participant with the largest 

payment obligation is unable to settle 

when the clearing agency provides 

central securities depository services 

and extends intraday credit to 

participants. The exact nature of any 

rules and procedures a clearing agency 

would likely establish to support this 

requirement is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.241 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(14) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.242 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies that provide central 

securities depository services would be 

required to administer their risk control 

standards required by proposed Rule 

17Ad–22(d)(14) on an ongoing basis. 

The Commission expects that the exact 

burden of administering the procedures 

for risk controls, including collateral 

requirements and limits to cover the 

clearing agency’s credit exposure to 

each participant exposure fully and that 

ensure timely settlement in the event 

that the participant with the largest 

payment obligation is unable to settle 

would vary depending on how 

frequently each clearing agency may 

need to update its procedures. Based on 

the analogous policies and procedures 

requirements and the corresponding 

burden estimates in Regulation NMS 

and for security-based swap data 

repositories, the Commission estimates 

that the ongoing requirements of this 

rule would impose an aggregate annual 

burden of 60 hours on each respondent 

clearing agency, corresponding to an 

aggregate annual burden for all 

respondent clearing agencies of 1,020 

hours.243 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

x. Identification and Management of 

Physical Delivery Risks 

Proposed Rule 17Ad–22(d)(15) would 

require a clearing agency to state to its 

participants the clearing agency’s 

obligations with respect to physical 

deliveries and to identify and manage 

the risks that arise in connection with 

these obligations. The exact form in 

which a clearing agency would state to 

its participants the clearing agency’s 

obligations with respect to physical 

deliveries and to identify and manage 

the risks in connection with those 

obligations is likely to vary between 

clearing agencies. However, there are 

estimates of the burden imposed by 

similar policies and procedures 

requirements in Regulation NMS and in 

proposed requirements for securitybased swap data repositories.244 While 

the requirements underlying those 

estimates are not identical to this 

requirement for clearing agencies, the 

Commission preliminarily believes that 

for PRA purposes there is similarity in 

the burden to create policies and 

procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–22(d)(15) would impose a 

one-time burden on each respondent 

clearing agency of 210 hours, 

corresponding to an aggregate one-time 

burden on all respondent clearing 

agencies of 3,570 hours.245 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Clearing agencies would be required 

to administer their physical delivery 

standards required by proposed Rule 

17Ad–22(d)(15) on an ongoing basis. 

The Commission expects that the exact 

burden of administering the procedures 

for monitoring physical delivery 

standards would vary depending on 

how frequently each clearing agency 

may need to update its procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and for security-based 

swap data repositories, the Commission 

estimates that the ongoing requirements 

of this rule would impose an aggregate 

annual burden of 60 hours on each 

respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.246 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

Based on information from 

respondents that are already subject to 

a similar requirement in the CDS 

Clearing Exemption Orders to make 

publicly available certain pricing and 

valuation information with respect to 

security-based swaps,247 the 

Commission estimates that the one-time 

burden for a clearing agency to state to 

its participants its obligations with 

respect to physical deliveries would 

involve slight adjustments to data 

systems that would already be in place 

as part of the clearing agency’s 

operations under Section 17A of the 

Exchange Act. Therefore, the 

Commission does not anticipate that 

new hardware, such as additional 

computer equipment, would be 

required. Instead, the Commission 

broadly estimates that for a clearing 

agency to adjust its systems to meet the 

requirements of proposed Rule 17Ad– 

22(d)(15) would impose a one-time 

burden of 100 hours on each respondent 

clearing agency, corresponding to an 

aggregate one-time burden imposed on 

all respondent clearing agencies of 1,700 

hours.248 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

Total Burden 

The Commission preliminarily 

believes that for all respondent clearing 

agencies the aggregate paperwork 

burdens contained in proposed Rules 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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249This figure combines the one-time burdens for 

proposed Rules 17Ad–22(d)(1), (2), (3), (4), (5), (6), 

(7), (8), (9), (10), (11), (12), (13), (14), (15), (b)(1), (2), 

(3), (4), (5), (6), (7), (c)(1) and (2) and was calculated 

as follows: (((3,570 hours × 16 standards pursuant 

to proposed Rules 17Ad–22(d)(1), (2), (3), (4), (5), 

(6), (7), (8), (9), (10), (11), (12), (13), (14), (15) and 

(d)(2) = 57,123 hours) + (1,890 hours × 8 standards 

pursuant to proposed Rules 17Ad–22(b)(1), (2), (3), 

(4), (5), (6), (7) and (d)(1) = 15,120 hours) + (1,700 

hours × 6 systems adjustments pursuant to Rules 

17Ad–22(d)(2), (8), (9), (11), (15), (d)(2) = 10,200 

hours) + (900 hours × 1 systems adjustment 

pursuant to Rule 17Ad–22(c)(1)) = 83,343 hours. 

250This figure combines the annual burdens for 

proposed Rules 17Ad–22(d)(1), (2), (3), (4), (5), (6), 

(7), (8), (9), (10), (11), (12), (13), (14), (15), (b)(1), (2), 

(3), (4), (5), (6), (7), (c)(1) and (2) and was calculated 

as follows: ((1,020 hours × 16 standards to be 

administered pursuant to Rules 17Ad–22(d)(1), (2), 

(3), (4), (5), (6), (7), (8), (9), (10), (11), (12), (13), (14), 

(15) and (d)(2) = 16,320 hours) + (540 hours × 8 

standards to be administered pursuant to proposed 

Rules 17Ad–22(b)(1), (2), (3), (4), (5), (6), (7) and 

(d)(1) = 4,320 hours) + (1,020 hours × 2 ongoing 

efforts to maintain and troubleshoot computer 

systems used to facilitate dissemination of 

information responsive to Rules 17Ad–22(d)(2) and 

(9) = 2,040 hours) + (6,480 hours to prepare the 

annual model validation required pursuant to Rule 

17Ad–22(b)(4)) + (1,890 hours to prepare revised 

policies and procedures providing for a higher net 

capital requirement pursuant to Rule 17Ad–22(b)(7) 

+ (108 hours to generate the financial information 

required pursuant to Rule 17Ad–22(c)(1)) + (8,500 

hours to coordinate the posting of financial 

information to the clearing agency’s Web site as 

required pursuant to Rule 17Ad–22(c)(2)) = 39,658 

hours. 

251See supra note 6. 

252See supra notes 139–140 and accompanying 

text. The Commission notes that clearing agencies 

operating under the existing CDS Clearing 

Exemption Orders may not need to make additional 

changes to meet the requirements of the proposed 

rule because they are already subject to similar 

conditions as part of the orders. However, for 

purposes of this PRA analysis the Commission 

assumes that these would be new requirements. 

253This figure was calculated as follows: ((Chief 

Compliance Officer at 40 hours) + (Computer 

Operations Department Manager at 40 hours) + 

(Senior Programmer at 20 hours)) = 100 hours × 6 

respondent clearing agencies = 600 hours. 

254This figure was calculated as follows: 

Computer Operations Department Manager at 60 

hours annually × 6 respondent clearing agencies = 

360 hours. 

255See supra notes 141–144 and accompanying 

text. 

17Ad–22(d)(1), (2), (3), (4), (5), (6), (7), 

(8), (9), (10), (11), (12), (13), (14), (15), 

(b)(1), (2), (3), (4), (5), (6), (7), (c)(1) and 

(2) would impose a one-time burden of 

83,343 hours 249 and an ongoing annual 

burden of 39,658 hours.250 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

2. Dissemination of Pricing and 

Valuation Information by SecurityBased Swap Clearing Agencies That 

Perform Central Counterparty Services 

The requirement for dissemination of 

pricing and valuation information in 

proposed Rule 17Aj–1 would effectively 

require each of the entities authorized to 

provide CCP services for security-based 

swaps pursuant to the CDS Clearing 

Exemption Orders 251 to continue the 

information dissemination practices 

they already perform. These entities 

generate end of day settlement prices 

and other model prices for securitybased swaps, which can be used to 

establish margin requirements for 

participant positions and could provide 

prices in the event of a default scenario. 

As outlined above, the Commission 

estimates a total of six respondents 

would be subject to this requirement.252

Based on information from 

respondents that are already subject to 

a similar requirement in the CDS 

Clearing Exemption Orders to 

disseminate pricing and valuation 

information, the Commission 

preliminarily believes that the 

requirements of proposed Rule 17Aj–1 

would impose one-time and ongoing 

burdens on respondent clearing 

agencies. For instance, compliance 

professionals may need to work with 

information technology and operations 

professionals to accurately memorialize 

in writing the specific policy and 

procedure requirements regarding the 

dissemination of pricing and valuation 

information. Information technology 

personnel may be relied on to develop 

or modify computer programs that 

facilitate the requirements of the 

policies and procedures. 

The Commission estimates that the 

one-time burden for a security-based 

swap clearing agency to comply with 

the requirements of proposed Rule 

17Aj–1 would involve slight 

adjustments to data systems that would 

already be in place as part of the 

operation of the respondent as a 

registered clearing agency that provides 

CCP services for security-based swaps. 

Therefore, the Commission does not 

anticipate that new hardware, such as 

additional computer equipment, would 

be required. Instead, the Commission 

broadly estimates that for a clearing 

agency to adjust its systems to meet the 

requirements of proposed Rule 17Aj–1 

would impose a one-time burden of 100 

hours on each respondent clearing 

agency, corresponding to an aggregate 

one-time burden imposed on all 

respondent clearing agencies of 600 

hours.253 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

Respondent clearing agencies would 

also have an ongoing responsibility to 

make their relevant pricing and 

valuation information available. Based 

on informal comments from 

respondents that are already subject to 

a similar requirement in the CDS 

Clearing Exemption Orders, the 

Commission preliminarily believes that 

the ongoing burden would be limited 

and would likely involve maintenance 

and troubleshooting of computer 

systems used to facilitate dissemination 

of covered pricing and valuation 

information. Therefore, the Commission 

preliminarily estimates this would 

impose an annual aggregate burden of 

60 hours for each respondent clearing 

agency, which corresponds to an 

ongoing aggregate annual burden of 360 

hours for all respondent clearing 

agencies.254 The Commission solicits 

comment regarding the accuracy of this 

estimate. 

3. Clearing Agency Policies and 

Procedures To Protect the 

Confidentiality of Trading Information 

of Clearing Agency Participants 

Proposed Rule 17Ad–23 would 

require each clearing agency to 

establish, maintain and enforce written 

policies and procedures designed to 

protect the confidentiality of clearing 

members’ trading information. As 

outlined above, the Commission 

estimates a total of 17 respondents to 

this requirement.255

Based on the staff’s conversations 

with respondents that are already 

subject to a similar policies and 

procedures requirement as part of the 

CDS Clearing Exemption Orders, the 

Commission preliminarily believes that 

establishing, maintaining and enforcing 

written policies and procedures to 

protect confidential information of 

clearing members would require 

collaboration and coordination across 

business units within the clearing 

agency. For instance, legal or 

compliance professionals may need to 

work with information technology and 

operations professionals to accurately 

memorialize in writing the specific 

policy and procedure requirements that 

the clearing agency decides to establish. 

Information technology personnel may 

be heavily relied on to develop or 

modify computer programs that 

facilitate the requirements of the 

policies and procedures. Developing 

business practices that are synchronized 

with the policies and procedures may 

also entail coordination with the 

clearing agency’s human resources or 

risk management personnel to ensure 

effective adoption of any employee 

training created to inform employees 

about trading restrictions or other areas 

of the policies and procedures that 

impact them. 

The exact nature of the written 

policies and procedures a clearing 

agency would establish is likely to vary. 

However, based on preliminary 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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256This figure was calculated as follows: ((Chief 

Compliance Officer at 210 hours) + (Computer 

Operations Department Manager at 180 hours) + 

(Senior Programmer at 180 hours) + (Senior Risk 

Management Specialist at 40 hours)) = 610 hours × 

17 respondent clearing agencies = 10,370 hours. 

257This figure was calculated as follows: $10,000 

dollars in software costs per respondent clearing 

agency × 17 respondent clearing agencies = 

$170,000. 

258This figure was calculated as follows 

((Compliance Attorney at 4 hours per business day 

× 260 business days per year) = 1040 hours per year 

+ (Computer Operations Department Manager at 40 

hours per year) + (Senior Programmer at 40 hours 

per year) + (Senior Risk Management Specialist at 

8 hours per year)) = 1,128 hours per year × 17 

respondent clearing agencies = 19,176 hours per 

year. 

259See supra notes 145–148 and accompanying 

text. 

260See supra note 157. 

261This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours to create one 

policy and procedure × 2 policies and procedures 

x 17 respondent clearing agencies = 7,140 hours. 

See supra note 195. 

262This estimated $680,000 figure has been 

calculated as follows: $400 per hour cost for outside 

legal services × 50 hours × 2 policies and 

procedures × 17 clearing agencies. This is the same 

estimate used by the Commission for these services 

in the proposed consolidated audit trail rule. See 

Exchange Act Release No. 62174 (May 26, 2010), 75 

FR 32556 (June 8, 2010). 

263This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours to administer one 

policy and procedure × 2 policies and procedures 

= 2,040 hours. See supra note 196. 

information from respondents that are 

affected by similar requirements under 

the CDS Clearing Exemption Orders and 

also based on the Commission’s 

experience in administering those 

orders, the Commission preliminarily 

believes that the proposed rule would 

impose a one-time burden on each 

respondent clearing agency of 610 

hours, corresponding to an aggregate 

one-time burden on all respondent 

clearing agencies of 10,370 hours.256

The Commission solicits comment 

regarding the accuracy of this estimate. 

Also based on information from 

respondents that have been subject to 

the CDS Clearing Exemption Orders, the 

Commission preliminarily believes that 

a clearing agency would likely purchase 

computer software from a third party 

vendor that the clearing agency would 

then use to implement the aspects of its 

policies and procedures designed to 

restrict, as appropriate, the trading of 

clearing agency employees for their own 

account and to prevent misuse and 

misappropriation of participant 

information protected by the rule. The 

cost of such computer software is likely 

to vary according to the specific policies 

and procedures of the clearing agency 

(i.e., based on the number of licenses it 

may need to cover its employees, the 

types of services it needs the software to 

provide, etc.). However the Commission 

preliminarily estimates that the rule 

would impose a one-time cost of 

approximately $10,000 dollars on each 

clearing agency, corresponding to an 

aggregate one-time burden on all 

clearing agencies of $170,000.257 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

The Commission also preliminarily 

understands from respondents subject to 

the similar requirement in the CDS 

Clearing Exemption Orders that 

monitoring and enforcing the written 

policies and procedures required by 

proposed Rule 17Ad–23 would likely 

require resource commitments from 

many of the same business units needed 

to develop such policies and 

procedures. For instance, as part of the 

effort to restrict, as appropriate, trading 

by clearing agency employees for their 

own accounts and to prevent misuse 

and misappropriation of information 

protected by the rule, the Commission 

preliminarily believes a clearing agency 

would need to devote fifty percent of 

the work hours of a full-time, 

compliance attorney. The Commission 

preliminarily expects this resource 

commitment may, among other things, 

take the form of obtaining and reviewing 

brokerage statements of clearing agency 

employees and reviewing their e-mails. 

Time for employee training related to 

the requirements of the policies and 

procedures, troubleshooting any 

computer systems designed to protect 

information in connection with the 

policies and procedures, and 

amendments to the policies and 

procedures are also factors that may 

contribute to the ongoing burden on 

clearing agencies. Accordingly, the 

Commission preliminarily estimates the 

rule would impose an annual aggregate 

burden on each respondent of 1,128 

hours, corresponding to an aggregate 

annual burden on all clearing agencies 

of 19,176 hours.258 The Commission 

solicits comment regarding the accuracy 

of this estimate. 

4. Clearing Agency Procedures To 

Identify and Address Conflicts of 

Interest 

Proposed Rule 17Ad–25 would 

require each clearing agency to 

establish, implement, maintain and 

enforce written policies and procedures 

that are reasonably designed to identify 

and address existing or potential 

conflicts of interest and minimize 

conflicts of interest in the decisionmaking process of the clearing agency. 

As outlined above, the Commission 

estimates a total of 17 respondents to 

this requirement.259

The exact nature of the policies and 

procedures a clearing agency would 

establish is likely to vary between 

clearing agencies. For instance, legal or 

compliance professionals may need to 

work to accurately memorialize in 

writing the specific policy and 

procedure requirements regarding 

conflicts of interest. Information 

technology personnel may be relied on 

to develop, modify or implement 

computer programs that facilitate the 

requirements of the policies and 

procedures. 

There are estimates of the burden 

imposed by similar policies and 

procedures requirements in Regulation 

NMS and in proposed requirements for 

security-based swap data 

repositories.260 While the requirements 

underlying those estimates are not 

identical to this requirement for clearing 

agencies, the Commission preliminarily 

believes that for PRA purposes there is 

similarity in the burden to create 

policies and procedures. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily estimates that proposed 

Rule 17Ad–25 would impose a one-time 

burden on each respondent clearing 

agency of 420 hours, corresponding to 

an aggregate one-time burden on all 

respondent clearing agencies of 7,140 

hours.261 Also based on the estimates in 

Regulation NMS and for security-based 

swap data repositories, the Commission 

estimates that a burden of $40,000 in 

initial outside legal costs would be 

incurred per respondent clearing agency 

for an aggregate outside cost burden of 

$680,000 for all clearing agencies.262

The Commission solicits comment 

regarding the accuracy of these 

estimates. 

For a clearing agency to monitor, 

enforce, and potentially adjust its 

policies and procedures in connection 

with proposed Rule 17Ad–25, the 

Commission preliminarily believes 

these activities would impose an 

ongoing aggregate annual burden on 

each respondent clearing agency of 120 

hours, corresponding to an aggregate 

annual ongoing burden for all 

respondents of 2,040 hours.263 The 

Commission solicits comment regarding 

the accuracy of these estimates. 


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264See supra notes 149–152 and accompanying 

text. 

265See supra note 157. 

266This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours × 17 respondent 

clearing agencies = 3,570 hours. See supra note 195. 

267This estimated figure was calculated as 

follows: ($400 per hour cost for outside legal 

services × 50 hours) × 17 respondent clearing 

agencies = $170,000. See supra note 262. 

268This figure was calculated as follows: 

Compliance Attorney at 60 hours × 17 respondent 

clearing agencies = 1,020 hours. See supra note 196. 

269This figure was calculated as follows: 

Consultant at 20 hours × 17 respondent clearing 

agencies = 340 hours. 

270See supra note 153–156 and accompanying 

text. 271See supra note 157. 272See Exchange Act Release No. 63347 

(November 19, 2010), 75 FR 77306 (December 10, 

2010) (proposed Rules 13n–11(c)(6),(7) and 13n– 

11(d), (h). See generally Public Law 111–203 

§ 763(a) (adding Section 3C(n)(6) to the Exchange 

Act). 

273Compare Public Law 111–203 § 763(a) adding 

Section 3C(j) to the Exchange Act concerning 

requirements for the CCO of a clearing agency with 

Public Law 111–203 § 763(a) adding Section 

3C(n)(6) concerning requirements for the CCO of an 

SDR. 

274Compare Public Law 111–203 § 763(a) adding 

Section 3C(j) to the Exchange Act concerning 

requirements for the CCO of a clearing agency with 

Public Law 111–203 § 763(a) adding Section 

3C(n)(6) concerning requirements for the CCO of an 

SDR. 

275This figure was calculated as follows: 

((Assistant General Counsel at 87 hours) + 

(Compliance Attorney at 77 hours) + (Computer 

Operations Manager at 23 hours) + (Senior Business 

Analyst at 23 hours)) = 210 hours to create one 

policy and procedure × 2 policies and procedures 

× 17 respondent clearing agencies = 7,140 hours. 

See supra note 195. 

276This figure was calculated as follows: 

(Compliance Attorney at 60 hours x 17 respondent 

Continued 

5. Standards for Board or Board 

Committee Directors 

Proposed Rule 17Ad–26 outlines the 

proposed governance standards that 

clearing agencies would be required to 

establish for board or board committee 

directors. As outlined above, the 

Commission estimates a total of 17 

respondents to this requirement.264

The exact nature of the policies and 

procedures a clearing agency would 

establish is likely to vary between 

clearing agencies. For instance, legal or 

compliance professionals may need to 

work with a law firm to accurately 

memorialize in writing the specific 

policy and procedure requirements 

regarding the selection of directors. 

However, as noted above in the 

discussion of the burdens associated 

with proposed Rule 17Ad–25, there are 

estimates of similar burdens imposed by 

policies and procedures requirements in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories.265 While the 

requirements underlying those estimates 

are not identical to this requirement for 

clearing agencies, the Commission 

preliminarily believes that there is 

sufficient similarity between them for 

PRA purposes that the burden would be 

roughly equivalent. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and in the proposed 

requirements for security-based swap 

data repositories, the Commission 

preliminarily believes that this rule 

would impose an aggregate one-time 

burden on each respondent clearing 

agency of 210 hours to create the 

minimum standards required by the 

rule, corresponding to a one-time 

aggregate burden for all clearing 

agencies of 3,570 hours.266 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

The Commission also estimates, based 

on similar requirements and the 

corresponding burdens in Regulation 

NMS and for security-based swap data 

repositories that a total burden of 

$20,000 in outside legal costs would be 

incurred by each respondent clearing 

agency, corresponding to an aggregate 

cost burden of $340,000 for all 

respondent clearing agencies.267 The 

Commission solicits comment regarding 

the accuracy of this information. 

Clearing agencies would be required 

to administer their governance 

standards required by proposed Rule 

17Ad–26 on an ongoing basis. The 

Commission expects that the exact 

burden of administering the governance 

standards would vary depending on 

factors that include, but are not limited 

to, how frequently a clearing agency 

elects new board members and how 

many board and board committee 

members are involved with the 

governance of each clearing agency. 

These factors would influence the time 

spent evaluating potential new board 

members as well as the time needed to 

assess existing board members at least 

annually for compliance with the 

standards. 

Based on the analogous policies and 

procedures requirements and the 

corresponding burden estimates in 

Regulation NMS and for security-based 

swap data repositories, the Commission 

estimates that the ongoing requirements 

of this rule would impose an aggregate 

annual burden of 60 hours on each 

respondent clearing agency, 

corresponding to an aggregate annual 

burden for all respondent clearing 

agencies of 1,020 hours.268 The 

Commission solicits comment regarding 

the accuracy of this information. The 

proposed rule also encourages clearing 

agencies to use a third party to facilitate 

completion of the board’s annual 

assessment of its members against its 

governance standards. The Commission 

estimates that using a third party would 

impose an average annual burden of 20 

hours on each respondent clearing 

agency, corresponding to aggregate of 

340 hours all clearing agencies.269 The 

Commission solicits comment regarding 

the accuracy of this estimate. 

6. Designation of Chief Compliance 

Officer 

Under proposed Rule 3Cj–1(b), a 

registered clearing agency’s CCO would 

be responsible for, among other matters, 

(1) establishing policies and procedures 

for the remediation of non-compliance 

issues identified by the CCO and (2) 

establishing and following appropriate 

procedures for the handling of 

management response, remediation, 

retesting and closing of non-compliance 

issues. As outlined above, the 

Commission estimates a total of 17 

respondents to this requirement.270

The exact nature of the policies and 

procedures a clearing agency would 

establish is likely to vary between 

clearing agencies. However, as noted in 

the discussion of the estimated burdens 

for proposed Rules 17Ad–25 and 17Ad– 

26, there are similarly positioned 

requirements and corresponding burden 

estimates in Regulation NMS and in the 

proposed requirements for securitybased swap data repositories.271 The 

proposed rule requirements that create 

the estimated PRA burden for the CCO 

of a security-based swap data 

repository 272 are highly-similar to the 

proposed requirements for the CCO of a 

clearing agency in Rule 3Cj–1(b).273

This is because both rules are 

predicated on statutory provisions of the 

Exchange Act that contain statutory 

requirements that mirror one another to 

a large degree.274 Therefore, the 

Commission preliminarily believes that 

for PRA purposes the burdens would be 

roughly equivalent. 

Consequently, the Commission 

preliminarily estimates that the two 

requirements for the CCO of a clearing 

agency under proposed Rule 3Cj–1 

would require 420 hours to create 

policies and procedures, corresponding 

to a total burden of 7,140 hours 

initially.275 The Commission also 

preliminarily estimates 120 hours to 

administer each policy and procedure 

per year per respondent, corresponding 

to 1,200 hours on average annually.276


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clearing agencies) = 1,020 hours to administer one 

policy and procedure x 2 policies and procedures 

= 2,040 hours. See supra note 196. 

277This figure was calculated as follows: (($400 

per hour cost for outside legal services × 50 hours) 

× (2 policies and procedures)) × 17 clearing agencies 

= $680,000. See supra note 262. 

278This figure is based on the following: 

((Compliance Attorney at 50 hours) + (Senior 

Systems Analyst at 4 hours)) × 17 clearing agencies 

= 918 hours. 

The Commission preliminarily believes 

that this work will be conducted 

internally and solicits comments 

regarding the accuracy of this 

information. The Commission solicits 

comment regarding the accuracy of 

these estimates. 

Also, based on the similarly 

positioned burdens in Regulation NMS 

and in the proposed requirements for 

the CCO of a security-based swaps data 

repository, the Commission 

preliminarily estimates that a total of 

$40,000 in initial outside legal costs 

would be incurred by each respondent 

clearing agency. This corresponds to an 

aggregate, one-time outside cost burden 

of $680,000 for all clearing agencies.277

The Commission solicits comment 

regarding the accuracy of this estimate. 

The CCO would also be required 

under proposed Rule 3Cj–1(c) to 

prepare, sign and submit (to the clearing 

agency’s board of directors and audit 

committee (or equivalent bodies) and to 

the Commission) an annual compliance 

report that contains a description of (i) 

the compliance of the clearing agency 

with respect to the Federal securities 

laws and the rules and regulations 

thereunder, and (ii) each policy and 

procedure of the clearing agency of the 

compliance officer (including the code 

of ethics and conflict of interest policies 

of the registered clearing agency). Based 

upon the Commission’s experience with 

similar reports, the Commission 

preliminarily estimates that this would 

require an average of 54 hours per 

respondent per year. Thus, the 

Commission preliminarily estimates an 

aggregate annual burden of 918 hours on 

all respondent clearing agencies.278

Because the report will be submitted by 

the internal CCO, the Commission 

preliminarily does not expect any 

external costs. The Commission solicits 

comments regarding the accuracy of this 

estimate. 

E. Collection of Information Is 

Mandatory 

1. Standards for Clearing Agencies 

a. Measurement and Management of 

Credit Exposures 

The collection of information relating 

to measuring credit exposures to its 

participants at least once a day and 

limiting its exposures to potential losses 

from defaults by its participants in 

normal market conditions so that the 

operations of the clearing agency would 

not be disrupted and non-defaulting 

participants would not be exposed to 

losses that they cannot anticipate or 

control under proposed Rule 17Ad– 

22(b)(1) would be mandatory for all 

clearing agencies that provide CCP 

services. 

b. Margin Requirements 

The collection of information relating 

to using margin requirements to limit 

credit exposures to participants in 

normal market conditions and using 

risk-based models and parameters to set 

margin requirements and review them at 

least monthly under proposed Rule 

17Ad–22(b)(2) would be mandatory for 

all clearing agencies that provide CCP 

services. 

c. Financial Resources 

The collection of information relating 

to maintaining sufficient financial 

resources to withstand, at a minimum, 

a default by the participant to which it 

has the largest exposure in extreme but 

plausible market conditions, and if the 

clearing agency provides CCP services 

for security-based swaps then a default 

by the two participants to which it has 

the largest exposures in extreme but 

plausible market conditions; provided 

that if a participant controls another 

participant or is under common control 

with another participant, then the 

affiliated participants shall be 

collectively deemed to be a single 

participant under proposed Rule 17Ad– 

22(b)(3) would be mandatory for all 

clearing agencies that provide CCP 

services. 

d. Model Validation 

The collection of information relating 

to providing for an annual model 

validation consisting of evaluating the 

performance of the clearing agency’s 

margin models and the related 

parameters and assumptions associated 

with such models by a qualified person 

who does not perform functions 

associated with the clearing agency’s 

margin models (except as part of the 

annual model validation) and does not 

report to a person who performs these 

functions under proposed Rule 17Ad– 

22(b)(4) would be mandatory for all 

clearing agencies that provide CCP 

services. 

e. Non-Dealer Access 

The collection of information relating 

to providing the opportunity for a 

person that does not perform any dealer 

or security-based swap dealer services 

to obtain membership at the clearing 

agency to clear securities for itself or on 

behalf of other persons under proposed 

Rule 17Ad–22(b)(5) would be 

mandatory for all clearing agencies that 

provide CCP services. 

f. Net Capital Requirements 

The collection of information relating 

to providing the opportunity for a 

person that maintains net capital equal 

to or greater than $50 million with the 

ability to obtain membership at the 

clearing agency, with any net capital 

requirements being scalable so that they 

are proportional to the risks posed by 

the participant’s activities to the 

clearing agency; provided, however, that 

the clearing agency may provide for a 

higher net capital requirement as a 

condition for membership at the 

clearing agency if the clearing agency 

demonstrates to the Commission that 

such a requirement is necessary to 

mitigate risks that could not otherwise 

be effectively managed by other 

measures and the Commission approves 

the higher net capital requirement as 

part of a rule filing or clearing agency 

registration application under proposed 

Rule 17Ad–22(b)(7) would be 

mandatory for all clearing agencies that 

provide CCP services. 

g. Record of Financial Resources 

The collection of information each 

fiscal quarter, or at any time upon 

request by the Commission, relating to 

the calculation and maintenance of a 

record of the financial resources 

necessary to meet the requirements of 

proposed Rule 17Ad–22(b)(3) under 

proposed Rule 17Ad–22(c)(1) would be 

mandatory for all clearing agencies that 

perform CCP services. 

h. Annual Audited Financial Report 

The collection of information relating 

to the annual audited financial report 

that shall (i) be a complete set of 

financial statements of the clearing 

agency for the most recent two fiscal 

years and be prepared in accordance 

with U.S. GAAP, except that for a 

clearing agency that is a corporation or 

other organization incorporated or 

organized under the laws of any foreign 

country the financial statements may be 

prepared according to U.S. GAAP or 

IFRS; (ii) be audited in accordance with 

standards of the Public Company 

Accounting Oversight Board by a 

registered public accounting firm that is 

qualified and independent in 

accordance with Rule 2–01 of 

Regulation S–X (17 CFR 210.2–01); and 

(iii) include a report of the registered 

public accounting firm that complies 

with paragraphs (a) through (d) of Rule 


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2–02 of Regulation S–X (17 CFR 210.2– 

02) under proposed Rule 17Ad–22(c)(2) 

would be mandatory for all clearing 

agencies. 

i. Transparent and Enforceable Rules 

and Procedures 

The collection of information relating 

to policies and procedures providing for 

a well founded, transparent, and 

enforceable legal framework for each 

aspect of its activities in all relevant 

jurisdictions under proposed Rule 

17Ad–22(d)(1) would be mandatory for 

all clearing agencies. 

j. Participation Requirements 

The collection of information relating 

to requiring participants to have 

sufficient financial resources and robust 

operational capacity to meet obligations 

arising from participation in the clearing 

agency; have procedures in place to 

monitor that participation requirements 

are met on an ongoing basis; and have 

participation requirements that are 

objective, publicly disclosed, and 

permit fair and open access under 

proposed Rule 17Ad–22(d)(2) would be 

mandatory for all clearing agencies. 

k. Identification and Mitigation of 

Custody of Assets and Investment Risk 

The collection of information relating 

to holding assets in a manner whereby 

risk of loss or of delay in its access to 

them is minimized; and investing assets 

in instruments with minimal credit, 

market and liquidity risks under 

proposed Rule 17Ad–22(d)(3) would be 

mandatory for all clearing agencies. 

l. Identification and Mitigation of 

Operational Risk 

The collection of information relating 

to identifying sources of operational risk 

and minimizing them through the 

development of appropriate systems, 

controls, and procedures; implementing 

systems that are reliable, resilient and 

secure, and have adequate, scalable 

capacity; and having business 

continuity plans that allow for timely 

recovery of operations and fulfillment of 

a clearing agency’s obligations under 

proposed Rule 17Ad–22(d)(4) would be 

mandatory for all clearing agencies. 

m. Money Settlement Risks 

The collection of information relating 

to employing money settlement 

arrangements that eliminate or strictly 

limit the clearing agency’s settlement 

bank risks, that is, its credit and 

liquidity risks from the use of banks to 

effect money settlements with its 

participants; and requiring funds 

transfers to the clearing agency to be 

final when effected under proposed 

Rule 17Ad–22(d)(5) would be 

mandatory for all clearing agencies. 

n. Cost-Effectiveness 

The collection of information relating 

to being cost-effective in meeting the 

requirements of participants while 

maintaining safe and secure operations 

under proposed Rule 17Ad–22(d)(6) 

would be mandatory for all clearing 

agencies. 

o. Links 

The collection of information relating 

to evaluating the potential sources of 

risk for any link arrangements the 

clearing agency establishes and 

prudently managing those risks under 

proposed Rule 17Ad–22(d)(7) would be 

mandatory for all clearing agencies. 

p. Governance 

The collection of information relating 

to having governance arrangements that 

are clear and transparent to fulfill the 

public interest requirements in Section 

17A of the Exchange Act applicable to 

clearing agencies, to support the 

objectives of owners and participants, 

and to promote the effectiveness of the 

clearing agency’s risk management 

procedures under proposed Rule 17Ad– 

22(d)(8) would be mandatory for all 

clearing agencies. 

q. Information on Services 

The collection of information relating 

to providing market participants with 

sufficient information for them to 

identify and evaluate the risks and costs 

associated with using its services under 

proposed Rule 17Ad–22(d)(9) would be 

mandatory for all clearing agencies. 

r. Immobilization and Dematerialization 

of Stock Certificates 

The collection of information relating 

to immobilization and dematerialization 

of securities certificates and transferring 

them by book entry to the greatest extent 

possible under proposed Rule 17Ad– 

22(d)(10) would be mandatory for all 

clearing agencies that perform central 

securities depository services. 

s. Default Procedures 

The collection of information relating 

to making key aspects of the clearing 

agency’s default procedures publicly 

available and establishing default 

procedures that ensure that the clearing 

agency can take timely action to contain 

losses and liquidity pressures and to 

continue meeting its obligations in the 

event of a participant default under 

proposed Rule 17Ad–22(d)(11) would 

be mandatory for all clearing agencies. 

t. Risk Controls To Address Participants’ 

Failure To Settle 

The collection of information relating 

to instituting risk controls including 

collateral requirements and limits to 

cover the clearing agency’s credit 

exposure to each participant exposure 

fully, and that ensure timely settlement 

in the event that the participant with the 

largest payment obligation is unable to 

settle when the clearing agency provides 

central securities depository services 

and extends intraday credit to 

participants, provided that if a 

participant controls another participant 

or is under common control with 

another participant then the affiliated 

participants shall be collectively 

deemed to be a single participant, under 

proposed Rule 17Ad–22(d)(14) would 

be mandatory for all clearing agencies. 

u. Identification and Management of 

Physical Delivery Risks 

The collection of information relating 

to stating to participants the clearing 

agency’s obligations with respect to 

physical deliveries and identifying and 

managing the risks from those 

obligations under proposed Rule 17Ad– 

22(d)(15) would be mandatory for all 

clearing agencies. 

2. Dissemination of Pricing and 

Valuation Information by SecurityBased Swap Clearing Agencies That 

Perform Central Counterparty Services 

The collection of information relating 

to the dissemination of pricing and 

valuation information of security-based 

swaps under proposed Rule 17Aj–1 

would be mandatory for all securitybased swap clearing agencies that 

perform CCP services. 

3. Clearing Agency Policies and 

Procedures To Protect the 

Confidentiality of Trading Information 

of Clearing Agency Participants 

The collection of information relating 

to the establishment, maintenance and 

enforcement of written policies and 

procedures under proposed Rule 17Ad– 

23 pertaining to the confidentiality of 

trading information would be 

mandatory for all clearing agencies. 

4. Clearing Agency Procedures To 

Identify and Address Conflicts of 

Interest 

The collection of information relating 

to the establishment, implementation, 

maintenance and enforcement of written 

policies and procedures reasonably 

designed to identify and address 

conflicts of interest under proposed 

Rule 17Ad–25 would be mandatory for 

all clearing agencies. 


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5. Standards for Board or Board 

Committee Directors 

The collection of information relating 

to board or board committee directors 

governance standards under proposed 

Rule 17Ad–26 would be mandatory for 

all clearing agencies. 

6. Designation of Chief Compliance 

Officer 

The collection of information relating 

to the CCO under proposed Rule 3Cj–1 

requirements would be mandatory for 

all clearing agencies. 

F. Confidentiality 

1. Standards for Clearing Agencies 

a. Measurement and Management of 

Credit Exposures 

The collection of information relating 

to the measurement and management of 

credit exposures under proposed Rule 

17Ad–22(b)(1) would be provided to the 

Commission staff but not subject to 

public availability. 

b. Margin Requirements 

The collection of information relating 

to margin requirements under proposed 

Rule 17Ad–22(b)(2) would be provided 

to the Commission staff but not subject 

to public availability. 

c. Financial Resources 

The collection of information relating 

to financial resources under proposed 

Rule 17Ad–22(b)(3) would be provided 

to the Commission staff but not subject 

to public availability. 

d. Model Validation 

The collection of information relating 

to conducting an annual model 

validation under proposed Rule 17Ad– 

22(b)(4) would be provided to the 

Commission staff but not subject to 

public availability. 

e. Non-Dealer Access 

The collection of information relating 

to non-dealer access under proposed 

Rule 17Ad–22(b)(5) would be provided 

to the Commission staff but not subject 

to public availability. 

f. Net Capital Requirements 

The collection of information relating 

to the procedures for net capital 

requirements under proposed Rule 

17Ad–22(b)(7) would be provided to the 

Commission staff but not subject to 

public availability. 

g. Record of Financial Resources 

The collection of information relating 

to the calculation and maintenance by a 

clearing agency that provides CCP 

services of a quarterly report describing 

the financial resources necessary to 

meet the requirements of proposed Rule 

17Ad–22(b)(3) would be provided to the 

Commission staff under proposed Rule 

17Ad–22(c)(1) but would not be subject 

to public availability. 

h. Annual Audited Financial Report 

The collection of information relating 

to the annual audited financial report 

published to the clearing agency’s Web 

site under proposed Rule 17Ad–22(c)(2) 

would be subject to public availability. 

i. Transparent and Enforceable Rules 

and Procedures 

The collection of information relating 

to a clearing agency’s well founded, 

transparent and enforceable legal 

framework under proposed Rule 17Ad– 

22(d)(1) would be provided to the 

Commission staff but not subject to 

public availability. 

j. Participation Requirements 

The collection of information relating 

to the procedures for monitoring and 

publicly disseminating the participation 

requirements under proposed Rule 

17Ad–22(d)(2) would be provided to the 

Commission staff and would be subject 

to public availability. 

k. Custody of Assets and Investment 

Risk 

The collection of information relating 

minimizing custody and investment risk 

under proposed Rule 17Ad–22(d)(3) 

would be provided to the Commission 

staff but not subject to public 

availability. 

l. Identification and Mitigation of 

Operational Risk 

The collection of information relating 

to identifying and minimizing 

operational risk under proposed Rule 

17Ad–22(d)(4) would be provided to the 

Commission staff but not subject to 

public availability. 

m. Money Settlement Risks 

The collection of information relating 

to the procedures for money settlement 

arrangements under proposed Rule 

17Ad–22(d)(5) would be provided to the 

Commission staff but not subject to 

public availability. 

n. Cost-Effectiveness 

The collection of information relating 

to being cost-effective under proposed 

Rule 17Ad–22(d)(6) would be provided 

to the Commission staff but not subject 

to public availability. 

o. Links 

The collection of information relating 

to evaluating potential sources of risk in 

links arrangements under proposed Rule 

17Ad–22(d)(7) would be provided to the 

Commission staff but not subject to 

public availability. 

p. Governance 

The collection of information relating 

to a clearing agency’s governance 

arrangements under proposed Rule 

17Ad–22(d)(8) would be provided to the 

Commission staff but not subject to 

public availability. 

q. Information on Services 

The collection of information relating 

to the provision of sufficient 

information to market participants 

under proposed Rule 17Ad–22(d)(9) 

would be provided to the Commission 

staff and market participants but not 

subject to public availability. 

r. Immobilization and Dematerialization 

of Stock Certificates 

The collection of information relating 

to the procedures for immobilizing and 

dematerializing stock certificates under 

proposed Rule 17Ad–22(d)(10) would 

be provided to the Commission staff but 

not subject to public availability. 

s. Default Procedures 

The collection of information relating 

to the establishment and maintenance of 

default procedures under proposed Rule 

17Ad–22(d)(11) would be subject to 

public availability. 

t. Risk Controls To Address Participants’ 

Failure To Settle 

The collection of information relating 

to risk controls to address participants’ 

failure to settle under proposed Rule 

17Ad–22(d)(14) would be provided to 

the Commission staff, but not subject to 

public availability. 

u. Identification and Management of 

Physical Delivery Risks 

The collection of information relating 

to the statement and management of 

physical delivery risk under proposed 

Rule 17Ad–22(d)(15) would be provided 

to the Commission staff, but not subject 

to public availability. 

2. Dissemination of Pricing and 

Valuation Information by SecurityBased Swap Clearing Agencies That 

Perform Central Counterparty Services 

The collection of information relating 

to the dissemination of pricing and 

valuation information under proposed 

Rule 17Aj–1 would be subject to public 

availability. 


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279The hourly rates use for professionals used 

throughout this Section VI. Consideration of Costs 

and Benefits are taken from the Securities Industry 

and Financial Markets Association’s Management & 

Professional Earnings in the Securities Industry 

2010, modified by the Commission’s staff to 

account for an 1800-hour work-year and multiplied 

by 5.35 to account for bonuses, firm size, employee 

benefits and overhead. 

280See supra note 2. 

281See supra note 3. 

3. Clearing Agency Policies and 

Procedures To Protect the 

Confidentiality of Trading Information 

of Clearing Agency Participants 

The collection of information 

pertaining to the establishment, 

maintenance and enforcement of written 

policies and procedures pertaining to 

the confidentiality of trading 

information under proposed Rule 

17Ad–23 would be provided to the 

Commission staff and would be subject 

to public availability. 

4. Clearing Agency Procedures To 

Identify and Address Conflicts of 

Interest 

The collection of information relating 

to the establishment, implementation, 

maintenance and enforcement of written 

policies and procedures reasonably 

designed to identify and address 

conflicts of interest under proposed 

Rule 17Ad–25 would be provided to the 

Commission staff and would be subject 

to public availability. 

5. Standards for Board or Board 

Committee Directors 

The collection of information relating 

to board or board committee directors 

governance standards under proposed 

Rue 17Ad–26 would be provided to the 

Commission staff and would be subject 

to public availability. 

6. Designation of Chief Compliance 

Officer 

The collection of information relating 

to the CCO under proposed Rule 3Cj–1 

would be provided to the Commission 

staff and would be subject to public 

availability. 

G. Retention Period of Recordkeeping 

Requirements 

Registered clearing agencies will be 

required to retain all correspondence 

and other communications reduced to 

writing (including comment letters) to 

and from such clearing agency for a 

period of not less than five years, the 

first two years of which are to be in a 

place immediately available to the 

Commission staff for inspection and 

examination, pursuant to the 

recordkeeping requirements set forth in 

Rule 17a–1 of the Exchange Act. 

H. Request for Comment 

The Commission invites comments on 

all of the above estimates. Pursuant to 

44 U.S.C. 3506(c)(2)(B), the Commission 

requests comment in order to: (a) 

Evaluate whether the collection of 

information is necessary for the proper 

performance of our functions, including 

whether the information will have 

practical utility; (b) evaluate the 

accuracy of our estimate of the burden 

of the collection of information; (c) 

determine whether there are ways to 

enhance the quality, utility and clarity 

of the information to be collected; and 

(d) evaluate whether there are ways to 

minimize the burden of the collection of 

information on those who respond, 

including through the use of automated 

collection techniques or other forms of 

information technology. 

Persons submitting comments on the 

collection of information requirements 

should direct them to the Office of 

Management and Budget, Attention: 

Desk Officer for the Securities and 

Exchange Commission, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, and should also 

send a copy of their comments to 

Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090, with reference to File No. 

S7–8–11. Requests for materials 

submitted to OMB by the Commission 

with regard to this collection of 

information should be in writing, with 

reference to File No. S7–8–11, and be 

submitted to the Securities and 

Exchange Commission, Office of 

Investor Education and Advocacy, 100 F 

Street, NE., Washington, DC 20549– 

0213. As OMB is required to make a 

decision concerning the collections of 

information between 30 and 60 days 

after publication, a comment to OMB is 

best assured of having its full effect if 

OMB receives it within 30 days of 

publication. 

VI. Consideration of Costs and 

Benefits 279

The Commission is proposing several 

new rules that would set standards for 

the operation and governance of 

clearing agencies. In part, the DoddFrank Act is intended to promote 

financial stability in the financial 

system of the United States by 

improving accountability and 

transparency.280 Key aspects of the 

framework of the Dodd-Frank Act 

specifically give the Commission 

authority to regulate security-based 

swaps 281 and to prescribe regulations 

containing risk management standards 

for designated clearing entities that the 

Commission regulates. In addition to 

considering these specific concerns in 

formulating the proposed rules, the 

Commission believes that designing 

several of the proposed rules to be 

applicable to all clearing agencies 

promotes financial stability by 

facilitating prompt and accurate 

clearance and settlement of securities 

transactions consistent with Section 

17A of the Exchange Act while 

concurrently promoting the Dodd-Frank 

Act’s stated aims of accountability and 

transparency. 

Proposed Rules 17Ad–22 through 

17Ad–26 and 3Cj–1 would establish 

operational standards for registered 

clearing agencies and require those 

clearing agencies to adopt written 

policies and procedures pertaining to, 

among other matters, the confidential 

treatment of trading information 

received by the clearing agency, 

identifying and addressing conflicts of 

interest, establishing board governance 

standards and designating a CCO for the 

clearing agency. Proposed Rule 17Aj–1 

would require the public dissemination 

of certain pricing and valuation 

information by clearing agencies that 

perform CCP services with respect to 

security-based swaps. Finally, the 

proposed amendments to existing Rule 

17Ab2–1 would modify the temporary 

registration process for clearing 

agencies. 

The Commission is sensitive to the 

costs and benefits imposed by its rules 

and has identified the following costs 

and benefits. In particular, the 

discussion below is focused on the costs 

and benefits flowing from the decisions 

proposed by the Commission to fulfill 

the mandates of the Dodd-Frank Act 

rather than the mandates of the DoddFrank Act itself. However, to the extent 

that the Commission’s discretion is 

aligned to take full advantage of the 

benefits intended by the Dodd-Frank 

Act, the two types of benefits are not 

entirely separable. The Commission 

requests that commenters provide data 

and any other information or statistics 

on which they relied on to reach any 

conclusions. 

A. Standards for Clearing Agencies 

The standards set forth under 

proposed Rule 17Ad–22 build off of the 

recommendations of the CPSS–IOSCO 

RSSS and RCCP, adjusted to conform to 

the U.S. system for clearing agency 

regulation and to adopt those tailored 

standards as rule requirements. 

Included in this proposed rule is the 

requirement that each fiscal quarter 

(based on calculations made as of the 

last business day of the clearing 

agency’s fiscal quarter), or at any time 

upon Commission request, a clearing 


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282This figure was calculated as follows: 

((Assistant General Counsel for 87 hours at $430 per 

hour) + (Compliance Attorney for 77 hours at $320 

per hour) + (Computer Operations Department 

Manager for 23 hours at $367 per hour) + (Senior 

Business Analyst for 23 hours at $232 per hour)) = 

$75,827 × 16 standards pursuant to proposed Rules 

17Ad–22(d)(1), (2), (3), (4), (5), (6), (7), (8), (9), (10), 

(11), (14), (15) and (c)(2) = $1,213,232 × 17 

respondent clearing agencies = $20,624,944) + 

(($75,827 × 8 standards pursuant to proposed Rules 

17Ad–22(b)(1), (2), (3), (4), (5), (6), (7) and (c)(1) = 

$606,616 × 9 clearing agencies = $5,459,544) = 

$26,084,488. See supra note 195. 

283This figure was calculated as follows: ((Chief 

Compliance Officer for 40 hours at $423 per hour) 

+ (Computer Department Operations Manager for 40 

hours at $367 per hour) + (Senior Programmer for 

20 hours at $304 per hour) = $37,680 × proposed 

Rules 17Ad–22(d)(2), (8), (9), (11), (15) and (d)(2)) 

= $226,080 × 17 respondent clearing agencies = 

$3,843,360 + ($37,680 × 9 clearing agencies for 

proposed Rules 17Ad–22(b)(4) = $339,120) = 

$4,182,480. See supra note 253. 

284This $30,266,968 figure is the sum of the onetime costs calculated in note 282, $26,084,488, plus 

the one-time costs calculated in note 283, 

$4,182,480. 

285This figure was calculated as follows: 

((Compliance Attorney for 60 hours at $320 per 

hour = $19,200 × 16 standards pursuant to proposed 

Rules 17Ad–22(d)(1), (2), (3), (4), (5), (6), (7), (8), (9), 

(10), (11), (12), (13), (14), (15) and (c)(2) = $307,200 

× 17 respondent clearing agencies = $5,222,400) + 

($19,200 × 8 standards pursuant to proposed Rules 

17Ad–22(b)(1), (2), (3), (4), (5), (6), (7) and (c)(1) = 

agency that performs central 

counterparty services shall calculate 

and maintain a record of the financial 

resources necessary to comply with 

proposed Rule 17Ad–22(b)(3), as well as 

sufficient documentation to explain the 

methodology it uses to compute such 

financial resource requirement. 

1. Benefits 

The proposed standards are intended 

to provide benefits to clearing agencies 

and the markets they serve by 

promoting implementation of measures 

that would enhance the safety and 

efficiency of clearing agencies and 

reduce systemic risk. Safe and reliable 

clearing agencies are essential not only 

for the stability of the securities markets 

they serve but often also to payment 

systems, which may be used by a 

clearing agency or may themselves use 

a clearing agency to transfer collateral. 

The safety of securities settlement 

arrangements and post-trade custody 

arrangements is also critical to the goal 

of protecting the assets of investors from 

claims by creditors of intermediaries 

and other entities that perform various 

functions in the operation of the 

clearing agency. 

Permitting persons who do not 

provide dealer or security-based swap 

dealer services to become members of a 

clearing agency, as required under 

proposed Rule 17Ad–22(b)(5), should 

foster the development of correspondent 

clearing arrangements that would allow 

dealers and security-based swap dealers, 

who may otherwise not be able to meet 

reasonable participation standards of a 

clearing agency, to obtain access to the 

clearing agency through correspondent 

clearing arrangements, thereby 

increasing competition among clearing 

agencies. The net capital requirements 

contained in proposed Rule 17Ad– 

22(b)(7) would help remove an overly 

burdensome barrier to clearing agency 

access for market participants with a net 

capital level of at least $50 million, and 

promote greater direct access to clearing 

agencies. Entities that become 

participants will also benefit from an 

elimination of fee costs that the entities 

might otherwise have incurred to gain 

indirect access to the clearing agency 

through existing participants with 

higher levels of net capital. Proposed 

Rule 17Ad–22(b)(7) also may facilitate 

greater competition among market 

participants of varying sizes because 

smaller market participants may not 

incur additional cost to clear and settle 

transactions. 

Finally, the standards in proposed 

Rule 17Ad–22(d) have the potential to 

mitigate various risks associated with 

providing clearing agency services by 

establishing standards to address (1) 

transparent and enforceable rules and 

procedures; (2) participation 

requirements; (3) custody of assets and 

investment risk; (4) operational risk; (5) 

money settlement risk; (6) costeffectiveness; (7) links; (8) governance; 

(9) information on services; (10) 

immobilization and dematerialization of 

stock certificates; (11) default 

procedures; (12) timing of settlement 

finality; (13) delivery versus payment; 

(14) risk controls to address 

participants’ failures to settle; and (15) 

physical delivery risks. This should 

help to create a framework for the 

operation of clearing agencies that 

would promote sound and efficient 

practices by the clearing agency. 

Moreover, standards relating to 

measurement and management of credit 

exposures, margin requirements, and 

financial resources should act as a 

helpful tool to manage systemic risk as 

increasing amounts of clearance and 

settlement activity is centralized within 

clearing agencies. At the same time, 

requiring annual evaluations of the 

performance of the clearing agency’s 

margin models should help to ensure 

that clearing agencies’ margin models 

perform in a manner that facilitates 

prompt and accurate clearance and 

settlement of transactions. 

2. Costs 

As noted above, the standards 

contained in proposed Rules 17Ad– 

22(b)(1), (2), (3), (4), (5), (6), (7), (c)(1), 

(2), (d)(1), (2), (3), (4), (5), (6), (7), (8), 

(9), (10), (11), (12), (13), (14) and (15) 

would impose certain burdens and 

related costs on respondent clearing 

agencies. As discussed in section V.D.1., 

based on policies and procedures 

requirements for Regulation NMS and 

security-based swap data repositories 

and based on staff conversations with 

industry representatives, the 

Commission has estimated the burdens 

and related costs of these requirements 

for clearing agencies. 

The proposed clearing agency 

standards in proposed Rules 17Ad– 

22(b)(1), (2), (3), (4), (5), (6), (7), (c)(1), 

(2), (d)(1), (2), (3), (4), (5), (6), (7), (8), 

(9), (10), (11), (12), (13), (14) and (15) 

would require respondent clearing 

agencies to create policies and 

procedures. The requirements would 

impose one-time costs of approximately 

$26,084,488 in the aggregate for all 

respondent clearing agencies.282 The 

standards contained in proposed Rules 

17Ad–22(b)(4), (c)(2), (d)(2), (8), (9), (11) 

and (15) would also impose one-time 

costs on clearing agencies that are 

related to the adjustment of systems. 

With respect to proposed Rules 17Ad– 

22(b)(2), (d)(2), (8), (9), (11) and (15), 

this adjustment would be related to 

facilitating compliance with 

requirements to provide information or 

make information available. Proposed 

Rule 17Ad–22(b)(4) would require onetime systems adjustments related to the 

capability to perform an annual model 

validation. These adjustments would 

amount to a one-time cost of 

approximately $4,182,480 in the 

aggregate for all respondent clearing 

agencies.283 Consequently, this results 

in a total one-time burden imposed by 

proposed Rule 17Ad–22 of 

approximately $30,266,968 in the 

aggregate for all respondent clearing 

agencies.284

The standards contained in Rule 

17Ad–22 would also impose ongoing 

costs on clearing agencies. For example, 

the proposed clearing agency standards 

in proposed Rules 17Ad–22(b)(1), (2), 

(3), (4), (5), (6), (7), (c)(1), (2), (d)(1), (2), 

(3), (4), (5), (6), (7), (8), (9), (10), (11), 

(14) and (15) would collectively require 

respondent clearing agencies to perform 

certain ongoing monitoring and 

enforcement activities with respect to 

the policies and procedures the clearing 

agency creates in response to the 

proposed standard. Accordingly, the 

Commission preliminarily believes that 

those ongoing activities would impose 

total annual costs of approximately 

$6,660,800 in the aggregate for all 

respondent clearing agencies.285


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$153,600 × 9 clearing agencies = $1,382,400)) = 

$6,660,800. See supra note 196. 286This figure was calculated as follows: 2 

Consultants for 30 hours per week at $600 per hour 

= $36,000 per week × 12 weeks = $432,000 per 

clearing agency × 9 clearing agencies = $7,776,000. 

287This figure was calculated as follows: 

((Assistant General Counsel for 87 hours at $430 per 

hour) + (Compliance Attorney for 77 hours at $320 

per hour) + (Computer Operations Department 

Manager for 23 hours at $367 per hour) + (Senior 

Business Analyst for 23 hours at $232 per hour)) = 

$75,827 × 1 new policy annually in response to 

Rule 17Ad–22(b)(7) = $75,827 × 9 respondent 

clearing agencies = $682,443. See supra note 195. 

288This figure was calculated as follows 

(Compliance Attorney for 1 hour at $320 per hour) 

+ (Computer Operations Department Manager for 2 

hours at $367)) = $1,054 per quarter × 4 quarters 

per year = $4216 per year × 9 clearing agencies = 

$37,944. 

289This figure was calculated as follows: ((Senior 

Accountant for 500 hours at $198 per hour) + 

(Senior Systems Analyst for 8 hours at $259 per 

hour) + (Compliance Attorney for 4 hours at $320) 

= $102,352 + $500,000 for independent public 

accounting services = $602,352 × 17 respondent 

clearing agencies = $10,239,984. See supra notes 

192 and 193. 

290This $25,397,171 figure is the sum of the 

aggregate annual costs estimated in note 285, 

$6,660,800, plus the aggregate annual cost 

estimated in note 286, $7,776,000, plus the 

aggregate cost estimated in note 287, $682,443, plus 

the aggregate annual cost estimated in note 288, 

$37,944, plus the aggregate annual cost estimated in 

note 289, $10,239,984. 

Proposed Rule 17Ad–22(b)(4) would 

entail ongoing costs. To meet the 

requirements of the proposed Rule 

17Ad–22(b)(4) to provide for an annual 

model validation, the Commission 

preliminarily believes clearing agencies 

would hire a consulting firm that 

dedicates two consultants to the project. 

The Commission estimates that this 

requirement would impose an ongoing 

annual cost of approximately $432,000 

for each respondent, which corresponds 

to a total annual cost of approximately 

$7,776,000 in the aggregate for all 

respondent clearing agencies.286

Proposed Rule 17Ad–22(b)(6) would 

impose ongoing costs on the nine 

estimated clearing agencies that provide 

CCP services. The rule would impose 

these ongoing costs to the extent that 

staff from the legal, compliance, risk or 

other departments at the clearing agency 

providing CCP services would be 

responsible for ensuring that the 

clearing agency’s membership standards 

do not require participants to maintain 

a portfolio of a minimum size or to 

maintain a minimum transaction 

volume threshold. This gate-keeping 

responsibility required in Rule 17Ad– 

22(b)(6) is unlikely to require the 

complete work hours of a full-time 

employee. Instead, as an ongoing cost 

related to preventing these specific 

types of participation standards, the cost 

would likely represent a fraction of total 

staff time and related costs. Based on 

the Commission’s experience regulating 

clearing agencies that provide CCP 

services, it is unlikely that such a 

clearing agency would frequently seek 

to change its membership requirements 

in a way that would be inconsistent 

with proposed Rule 17Ad–22(b)(6). 

Therefore, the fractional cost imposed 

on the clearing agency by the proposed 

rule would likely be small compared to 

the clearing agency’s overall cost of 

paying the same staff to perform their 

other job responsibilities. 

In addition, proposed Rule 17Ad– 

22(b)(7) may require a clearing agency 

that provides CCP services to update its 

policies and procedures relating to its 

net capital requirements if it determines 

that the clearing agency should provide 

for a higher net capital requirement (i.e., 

higher than $50 million) as a condition 

for membership. This work would entail 

the preparation of potentially one new 

policy annually reflecting the clearing 

agency’s updated net capital 

requirements. To meet these ongoing 

requirements of proposed Rule 17Ad– 

22(b)(7), the Commission preliminarily 

estimates a total annual cost of $682,443 

in the aggregate for all respondent 

clearing agencies.287 The proposed 

rule’s requirement that a clearing agency 

that provides CCP services must provide 

a person with net capital equal to or 

greater than $50 million with the ability 

to obtain membership at the clearing 

agency (with any net capital 

requirements being scalable so that they 

are proportional to the risks posed to the 

clearing agency by the participant’s 

activities) would also impose costs on 

the operations of the clearing agency. 

Specifically, certain clearing agencies 

that provide CCP services would likely 

need to revise their admission criteria so 

that they are scalable and still provides 

for effective measures to limit the risks 

that smaller members present to the 

clearing agency. This would involve 

implementation and oversight of any 

measures such as heightened margin 

requirements, limited access to clearing 

services, portfolio and transaction 

requirements, or other risk management 

measures used as part of the scalable 

membership classes that would be 

designed by the clearing agency under 

the proposed rule. 

The requirements in proposed Rules 

17Ad–22(c)(1) and (2) would also 

impose ongoing costs on clearing 

agencies. Under proposed Rule 17Ad– 

22(c)(1), the requirement for a clearing 

agency that provides CCP services to 

calculate and maintain a record of the 

financial resources necessary to meet 

the requirements of proposed Rule 

17Ad–22(b)(3), as well as sufficient 

documentation to explain the 

methodology it uses to compute such 

financial resource requirement, would 

require the efforts of clearing agency 

compliance and operational personnel 

to create the reports, properly document 

them and ensure the reports and 

supporting documentation are properly 

record kept. To meet these ongoing 

requirements of proposed Rule 17Ad– 

22(c)(1), the Commission preliminarily 

estimates a total annual cost of 

$37,944.288

Proposed Rule 17Ad–22(c)(2) would 

require each clearing agency to post on 

its Web site an annual audited financial 

report. Each financial report would have 

to: (i) be a complete set of financial 

statements of the clearing agency for the 

most recent two fiscal years and be 

prepared in accordance with U.S. 

GAAP, except that for a clearing agency 

that is a corporation or other 

organization incorporated or organized 

under the laws of any foreign country 

the financial statements may be 

prepared according to U.S. GAAP or 

IFRS as issued by the International 

Accounting Standards Board; (ii) be 

audited in accordance with standards of 

the Public Company Accounting 

Oversight Board by a registered public 

accounting firm that is qualified and 

independent in accordance with Rule 2– 

01 of Regulation S–X (17 CFR 210.2–01); 

and (iii) include a report of the 

registered public accounting firm that 

complies with paragraphs (a) through 

(d) of Rule 2–02 of Regulation S–X (17 

CFR 210.2–02). This requirement would 

necessitate work hours of compliance 

personnel and finance personnel at the 

clearing agency to compile relevant 

data, organize and analyze that data, 

and then post it to the clearing agency’s 

Web site consistent with the rule. The 

requirement would also require the 

services of a registered public 

accounting firm. The Commission 

estimates those services would cost 

approximately $500,000 annually. 

Therefore, to meet the ongoing 

requirements of proposed Rule 17Ad– 

22(c)(2) the Commission estimates a 

total annual cost of approximately 

$10,239,984 in the aggregate for all 

respondent clearing agencies.289

Consequently, this results in a total, 

annual burden imposed by proposed 

Rule 17Ad–22 of approximately 

$25,397,171.290

Recent assessments of the registered 

U.S. clearing agencies support the 

conclusion that these entities generally 

meet or exceed analogous standards of 

operation and governance to those that 

are contained within Rule 17Ad–22. 

Those findings support a view that the 


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291See generally International Monetary Fund, 

Publication of Financial Sector Assessment Program 

Documentation—Detailed Assessment of 

Observance of the National Securities Clearing 

Corporation’s Observance of the CPSS–IOSCO 

Recommendations for Central Counterparties 4–29 

(2010), available at http://www.imf.org/external/ 

pubs/ft/scr/2010/cr10129.pdf; International 

Monetary Fund, Publication of Financial Sector 

Assessment Program Documentation—Detailed 

Assessment of Observance of the Depository Trust 

Company’s Observance of the CPSS–IOSCO 

Recommendations for Securities Settlement 

Systems 4–40 (2010), available at http:// 

www.imf.org/external/pubs/ft/scr/2010/ 

cr10128.pdf. 

292See supra note 91 (explaining the specific 

meaning of ‘‘mark-to-market’’ in the context of the 

margin practices of security-based swap clearing 

agency margin practices). 

293See Public Law 111–203, §§ 763(i) and 766(a) 

(adding Exchange Act Sections 13(m)(1)(G) and 

13A(A)(1), respectively). The Dodd-Frank Act 

amends the CEA to provide for a similar regulatory 

framework with respect to transactions in swaps 

regulated by the CFTC. 

294See Exchange Act Release No. 63347 

(November 19, 2010), 75 FR 77306 (December 10, 

2010) (discussing in Section II, Role, Regulation, 

and Business Models of SDRs, that the enhanced 

transparency provided by an SDR is important to 

help regulators and others monitor the build-up and 

concentration of risk exposures in the securitybased swaps market). 

295This figure was calculated as follows: ((Chief 

Compliance Officer for 40 hours at $423) + 

(Computer Operations Department Manager for 40 

hours at $367) + (Senior Programmer for 20 hours 

at $304)) = $37,680 dollars × 6 respondent clearing 

agencies = $226,080. See supra note 253. 

requirements of proposed Rule 17Ad–22 

would not be likely to require the 

clearing agencies to build new 

infrastructure or modify operations to 

continue to meet the standards.291 The 

Commission’s oversight of the entities 

clearing CDS pursuant to the CDS 

Clearing Exemption Orders forms the 

basis for a similar belief that no 

associated start-up costs would be 

imposed because those entities already 

represent through the CDS Clearing 

Exemption Orders that they meet the 

CPSS–IOSCO standards for central 

counterparties, which impose similar 

requirements to those contained in 

proposed Rule 17Ad–22. 

B. Dissemination of Pricing and 

Valuation Information by SecurityBased Swap Clearing Agencies That 

Perform Central Counterparty Services 

The Commission is proposing new 

Rule 17Aj–1 which would require every 

security-based swap clearing agency 

that performs CCP services to make 

available to the public all end-of-day 

settlement prices and any other prices 

with respect to security-based swaps 

that it may establish to calculate markto-market 292 margin requirements for its 

participants. Proposed Rule 17Aj–1 

would also require security-based swap 

clearing agencies that perform CCP 

services to make available to the public 

any other pricing or valuation 

information with respect to securitybased swaps that it otherwise publishes 

or makes available to its participants. 

Under the proposed rule, this 

information is not required to be made 

available to the public free of charge. 

Instead, it must be provided to the 

public on terms that are fair, reasonable 

and not unreasonably discriminatory. 

1. Benefits 

Proposed Rule 17Aj–1 would provide 

a publicly available source of pricing 

and valuation information for pricing 

and valuation in the security-based 

swap markets. The Commission 

recognizes that other market mechanism 

created under the Dodd-Frank Act, such 

as security-based swap data repositories 

and security-based swap execution 

facilities, will also generate securitybased swap pricing data. Under the 

Dodd-Frank Act, all security-based swap 

transactions are required to be reported 

to a security-based swap data repository, 

or, if such data repository does not exist, 

to the Commission.293 Consequently, 

security-based swap data repositories 

would consolidate post-trade 

information about security-based swaps 

that the Commission preliminarily 

believes would be helpful for analyzing 

the security-based swap market as a 

whole and identifying its risks.294

Similarly, security-based swap 

execution facilities will provide 

important pre-trade information about 

security-based swaps. 

However, the Commission 

preliminarily believes that pricing and 

valuation information generated by 

clearing agencies would add value 

beyond pre- and post-trade pricing 

information. Rather than basing risk 

management of clearance and settlement 

on pre- or post- trade pricing that may 

be stale, or may be inappropriate to 

facilitate a clearing agency’s risk 

management practices for other reasons, 

clearing agencies frequently generate 

their own prices for security-based 

swaps, either through consensus pricing 

or pricing models. Those prices are then 

used to inform the clearing agency’s 

margin requirements for its participants 

and the risk management of the clearing 

facility. 

End-of-day pricing information is 

pricing during the life of a securitybased swap that is not otherwise 

available from pre- and post- trade 

market sources—for instance from a 

security-based swap execution facility 

or security-based swap data repository. 

Therefore, the Commission 

preliminarily believes public 

availability of the end-of-day pricing 

information, as well as any other pricing 

information the security-based swap 

clearing agency publishes or distributes 

with respect to security-based swaps 

can provide helpful transparency to 

market participants about the value of 

similar security-based swap positions 

they may hold. Accordingly, the 

Commission preliminarily believes that 

requiring the information to be made 

publicly available on terms that are fair, 

reasonable and not unreasonably 

discriminatory improves fairness, 

efficiency, and market competition by 

providing availability to data that may 

otherwise be difficult for some market 

participants to obtain. 

2. Costs 

The proposed rule requiring 

dissemination of pricing and valuation 

information would impose initial and 

ongoing costs on security-based swap 

clearing agencies. To establish the 

necessary pricing and valuation 

infrastructure to satisfy Rule 17Aj–1, 

security-based swap clearing agencies 

that perform CCP services would bear 

the cost of establishing the applicable 

infrastructure capabilities. The 

Commission notes that entities 

providing CCP services for securitybased swaps are currently required by 

the CDS Clearing Exemption Orders to 

disseminate pricing and valuation 

information. 

As noted above in section V.D.2., 

based on staff conversations with 

industry representatives already subject 

to similar requirements under the CDS 

Clearing Exemption Orders, the 

Commission preliminarily estimates 

that the one-time burden for a securitybased swap clearing agency that 

performs CCP services to comply with 

the requirements of proposed Rule 

17Aj–1 would only involve adjustments 

to computing systems required as part of 

registration. The Commission estimates 

that for a clearing agency to adjust its 

systems beyond the specifications 

associated with registration would 

impose a one-time cost of approximately 

$37,680 on each respondent clearing 

agency, corresponding to a total onetime aggregate cost imposed on all 

respondent clearing agencies of 

approximately $226,080.295

To meet the requirements of the 

proposed rule, security-based swap 

clearing agencies that perform CCP 

services would have a continuous 

responsibility to make the relevant 

pricing and valuation information 

available. The Commission estimates 

this imposes an ongoing annual 

aggregate burden of $22,020 for each 

respondent, which corresponds to an 


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296This figure was calculated as follows: 

Computer Operations Department Manager for 60 

hours at $367 dollars per hour = $22,020 × 6 

security-based swap clearing agencies = $132,120. 

See supra note 254. 

297This figure was calculated as follows ((Chief 

Compliance Officer for 210 hours at $423 per hour) 

+ (Computer Operations Department Manager for 

180 hours at $367 per hour) + (Senior Programmer 

for 180 hours at $304 per hour) + (Risk Management 

Specialist for 40 hours at $192 per hour) + ($10,000 

software costs)) = $227,290 × 17 respondent 

clearing agencies = $3,863,930. See supra note 256. 

298This figure was calculated as follows: 

Compliance Attorney at 4 hours per business day 

× 260 business days per year = 1,040 hours per year 

at $423 per hour + ((Computer Operations 

Department Manager for 40 hours per year at $367 

per hour) + (Senior Programmer for 40 hours per 

year at $304 per hour) + (Senior Risk Management 

Specialist at 8 hours per year at $409 per hour)) = 

$470,032 × 17 respondent clearing agencies = 

$7,990,544. See supra note 258. 

ongoing aggregate annual cost of 

$132,120 for all respondent clearing 

agencies.296

C. Clearing Agency Policies and 

Procedures To Protect the 

Confidentiality of Trading Information 

of Clearing Agency Participants 

Proposed Rule 17Ad–23 would 

require each registered clearing agency 

to establish, maintain and enforce 

written policies and procedures 

designed to protect the confidentiality 

of any and all transaction information 

that the clearing agency receives. Such 

transaction information may include, 

but is not limited to, trade data, position 

data, and any non-public personal 

information about a clearing agency 

member or participant or any of its 

members or participant’s customers. 

The proposed rule also provides that the 

required policies and procedures shall 

include, but are not limited to, (a) 

limiting access to confidential trading 

information of clearing members to 

those employees of the clearing agency 

who are operating the system or 

responsible for its compliance with any 

other applicable laws or rules and (b) 

standards controlling employees and 

agents of the clearing agency trading for 

their personal benefit or the benefit of 

others. 

1. Benefits 

The proposed standards are intended 

to promote implementation of adequate 

measures taken by a clearing agency to 

safeguard data, which can increase 

market participants’ confidence in the 

safety and reliability of a clearing 

agency. Trade data stored by a clearing 

agency should be protected from loss, 

leakage, unauthorized access and other 

processing risks. It is necessary for a 

clearing agency to apply information 

security and system integrity objectives 

to its own operations to protect trade 

data during transmission and 

dissemination. These protections for 

trade data benefit participants by 

helping to ensure, for instance, that 

participant trade data is not leaked to 

other market participants who may 

attempt to use that information to front 

run participant trades or misappropriate 

it in other ways. Protections for trade 

data by a clearing agency also generate 

the benefit to participants of promoting 

the confidence among participants and 

their customers that use of a clearing 

agency to clear and settle trades will not 

result in economic or reputational harm 

to the clearing agency’s users. This, in 

turn, promotes overall marketplace 

confidence in the clearance and 

settlement system for securities 

transactions. 

2. Costs 

Proposed Rule 17Ad–23 would 

impose costs on a clearing agency to 

establish procedures to protect the 

confidentiality of trading information of 

participants. However, the entities 

providing CCP services for securitybased swaps pursuant to the CDS 

Clearing Exemption Orders already 

maintain and enforce safeguards to 

protect the confidentiality of trading 

information of participants as part of 

those orders. While the Commission 

notes that those respondents may not 

need to make additional, one-time 

changes to meet the requirements of 

proposed Rule 17Ad–23, the 

Commission is assuming for the purpose 

of this cost-benefit analysis that 

proposed Rule 17Ad–23 would impose 

one-time costs on them. As discussed 

above in section V.D.3., based on staff 

discussions with industry 

representatives already subject to 

similar requirements under the CDS 

Clearing Exemption Orders, the 

Commission has estimated the burdens 

and related costs of these requirements 

for clearing agencies. 

The Commission does anticipate the 

rule would impose one-time costs at the 

remaining six clearing agencies related 

to the coordinated research and 

development costs between compliance, 

legal, operational, and information 

technology staff. Protecting confidential 

information in compliance with the 

requirements of the proposed rule 

would likely necessitate drawing on 

expertise and knowledge from each of 

these areas. The number of employees 

and number of employee hours required 

to deliver the necessary information 

could vary slightly between clearing 

agencies given that clearing agencies 

may divide the skill sets of their 

employees differently. However, for a 

clearing agency to create policies and 

procedures protecting the 

confidentiality of trading information of 

participants, the Commission believes 

the rule would impose a one-time cost 

on each clearing agency of 

approximately $227,290, corresponding 

to an aggregate one-time cost to all 

respondent clearing agencies of 

approximately $3,863,930.297

The rule would also impose ongoing 

costs associated with storing 

confidential data in the form and 

manner prescribed by the clearing 

agency’s policies and procedures, which 

would be designed to control access to 

that information. Such costs are likely to 

include monitoring and testing of the 

integrity of the access controls on the 

data and potentially updating those 

controls as new technology becomes 

available or as the clearing agency 

modifies the safeguarding requirements 

within the policies and procedures. The 

Commission believes these 

responsibilities would impose an 

ongoing annual cost per clearing agency 

of approximately $56,942, 

corresponding to an annual aggregate 

cost to all clearing agencies of 

approximately $7,990,544.298

D. Exemption From Clearing Agency 

Definition 

The Commission is proposing new 

Rule 17Ad–24 which would exempt 

from the definition of clearing agency, 

as defined in Section 3(a)(23)(A) of the 

Exchange Act, certain registered 

security-based swap dealers and 

security-based swap execution facilities. 

1. Benefits 

The proposed rule described in this 

section would provide for the exclusion 

of certain registered security-based swap 

dealers and registered security-based 

swap execution facilities from the 

definition of a clearing agency. The 

proposed rule is intended to avoid 

subjecting these entities, where 

appropriate, to multiple registrations 

when doing so would impose 

overlapping or duplicative requirements 

with marginal benefits or no benefits to 

safeguarding securities and funds and 

protecting investors. 

2. Costs 

The Commission anticipates any costs 

associated with the proposed rule are 

likely to be minimal. Registered 

security-based swap dealers and 

registered security-based swap 

execution facilities that perform certain 

limited clearing agency functions could 

rely on the proposed exemption upon 

determining that their clearing agency 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
14532 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

299This figure was calculated as follows: 

((Assistant General Counsel for 87 hours at $430 per 

hour) + (Compliance Attorney for 77 hours at $320 

per hour) + (Computer Operations Department 

Manager for 23 hours at $367 per hour) + (Senior 

Business Analyst for 23 hours at $232 per hour)) = 

$75,827 × 2 policies and procedures + $40,000 in 

one-time outside legal costs = $191,654 × 17 

respondent clearing agencies = $3,258,118. See 

supra notes 261 and 262. 

300This figure was calculated as follows: 

Compliance Attorney for 60 hours at $320 per hour 

= $19,200 × 2 policies and procedures = $38,400 × 

17 respondent clearing agencies = $652,800. See 

supra note 263. 

functions are within the scope of the 

rule. 

E. Amendment of 17Ab2–1 Registration 

of Clearing Agencies 

Proposed Rule 17Ab2–1 would 

provide for amendments to Section 

17Ab2–1 of the Exchange Act and 

extends certain timeframes associated 

with the registration of clearing 

agencies. 

1. Benefits 

A modernized temporary registration 

process can serve as a useful tool by 

giving the Commission the option to 

examine a clearing agency after it 

becomes operational, but in advance of 

its registration being final. For example, 

a newly formed security-based swap 

clearing agency may only be able to 

provide materials regarding its 

anticipated activities when completing 

its CA–1 registration form. However, 

there may be value in examining the 

security-based swap clearing agency 

once it becomes operational. This has 

the benefit of informing the Commission 

by observations made through 

examinations and/or monitoring of 

active operations. 

2. Costs 

The amendments to the Rule 17Ab2– 

1 relate specifically to the operations of 

the Commission and the timing of its 

ability to grant temporary registrations 

for clearing agencies. As a result, the 

Commission preliminarily believes that 

the proposed amendments to Rule 

17Ab2–1 are unlikely to impose costs to 

clearing agencies other than those that 

currently exist. 

F. Procedures To Identify and Address 

Conflicts of Interest 

Proposed Rule 17Ad–25 would 

require registered clearing agencies to 

establish, implement, maintain and 

enforce written policies reasonably 

designed to identify and address 

existing or potential conflicts of interest 

and minimize conflicts of interest in 

decision-making at the clearing agency. 

1. Benefits 

Requiring a clearing agency to create 

written policies and procedures 

designed to identify conflicts of interest 

would help a clearing agency evaluate 

its particular organization and activities 

and determine areas that might 

undermine the clearing agency’s core 

business of clearing and settling 

securities transactions. A documented 

plan provides a clear set of guidelines 

that can focus the clearing agency’s 

evaluation and ensure consistency in 

the way those evaluations are 

performed. Similarly, if conflicts are 

identified, the policies and procedures 

offer a standard method of approaching 

those conflicts to make sure they are 

addressed. The procedures would also 

provide a documented plan against 

which the Commission could evaluate a 

clearing agency’s efforts to mitigate 

conflicts and provide the Commission 

with a better understanding of those 

areas of operation and organization 

about which a clearing agency may be 

particularly concerned. 

2. Costs 

Creating written policies and 

procedures under proposed Rule 17Ad– 

25 that are reasonably designed to 

identify and address conflicts of interest 

would necessitate an evaluation by each 

clearing agency of the areas in its 

operation that are likely to be 

susceptible to conflicts of interest. This 

review is an exercise likely to require 

collaboration between the board of 

directors of the clearing agency and 

senior management given that many of 

the potential conflicts are likely to 

revolve around the participant 

admissions and voting rights practices 

of the clearing agency. After the review, 

the Commission anticipates that the 

compliance or legal staff of the clearing 

agency would be assigned to draft 

policies and procedures. 

As discussed in section V.D.4., the 

Commission preliminarily believes that 

there are analogous policies and 

procedures requirements for Regulation 

NMS and in the proposed requirements 

for security-based swap data 

repositories that are informative of the 

burdens and related costs to clearing 

agencies under proposed Rule 17Ad–25. 

The Commission believes that the onetime cost to research and create the 

policies and procedures would be 

approximately $191,654 for each 

clearing agency, corresponding to a onetime aggregate cost to all clearing 

agencies of approximately 

$3,258,118.299 Costs would also be 

incurred by the clearing agency to 

monitor and enforce the policies and 

procedures. The Commission 

preliminarily believes this would 

impose an annual cost of approximately 

$38,400 per clearing agency, 

corresponding to an annual aggregate 

burden to all clearing agencies of 

approximately $652,800.300

G. Standards for Board or Board 

Committee Directors 

Proposed Rule 17Ad–26 would set 

forth governance standards that clearing 

agencies would be required to establish 

with respect to their board members and 

board committee directors. These 

standards would include at least the 

following areas: (i) A clear articulation 

of the roles and responsibilities of 

directors serving the clearing agency’s 

board and any board committees; (ii) 

director qualifications providing criteria 

for expertise in the securities industry, 

clearance and settlement of securities 

transactions, and financial risk 

management; (iii) disqualifying factors 

concerning serious legal misconduct, 

including violations of the Federal 

securities laws; and (iv) policies and 

procedures for the periodic review by 

the board or a board committee of the 

performance of its individual members. 

1. Benefits 

Clearing agencies are at the heart of 

the settlement process. Moreover, 

because their activities are subject to 

significant economies of scale, many are 

sole providers of clearing and settlement 

services to the market they serve. 

Therefore, their performance is a critical 

determinant of the safety and efficiency 

of those markets. No single set of 

governance arrangements is appropriate 

for all clearing agencies within the 

various securities markets and 

regulatory schemes. However, an 

effectively governed clearing agency 

should meet certain key minimum 

requirements. Among these are 

delivering sound risk management; 

ensuring a clear separation between 

reporting lines for risk management and 

other clearing agency operations, 

meeting public interest requirements, 

identifying those principally 

responsible for achieving the clearing 

agencies governance objectives, and 

disclosing the extent to which these 

objectives have been met. 

Requiring registered clearing agencies 

to establish standards for their board 

and board committee members helps to 

ensure that well-qualified individuals 

contribute to effective governance of a 

clearing agency. Board members who 

can provide guidance by drawing on 

expertise in the securities industry, 

clearance and settlement, and risk 

management are well positioned to 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 14533 

301This figure was calculated as follows: 

((Assistant General Counsel for 87 hours at $430 per 

hour) + (Compliance Attorney for 77 hours at $320 

per hour) + (Computer Operations Department 

Manager for 23 hours at $367 per hour) + (Senior 

Business Analyst for 23 hours at $232 per hour)) = 

$75,827 + $20,000 in one-time outside legal costs 

= $95,827 × 17 respondent clearing agencies = 

$1,629,059. See supra notes 266 and 267. 

302This figure was calculated as follows: 

Compliance Attorney for 60 hours at $320 per hour 

= $19,200 × 17 respondent clearing agencies = 

$326,400. See supra note 268. 

303This figure was calculated as follows: One 

Consultant for 20 hours at $600 per hour = $12,000 

× 17 respondent clearing agencies = $204,000. See 

supra note 269. 

make decisions that account for the 

positions of the various participants in 

the market the clearing agency serves as 

well as to balance those perspectives 

with the goals of stability and efficiency 

of the clearing agency. In the interest of 

promoting informed and balanced 

decision making in governance, 

requiring each clearing agency to 

establish governance standards that 

include disqualifying factors concerning 

serious legal misconduct, including 

violations of the Federal securities laws, 

would help clearing agencies evaluate 

whether persons who have been found 

to have violated the securities laws, or 

other similar laws or statutes, may not 

be fit to serve on the clearing agency’s 

board or board committees. 

Proposed Rule 17Ad–26 would also 

benefit the clearing agency and its 

participants by creating a degree of 

certainty in the role and responsibility 

of each director and in defining 

instances appropriate for removal of a 

director. The requirement for a clear 

articulation of the role and 

responsibility of each director focuses 

the governance resources of the clearing 

agency and provides commonly 

understood boundaries with respect to 

what is expected of each director. 

Clearly articulating those expectations 

can help the directors understand how 

to make individual contributions to the 

governance of the clearing agency as 

well as the ways in which they are 

expected to work with one another to 

govern the clearing agency effectively. 

Finally, requiring clearing agencies to 

establish policies and procedures for the 

periodic review by the board or a board 

committee of the performance of its 

individual members would support 

prompt and accurate clearance and 

settlement because directors play a vital 

role in the decision-making processes of 

the clearing agency. These reviews 

would promote focused analysis on the 

contributions that directors make to the 

clearing agency and how those 

contributions are particularly valuable 

or could be adjusted or improved to 

better support the clearing agency’s 

ability to operate in effectively. 

2. Costs 

Proposed Rule 17Ad–26 would set 

forth governance standards applicable to 

a clearing agency’s board members and 

board committee directors. The rule 

would require clearing agencies to adopt 

procedural frameworks that inform the 

governance of the clearing agency. 

Proposed Rule 17Ad–26 would 

require a clearing agency to incur 

research and development costs 

associated with creating standards for 

its board members and board committee 

members. The Commission anticipates 

that there would likely need to be a 

coordinated effort between different 

business units within a clearing agency 

to develop these standards. As 

discussed in section V.D.5., the 

Commission preliminarily believes that 

there are analogous policies and 

procedures requirements for Regulation 

NMS and in the proposed requirements 

for security-based swap data 

repositories that are informative of the 

burdens and related costs for clearing 

agencies under proposed Rule 17Ad–26. 

The Commission believes that the onetime cost to a clearing agency imposed 

by the rule would be approximately 

$95,827, corresponding to a one-time 

aggregate cost to all clearing agencies of 

approximately $1,629,059.301

Also involved would be the time of 

the clearing agency’s employees that 

would be devoted to maintaining 

application of the standards to the 

incumbent directors, evaluating new 

directors and evaluating the incumbent 

directors on an annual basis. For 

example, the Commission preliminarily 

believes that a compliance attorney at a 

clearing agency may be asked to update 

the clearing agency’s standards to 

clearly reflect the roles and 

responsibilities of the clearing agency’s 

directors. Similarly, time of a 

compliance attorney may be needed to 

amend the standards with respect to 

director qualifications and disqualifying 

factors for service if the clearing agency 

decides to make changes to those 

aspects of its governance standards. The 

Commission preliminarily believes that 

the annual cost to each clearing agency 

would be approximately $19,200, 

corresponding to an annual aggregate 

cost to all clearing agencies of 

approximately $326,000.302 In addition, 

the Commission preliminarily believes 

that third party facilitation of the annual 

review of the incumbent board members 

would also impose an ongoing annual 

cost of $6,000 for each respondent, 

which corresponds to a total annual cost 

of $102,000 in the aggregate for all 

respondent clearing agencies.303 An 

employee at the clearing agency may be 

expected to help arrange and coordinate 

such a third-party review of the clearing 

agency’s board members, which would 

also factor into the ongoing, annual cost 

to a clearing agency. 

H. Proposed Rule 3Cj–1 Designation of 

Chief Compliance Officer 

Proposed Rule 3Cj–1 would 

incorporate the requirements of Section 

3Cj of the Exchange Act and impose 

additional requirements. Proposed Rule 

3Cj–1 would require each registered 

clearing agency to designate a CCO. 

Under proposed Rule 3Cj–1(b), the CCO 

would be responsible for, among other 

matters, establishing policies and 

procedures for the remediation of noncompliance issues identified by the CCO 

and establishing and following 

appropriate procedures for the prompt 

handling of management response, 

remediation, retesting, and closing of 

non-compliance issues. 

Under Proposed Rule 3Cj–1(c), the 

CCO would also be responsible for 

preparing and signing an annual 

compliance report that contains a 

description of (i) the compliance of the 

clearing agency with respect to the 

Federal securities laws and the rules 

and regulations thereunder, and (ii) 

each policy and procedure of the 

clearing agency of the compliance 

officer (including the code of ethics and 

conflict of interest policies of the 

registered clearing agency). This 

compliance report must accompany 

each appropriate financial report of the 

clearing agency that is required to be 

furnished to the Commission pursuant 

to the Exchange Act and the rules 

thereunder and include a certification 

that, under penalty of law, the 

compliance report is accurate and 

complete. 

Additionally, the compliance report 

would be required to: (i) Be submitted 

to the board of directors and audit 

committee (or equivalent bodies) of the 

clearing agency promptly after the date 

of execution of the required certification 

and prior to filing of the report with the 

Commission; (ii) be filed with the 

Commission in a tagged data format in 

accordance with the instructions 

contained in the EDGAR Filer Manual, 

as described in Rule 301 of Regulation 

S–T; and (iii) be filed with the 

Commission within 60 days after the 

end of the fiscal year covered by such 

report. 

1. Benefits 

Proposed Rule 3Cj–1 is designed to 

ensure that clearing agencies comply 

with Federal securities laws, including 

the Exchange Act and the rules and 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
14534 Federal Register / Vol. 76, No. 51 / Wednesday, March 16, 2011 / Proposed Rules 

304This figure was calculated as follows: Chief 

Compliance Officer for 1,800 hours at $423 per hour 

= $761,400. See supra note 279 regarding hourly 

rates for professionals taken from SIFMA’s 

Management & Professional Earnings in the 

Securities Industry 2010, and modified by the 

Commission’s staff. 

305This figure was calculated as follows: 

((Assistant General Counsel for 87 hours at $430 per 

hour) + (Compliance Attorney for 77 hours at $320 

per hour) + (Computer Operations Department 

Manager for 23 hours at $367 per hour) + (Senior 

Business Analyst for 23 hours at $232 per hour)) = 

$75,827 × 2 policies and procedures + $40,000 in 

one-time outside legal costs = $191,654 × 17 

respondent clearing agencies = $3,258,118. See 

supra notes 275 and 277. 

306This figure was calculated as follows: 

Compliance Attorney for 60 hours at $320 per hour 

= $19,200 × 2 policies and procedures = $38,400 + 

$761,400 for the annual salary of a Chief 

Compliance Officer = $799,800 × 17 respondent 

clearing agencies = $13,596,600. See supra notes 

276 and 304. 

307This figure was calculated as follows: 

((Compliance Attorney for 50 hours at $320 per 

hour) + (Senior Systems Analyst for 4 hours at $259 

per hour)) = $17,036 × 17 respondent clearing 

agencies = $289,612. See supra note 278. 

regulations promulgated thereunder. 

Although entities currently operating as 

clearing agencies already may have 

CCOs in place, Section 3C(j) of the 

Exchange Act and proposed Rule 3Cj–1 

would make it a required practice. 

The designation of a CCO would help 

ensure that each clearing agency 

complies with the written policies and 

procedures it adopts. The Commission 

expects requiring this safeguard would 

in turn facilitate accurate data reporting 

by clearing agencies to the Commission 

and improve the Commission’s 

understanding of operations across all 

the clearing agencies it oversees. 

Proposed Rule 3Cj–1 would focus on 

creating a compliance structure that is 

transparent and minimizes conflicts. 

Section 3C(j) of the Exchange Act 

provides flexibility in permitting the 

CCO to report either to the clearing 

agency’s board or to a senior officer. 

Because the Commission is concerned 

that a clearing agency’s commercial 

interests might discourage a clearing 

agency’s CCO from making forthright 

disclosure about compliance failures of 

the clearing agency, the proposed rule 

would insulate the CCO from 

management pressures by preventing a 

senior officer of a clearing agency from 

removing the CCO or determining the 

CCO’s compensation without the 

approval of a majority of the clearing 

agency’s board. This would provide the 

benefit of aligning the CCO’s position 

within the clearing agency with having 

the CCO serve as a mechanism that 

freely encourages compliance. 

The reliability of clearance and 

settlement services depends on the 

integrity of a clearing agency’s 

operations. As a result of the proposed 

rule, the accuracy, reliability, and 

integrity of the clearing agency would 

be less likely to be harmed by violations 

of the securities laws because 

experience has shown that strong 

internal compliance programs lower the 

likelihood of securities laws violations 

and enhance the likelihood that any 

violations that do occur will be detected 

and corrected. The designation of a 

CCO, who will, among other things, 

monitor the clearing agency’s 

compliance with the Exchange Act 

(including Section 17A) and the rules 

and regulations thereunder and with the 

relevant clearing agency policies and 

procedures, will help ensure that each 

clearing agency complies with the 

written policies and procedures it 

adopts. 

2. Costs 

As discussed in section V.D.6., the 

Commission preliminarily believes that 

there are analogous policies and 

procedures requirements for Regulation 

NMS and in the proposed requirements 

for security-based swap data 

repositories that are informative of the 

burdens and related costs for clearing 

agencies under proposed Rule 3Cj–1. 

The establishment of a designated 

CCO and compliance with the 

accompanying responsibilities of a CCO 

would impose certain costs on each 

clearing agency. The Commission 

estimates that the average initial costs 

associated with establishing policies 

and procedures for the remediation of 

non-compliance issues identified by the 

CCO and establishing and following 

appropriate procedures for the handling, 

management response, remediation, 

retesting, and closing of non-compliance 

issues would require approximately 420 

hours of employee time and 

approximately $40,000 for each clearing 

agency, and the average ongoing 

paperwork cost would be 120 hours for 

each clearing agency. In addition, each 

clearing agency would be required to 

hire a CCO to comply with the proposed 

rules, at an annual cost of 

approximately $761,400 for each 

clearing agency.304 Therefore, the 

aggregate initial estimated dollar cost 

per year to each clearing agency would 

be approximately $191,654 for each 

respondent clearing agency, 

corresponding to an aggregate initial 

estimated cost to all respondent clearing 

agencies of approximately 

$3,258,118 305 and the aggregate ongoing 

estimated dollar cost per year would be 

approximately $13,596,600 306 to 

comply with the proposed rule. 

The Commission estimates that the 

average ongoing paperwork cost 

associated with preparing, signing and 

submitting annual compliance reports 

pursuant to proposed Rule 3Cj–1(c)(iii) 

and (iv) would be 54 hours for each 

respondent clearing agency, 

corresponding to an annual cost of 

$17,036 for each clearing agency and an 

aggregate annual cost of $289,612 for all 

respondent clearing agencies.307

The Commission believes that 

currently-existing clearing agencies 

already maintain compliance programs 

that are overseen by a CCO or an 

individual who effectively serves as a 

CCO. In addition, such clearing agencies 

may prepare compliance reports 

presented to senior management and/or 

the clearing agency’s board and board 

committees as part of their current 

business practice. Therefore, the 

Commission expects that clearing 

agencies with substantial commitments 

to compliance would probably incur 

only minimal costs in connection with 

the adoption of the proposed rule. 

However, for a clearing agency that does 

not already prepare these types of 

annual compliance reports as part of its 

compliance program, the requirements 

under proposed Rule 3Cj–1 would likely 

require the labor of clearing agency staff 

and impose direct costs on the clearing 

agency as described above. 

I. Request for Comment 

The Commission solicits comments 

on the benefits and costs related to 

proposed Rules 17Ad–22, 17Ad–23, 

17Ad–24, 17Ad–25, 17Ad–26, 17Ab2–1, 

3Cj–1 and 17j–1. The Commission 

specifically requests comments on the 

initial and ongoing costs associated with 

these rules and the costs associated with 

any personnel that may be necessary to 

support compliance with the rules. Are 

there additional costs that the 

Commission should consider? Are there 

alternatives that the Commission should 

consider? Do the estimates accurately 

reflect the costs that are discussed? 

Please describe and, to the extent 

practicable, quantify the costs 

associated with any comments that are 

submitted. 

The Commission requests data to 

quantify the costs and the value of the 

benefits discussed above. The 

Commission seeks estimates of these 

costs and benefits, as well as any costs 

and benefits not addressed, which may 

result from the adoption of the proposed 

rules. Commenters should provide 

analysis and empirical data to support 

their views. 


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308 15 U.S.C. 78w(a). 

309 15 U.S.C. 78w(a)(2). 

310 15 U.S.C. 78c(f). 

311See discussion supra at Section VI. 

Consideration of Costs and Benefits and 

accompanying subsections A. through E. 

312See supra note 2 and accompanying text. 

313See supra note 101 and accompanying text 

(noting that this list of services that may trigger 

clearing agency registration is not exhaustive and 

urging every security-based swap lifecycle event 

service provider to consider whether their function 

places them within the clearing agency definition). 

314See Public Law 111–203, §§ 763(i) and 766(a) 

(adding Exchange Act Sections 13(m)(1)(G) and 

13A(A)(1), respectively). The Dodd-Frank Act 

amends the CEA to provide for a similar regulatory 

framework with respect to transactions in swaps 

regulated by the CFTC. 

315See Exchange Act Release No. 63347 

(November 19, 2010), 75 FR 77306 (December 10, 

2010) (discussing in Section II, Role, Regulation, 

and Business Models of SDRs, that the enhanced 

transparency provided by an SDR is important to 

help regulators and others monitor the build-up and 

concentration of risk exposures in the securitybased swap market). 

VII. Consideration of Burden on 

Competition, and Promotion of 

Efficiency, Competition, and Capital 

Formation 

Section 23(a) of the Exchange Act 308

requires the Commission, when making 

rules and regulations under the 

Exchange Act, to consider the effect a 

new rule would have on competition. 

Section 23(a)(2) prohibits the 

Commission from adopting any rule that 

would impose a burden on competition 

not necessary or appropriate in 

furtherance of the purposes of the 

Exchange Act.309 Section 3(f) of the 

Exchange Act 310 requires the 

Commission, when engaging in 

rulemaking that requires it to consider 

whether an action is necessary or 

appropriate in the public interest, to 

consider, in addition to the protection of 

investors, whether the action would 

promote efficiency, competition, and 

capital formation. 

The economic effects of the proposed 

rules were discussed in detail in the 

costs and benefits section.311 These 

effects encompassed effects on 

economic efficiency, competition, and 

capital formation. 

To reiterate, proposed Rules 17Ad–22 

through 17Ad–26, 17Aj–1, 3Cj–1 and 

the proposed amendments to Rule 

17Ab2–1 would set standards for the 

operation and governance of registered 

clearing agencies. These proposed rules 

are intended to further the purposes of 

the Exchange Act and to promote 

transparency and accountability 

consistent with the stated goals of the 

Dodd-Frank Act.312

Evidence from the securities markets 

suggests that clearing agencies over the 

long-run tend to converge to a small 

number of entities or even a single 

entity. In part, the Commission 

preliminarily believes that this is 

because clearing activities are 

characterized by high start-up costs and 

low marginal costs so that there are 

large economies of scale. For example, 

currently all trades executed on the 

eight U.S. based options exchanges are 

cleared at The Options Clearing 

Corporation, and trades executed on the 

U.S. equity markets, composed of 

exchanges, alternative trading platforms, 

and OTC trading, are cleared at National 

Securities Clearing Corporation. In this 

same way, it is possible that a single 

security-based swap clearing agency 

may prove itself through market forces 

to be the most-efficient mechanism to 

serve all security-based swap clearing 

participants by delivering the lowestcost services. 

As noted above, the current market 

structure for clearing agencies includes 

four registered clearing agencies and 

four entities operating pursuant to the 

CDS Clearing Exemption Orders that are 

eligible to become registered securitybased swap clearing agencies pursuant 

to the Deemed Registered Provision of 

the Dodd-Frank Act. In addition, the 

Commission preliminarily believes 

there may be entities using 

instrumentalities of interstate commerce 

to perform collateral management, trade 

matching, Tear Up Services or similar 

security-based swap lifecycle event 

services that consequently may trigger 

the clearing agency registration 

requirement.313

The intent of the proposed rules 

concerning standards for clearing 

agency operations and governance 

standards of clearing agencies is to 

promote the prompt and accurate 

clearance and settlement of securities 

transactions, including security-based 

swap transactions, by requiring certain 

minimum standards at clearing 

agencies. The Commission preliminarily 

believes that these requirements would 

ensure resilient and cost-effective 

clearing agency operations as well as 

promote transparent and effective 

clearing agency governance that would 

consequently support confidence among 

market participants in clearing agencies’ 

ability to serve as efficient mechanisms 

for clearance and settlement and to 

facilitate capital formation. 

Additionally, the Commission 

believes that proposed Rule 17Aj–1 

would support efficiency and the capital 

formation process by promoting 

security-based swap price transparency 

so that market participants have access 

to more information to value their 

security-based swap positions. Under 

the Dodd-Frank Act, all security-based 

swap transactions are required to be 

reported to a security-based swap data 

repository, or, if no such data repository 

exists, to the Commission.314

Consequently, security-based swap data 

repositories consolidate post-trade 

information about security-based swaps. 

The Commission preliminarily believes 

this is helpful for analyzing the securitybased swap market as a whole and 

identifying its risks.315 Similarly, 

security-based swap execution facilities 

provide important pre-trade information 

about security-based swaps. In addition, 

there are also financial services 

information firms that provide certain 

security-based swap pricing data. 

However, the Commission 

preliminarily believes that the pricing 

and valuation information generated by 

security-based swap clearing agencies 

adds value beyond these pre- and posttrade pricing sources as well as 

information that may be available from 

firms that provide financial services 

data. This is because proposed Rule 

17Aj–1 would require a security-based 

swap clearing agency that performs CCP 

services to produce end-of-day 

settlement prices for all security-based 

swaps that it clears. This end-of-day 

pricing information represents pricing 

during the life of a security-based swap 

that is unique because it is not available 

from pre- and post-trade sources. 

The Commission also preliminarily 

believes that this information is distinct 

from pricing information made available 

by firms that sell certain security-based 

swap pricing date, because each clearing 

agency’s prices are generated daily 

while pricing information available 

through other sources may rely on 

various methods to derive a price—for 

instance an average of the bid and ask 

for a particular security-based swap or 

an executed trade price that would 

otherwise be stale but that has been 

adjusted through certain modeling 

practices to estimate a current price. 

Therefore, the Commission 

preliminarily believes that the public 

availability of these end-of-day 

settlement prices, as well as any other 

pricing information the security-based 

swap clearing agency publishes or 

distributes with respect to securitybased swaps can provide helpful 

transparency to market participants 

about the current value of their securitybased swap positions. Accordingly, the 

Commission preliminarily believes that 

requiring this information to be made 

publicly available on terms that are fair, 

reasonable and not unreasonably 

discriminatory improves fairness, 

efficiency, and market competition by 


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316Public Law 104–121, Title II, 110 Stat. 857 

(1996) (codified in various sections of 5 U.S.C., 15 

U.S.C. and as a note to 5 U.S.C. 601). 

317 5 U.S.C. 601 et seq. 318 5 U.S.C. 603(a). 319 5 U.S.C. 551 et seq. 320Section 601(b) of the RFA permits agencies to 

formulate their own definitions of ‘‘small entities.’’ 

The Commission has adopted definitions for the 

term ‘‘small entity’’ for the purposes of rulemaking 

in accordance with the RFA. These definitions, as 

relevant to this proposed rulemaking, are set forth 

in Rule 0–10, 17 CFR 240.0–10. 

321See 5 U.S.C. 605(b). 

322 17 CFR 240.0–10(d). 

323 13 CFR 121.201, Section 52. 324As of July 21, 2010, the following four clearing 

agencies are eligible to clear security-based swaps 

as a result of having been granted temporary 

exemptive orders to operate as clearing agencies for 

CDS: CME, Eurex, ICE Trust and ICE Clear Europe. 

325See 17 CFR 240.0–10(d). The Commission 

based this determination on its review of public 

sources of financial information about existing 

CCPs serving the OTC derivatives market and 

lifecycle event service providers. 

providing availability to pricing 

information that may otherwise be 

difficult for some market participants to 

obtain and that, among other benefits, 

would allow those market participants 

to be better-informed about the fair 

value of their security-based swap 

positions and to try to more efficiently 

manage the utility of those positions 

within their portfolio. 

The Commission requests comment 

on the possible effects of proposed 

Rules 17Ad–22, 17Ad–23, 17Ad–24, 

17Ad–25, 17Ad–26, 17Aj–1, 3Cj–1 and 

the amendments to Rule 17Ab2–1 on 

efficiency, competition, and capital 

formation. The Commission requests 

that commenters provide views and 

supporting information regarding any 

such effects. The Commission 

recognizes that such effects may be 

difficult to quantify. The Commission 

seeks comment on possible anticompetitive effects of the proposed rules 

not already identified. The Commission 

also requests comments regarding the 

competitive effects of pursuing 

alternative regulatory approaches that 

are consistent with Sections 763 and 

805 of the Dodd-Frank Act and Section 

17A of the Exchange Act. In addition, 

the Commission requests comment on 

how the other provisions of the DoddFrank Act for which Commission 

rulemaking is required will interact 

with and influence the competitive 

effects of the proposed rules under 

proposed Rules 17Ad–22 through 

17Ad–26, 17Aj–1, 3Cj–1 and the 

amendments to Rule 17Ab2–1. 

VIII. Consideration of Impact on the 

Economy 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’),316, the Commission 

must advise the OMB as to whether the 

proposed rule constitutes a ‘‘major’’ rule. 

Under SBREFA, a rule is considered 

‘‘major’’ where, if adopted, it results or 

is likely to result in: (i) An annual effect 

on the economy of $100 million or more 

(either in the form of an increase or a 

decrease); (ii) a major increase in costs 

or prices for consumers or individual 

industries; or (iii) significant adverse 

effect on competition, investment or 

innovation. If a rule is ‘‘major,’’ its 

effectiveness will generally be delayed 

for sixty days pending Congressional 

review. 

The Commission requests comment 

on the potential impact of proposed 

Rules 17Ad–22 through 17Ad–26, 17Aj– 

1, 3Cj–1 and the amendments to Rule 

17Ab2–1 on the economy on an annual 

basis, any potential increase in costs or 

prices for consumers or individual 

industries, and any potential effect on 

competition, investment or innovation. 

Commenters are requested to provide 

empirical data and other factual support 

for their view to the extent possible. 

IX. Regulatory Flexibility Act 

Certification 

The Regulatory Flexibility Act 

(‘‘RFA’’) 317 requires the Commission, in 

promulgating rules, to consider the 

impact of those rules on small entities. 

Section 603(a) 318 of the Administrative 

Procedure Act,319 as amended by the 

RFA, generally requires the Commission 

to undertake a regulatory flexibility 

analysis of all proposed rules to 

determine the impact of such 

rulemaking on ‘‘small entities.’’ 320

Section 605(b) of the RFA states that 

this requirement shall not apply to any 

proposed rule which, if adopted, would 

not have a significant economic impact 

on a substantial number of small 

entities.321

A. Registered Clearing Agencies 

Proposed Rules 17Ad–22 through 

17Ad–26, 17Aj–1, 3Cj–1 and amended 

Rule 17Ab2–1 would apply to all 

registered clearing agencies and set 

standards for the operation and 

governance of such clearing agencies. 

For the purposes of Commission 

rulemaking and as applicable to 

proposed Rules 17Ad–22 through 

17Ad–26, 17Aj–1, 3Cj–1 and amended 

Rule 17Ab2–1, a small entity includes, 

when used with reference to a clearing 

agency, a clearing agency that (i) 

compared, cleared and settled less than 

$500 million in securities transactions 

during the preceding fiscal year, (ii) had 

less than $200 million of funds and 

securities in its custody or control at all 

times during the preceding fiscal year 

(or at any time that it has been in 

business, if shorter) and (iii) is not 

affiliated with any person (other than a 

natural person) that is not a small 

business or small organization.322 Under 

the standards adopted by the Small 

Business Administration, small entities 

in the finance industry include the 

following: (i) For entities engaged in 

investment banking, securities dealing 

and securities brokerage activities, 

entities with $6.5 million or less in 

annual receipts; (ii) for entities engaged 

in trust, fiduciary and custody activities, 

entities with $6.5 million or less in 

annual receipts; and (iii) funds, trusts 

and other financial vehicles with $6.5 

million or less in annual receipts.323

Based on the Commission’s existing 

information about the clearing agencies 

currently registered with the 

Commission and the four entities 

clearing security-based swaps pursuant 

to the CDS Clearing Exemption 

Orders,324 the Commission 

preliminarily believes that such entities 

exceed the thresholds defining ‘‘small 

entities’’ set out above. While other 

clearing agencies may emerge and 

become eligible to operate as clearing 

agencies and while other security-based 

swap lifecycle event service providers 

may be required to register as clearing 

agencies, the Commission preliminarily 

does not believe that any such entities 

would be ‘‘small entities’’ as defined in 

Exchange Act Rule 0–10.325

Furthermore, we believe it is unlikely 

that any clearing agencies, securitybased swap clearing agencies or 

security-based swap lifecycle event 

services providers would have annual 

receipts of less than $6.5 million. 

Accordingly, the Commission believes 

that any registered clearing agencies 

will exceed the thresholds for ‘‘small 

entities’’ set forth in Exchange Act Rule 

0–12. 

B. Certification 

In the Commission’s preliminary 

view, proposed Rules 17Ad–22 through 

17Ad–26, 17Aj–1, 3Cj–1 and amended 

Rule 17Ab2–1 would not have a 

significant economic impact on a 

substantial number of small entities for 

the purposes of the RFA. For the reasons 

described above, the Commission 

certifies that the proposed rules would 

not have a significant economic impact 

on a substantial number of small 

entities. The Commission requests 

comment regarding this certification. 

The Commission requests that 

commenters describe the nature of any 

impact on small entities, including 

clearing agencies, other counterparties 

to security-based swap transactions and 


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security-based swap lifecycle event 

service providers, and provide empirical 

data to support the extent of the impact. 

X. Statutory Basis and Proposed Rule 

Text 

Pursuant to the Exchange Act, 

particularly, Sections 17A(d) thereof, 15 

U.S.C. 78q–1(d), Sections 17A(i), 17A(j) 

and 3C(j) thereof, Public Law 111–203, 

§ 763, 124 Stat. 1841 (2010), and 

Sections 30(b) and 30(c) thereof, 15 

U.S.C. 78dd(b) and (c), and Section 

805(a)(2) of the Clearing Supervision 

Act, 12 U.S.C. 5464(a)(2), the 

Commission proposes: (1) New Rules 

17Ad–22(a), 17Ad–22(d), 17Ad–23, 

17Ad–24, 17Ad–25, 17Ad–26 and 3Cj– 

1, which would govern clearing 

agencies; (2) new Rules 17Ad–22(b) and 

(c), which would govern clearing 

agencies that perform central 

counterparty services; (3) new Rule 

17Aj–1, which would govern securitybased swap clearing agencies that 

provide central counterparty services; 

and (4) to amend Rule 17Ab2–1. 

List of Subjects in 17 CFR Part 240 

Reporting and recordkeeping 

requirements, Securities. 

In accordance with the foregoing, 

Title 17, Chapter II of the Code of 

Federal Regulations is proposed to be 

amended as follows: 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE 

1. The authority citation for Part 240 

is amended by adding the following 

citations in numerical order to read as 

follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 

78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78o– 

4, 78p, 78q, 78q–1, 78s, 78u–5, 78w, 78x, 

78ll, 78mm, 80a–20, 80a–23, 80a–29, 80a–37, 

80b–3, 80b–4, 80b–11, and 7201 et seq.; 18 

U.S.C. 1350; and 12 U.S.C. 5221(e)(3), unless 

otherwise noted. 

* * * * * 

Section 240.3Cj–1 is also issued under Pub. 

L. 111–203, § 763, 124 Stat. 1841 (2010). 

* * * * * 

Sections 240.17Ad–22 through 240.17Ad– 

26 are also issued under 12 U.S.C. 5464(a)(2). 

* * * * * 

2. Section 240.3Cj–1 is added to read 

as follows: 

§ 240.3Cj–1 Designation of chief 

compliance officer. 

(a) In general. Each clearing agency 

shall designate a chief compliance 

officer. The compensation and removal 

of the chief compliance officer shall 

require the approval of a majority of the 

clearing agency’s board. 

(b) Duties. The chief compliance 

officer shall: 

(1) Report directly to the board of 

directors or to the senior officer of the 

clearing agency; 

(2) In consultation with its board, a 

body performing a function similar 

thereto, or the senior officer of the 

registered clearing agency, resolve any 

conflicts of interest that may arise; 

(3) Be responsible for administering 

each policy and procedure that is 

required to be established pursuant to 

section 3C of the Act (15 U.S.C. 78c–3) 

and the rules and regulations 

thereunder; 

(4) Ensure compliance with the Act 

and the rules and regulations 

thereunder; 

(5) Establish policies and procedures 

for the prompt remediation of any noncompliance issues identified by the 

chief compliance officer; and 

(6) Establish and follow appropriate 

procedures for the prompt handling, 

management response, remediation, 

retesting, and closing of non-compliance 

issues. 

(c) Annual Reports—(1) In general. 

The chief compliance officer shall 

annually prepare and sign a report that 

contains a description of: 

(i) The compliance of the clearing 

agency with respect to the Federal 

securities laws and the rules and 

regulations thereunder; and 

(ii) Each policy and procedure of the 

clearing agency of the compliance 

officer (including the code of ethics and 

conflict of interest policies of the 

registered clearing agency). 

(2) Requirements. An annual 

compliance report under this section 

shall: 

(i) Accompany each appropriate 

financial report of the clearing agency 

that is required to be furnished to the 

Commission pursuant to the Act and the 

rules thereunder; 

(ii) Include a certification that, under 

penalty of law, the compliance report is 

accurate and complete; 

(iii) Be submitted to the board of 

directors and audit committee (or 

equivalent bodies) of the clearing 

agency promptly after the date of 

execution of the required certification 

and prior to filing of the report with the 

Commission; and 

(iv) Be filed with the Commission in 

a tagged data format in accordance with 

the instructions contained in the 

EDGAR Filer Manual, as described in 

Rule 301 of Regulation S–T (17 CFR 

232.301). 

(v) Be filed with the Commission 

within 60 days after the end of the fiscal 

year covered by such report. 

(d) For purposes of this section, 

references to senior officer shall include 

the chief executive officer, or other 

equivalent officer. 

3. Section 240.17Ab2–1 is amended 

by revising paragraph (c) to read as 

follows: 

§ 240.17Ab2–1 Registration of clearing 

agencies. 

* * * * * 

(c)(1) The Commission, upon the 

request of a clearing agency or upon the 

election of the Commission, may grant 

registration of the clearing agency in 

accordance with sections 17A(b) and 

19(a)(1) of the Act for a specific period 

of time and may exempt, other than for 

purposes of section 17A(g) of the Act, 

the registrant from one or more of the 

requirements as to which the 

Commission is directed to make a 

determination pursuant to paragraphs 

(A) through (I) of section 17A(b)(3) of 

the Act, provided that any such 

registration shall be effective only for 

twenty-four months from the date the 

registration is made effective (or such 

longer period as the Commission may 

provide by order). 

(2) In the case of any clearing agency 

registered in accordance with paragraph 

(c)(1) of this section, not later than 

fifteen months from the date such 

registration is made effective (or such 

longer period as the Commission may 

provide by order) the Commission either 

will grant registration in accordance 

with sections 17A(b) and 19(a)(1) of the 

Act, without, as applicable, exempting 

the registrant from one or more of the 

requirements as to which the 

Commission is directed to make a 

determination pursuant to 

subparagraphs (A) through (I) of section 

17A(b)(3) of the Act or without limiting 

the duration of the registration, or will 

institute proceedings in accordance 

with section 19(a)(1)(B) of the Act to 

determine whether registration should 

be denied at the expiration of the 

registration granted in accordance with 

paragraph (c)(1) of this section. 

4. Section 240.17Ad–22 is added to 

read as follows: 

§ 240.17Ad–22 Standards for clearing 

agencies. 

(a) Definitions—(1) Central 

counterparty means a clearing agency 

that interposes itself between the 

counterparties to securities transactions, 

acting functionally as the buyer to every 

seller and the seller to every buyer. 

(2) Central securities depository 

services means services of a clearing 

agency that is a securities depository as 

described in section 3(a)(23) of the Act. 


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(3) Participant as used in paragraphs 

(b)(3) and (d)(14) of this section means 

that if a participant controls another 

participant or is under common control 

with another participant then the 

affiliated participants shall be 

collectively deemed to be a single 

participant for purposes of that 

subparagraph. 

(4) Normal market conditions as used 

in paragraphs (b)(1) and (2) of this 

section means conditions in which the 

expected movement of the price of 

cleared securities would produce 

changes in a clearing agency’s exposures 

to its participants that would be 

expected to breach margin requirements 

or other risk control mechanisms only 

one percent of the time. 

(5) Net capital as used in paragraph 

(b)(7) of this section means net capital 

as defined in Rule 15c3–1 under the Act 

for broker-dealers or any similar risk 

adjusted capital calculation for all other 

prospective clearing members. 

(b) A clearing agency that performs 

central counterparty services shall 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to: 

(1) Measure its credit exposures to its 

participants at least once a day and limit 

its exposures to potential losses from 

defaults by its participants in normal 

market conditions so that the operations 

of the clearing agency would not be 

disrupted and non-defaulting 

participants would not be exposed to 

losses that they cannot anticipate or 

control. 

(2) Use margin requirements to limit 

its credit exposures to participants in 

normal market conditions and use riskbased models and parameters to set 

margin requirements and review them at 

least monthly. 

(3) Maintain sufficient financial 

resources to withstand, at a minimum, 

a default by the participant to which it 

has the largest exposure in extreme but 

plausible market conditions; provided 

that a security-based swap clearing 

agency shall maintain sufficient 

financial resources to withstand, at a 

minimum, a default by the two 

participants to which it has the largest 

exposures in extreme but plausible 

market conditions. 

(4) Provide for an annual model 

validation consisting of evaluating the 

performance of the clearing agency’s 

margin models and the related 

parameters and assumptions associated 

with such models by a qualified person 

who does not perform functions 

associated with the clearing agency’s 

margin models (except as part of the 

annual model validation) and does not 

report to a person who performs these 

functions. 

(5) Provide the opportunity for a 

person that does not perform any dealer 

or security-based swap dealer services 

to obtain membership at the clearing 

agency to clear securities for itself or on 

behalf of other persons. 

(6) Have membership standards that 

do not require that participants 

maintain a portfolio of any minimum 

size or that participants maintain a 

minimum transaction volume. 

(7) Provide a person that maintains 

net capital equal to or greater than $50 

million with the ability to obtain 

membership at the clearing agency, with 

any net capital requirements being 

scalable so that they are proportional to 

the risks posed by the participant’s 

activities to the clearing agency; 

provided, however, that the clearing 

agency may provide for a higher net 

capital requirement as a condition for 

membership at the clearing agency if the 

clearing agency demonstrates to the 

Commission that such a requirement is 

necessary to mitigate risks that could 

not otherwise be effectively managed by 

other measures and the Commission 

approves the higher net capital 

requirement as part of a rule filing or 

clearing agency registration application. 

(c) Record of financial resources and 

annual audited financial report. (1) 

Each fiscal quarter (based on 

calculations made as of the last business 

day of the clearing agency’s fiscal 

quarter), or at any time upon 

Commission request, a clearing agency 

that performs central counterparty 

services shall calculate and maintain a 

record, in accordance with § 240.17a–1 

of this chapter, of the financial 

resources necessary to meet the 

requirements of paragraph (b)(3) of this 

rule and sufficient documentation to 

explain the methodology it uses to 

compute such financial resource 

requirement. 

(2) Each clearing agency shall post on 

its Web site an annual audited financial 

report. Each financial report shall: 

(i) Be a complete set of financial 

statements of the clearing agency for the 

most recent two fiscal years of the 

clearing agency and be prepared in 

accordance with U.S. generally accepted 

accounting principles, except that for a 

clearing agency that is a corporation or 

other organization incorporated or 

organized under the laws of any foreign 

country the financial statements may be 

prepared in accordance with U.S. 

generally accepted accounting 

principles or International Financial 

Reporting Standards as issued by the 

International Accounting Standards 

Board; 

(ii) Be audited in accordance with 

standards of the Public Company 

Accounting Oversight Board by a 

registered public accounting firm that is 

qualified and independent in 

accordance with Rule 2–01 of 

Regulation S–X (17 CFR 210.2–01); and 

(iii) Include a report of the registered 

public accounting firm that complies 

with paragraphs (a) through (d) of Rule 

2–02 of Regulation S–X (17 CFR 210.2– 

02). 

(d) Each clearing agency shall 

establish, implement, maintain and 

enforce written policies and procedures 

reasonably designed to, as applicable: 

(1) Provide for a well founded, 

transparent, and enforceable legal 

framework for each aspect of its 

activities in all relevant jurisdictions. 

(2) Require participants to have 

sufficient financial resources and robust 

operational capacity to meet obligations 

arising from participation in the clearing 

agency; have procedures in place to 

monitor that participation requirements 

are met on an ongoing basis; and have 

participation requirements that are 

objective, publicly disclosed, and 

permit fair and open access. 

(3) Hold assets in a manner whereby 

risk of loss or of delay in its access to 

them is minimized; and invest assets in 

instruments with minimal credit, 

market and liquidity risks. 

(4) Identify sources of operational risk 

and minimize them through the 

development of appropriate systems, 

controls, and procedures; implement 

systems that are reliable, resilient and 

secure, and have adequate, scalable 

capacity; and have business continuity 

plans that allow for timely recovery of 

operations and fulfillment of a clearing 

agency’s obligations. 

(5) Employ money settlement 

arrangements that eliminate or strictly 

limit the clearing agency’s settlement 

bank risks, that is, its credit and 

liquidity risks from the use of banks to 

effect money settlements with its 

participants; and require funds transfers 

to the clearing agency to be final when 

effected. 

(6) Be cost-effective in meeting the 

requirements of participants while 

maintaining safe and secure operations. 

(7) Evaluate the potential sources of 

risks that can arise when the clearing 

agency establishes links either crossborder or domestically to clear trades, 

and ensure that the risks are managed 

prudently on an ongoing basis. 

(8) Have governance arrangements 

that are clear and transparent to fulfill 

the public interest requirements in 

section 17A of the Act applicable to 

clearing agencies, to support the 

objectives of owners and participants, 


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and to promote the effectiveness of the 

clearing agency’s risk management 

procedures. 

(9) Provide market participants with 

sufficient information for them to 

identify and evaluate the risks and costs 

associated with using its services. 

(10) Immobilize or dematerialize 

securities certificates and transfer them 

by book entry to the greatest extent 

possible when the clearing agency 

provides central securities depository 

services. 

(11) Make key aspects of the clearing 

agency’s default procedures publicly 

available and establish default 

procedures that ensure that the clearing 

agency can take timely action to contain 

losses and liquidity pressures and to 

continue meeting its obligations in the 

event of a participant default. 

(12) Ensure that final settlement 

occurs no later than the end of the 

settlement day; and require that 

intraday or real-time finality-be 

provided where necessary to reduce 

risks. 

(13) Eliminate principal risk by 

linking securities transfers to funds 

transfers in a way that achieves delivery 

versus payment. 

(14) Institute risk controls, including 

collateral requirements and limits to 

cover the clearing agency’s credit 

exposure to each participant exposure 

fully, that ensure timely settlement in 

the event that the participant with the 

largest payment obligation is unable to 

settle when the clearing agency provides 

central securities depository services 

and extends intraday credit to 

participants. 

(15) State to its participants the 

clearing agency’s obligations with 

respect to physical deliveries and 

identify and manage the risks from these 

obligations. 

5. Section 240.17Ad–23 is added to 

read as follows: 

§ 240.17Ad–23 Clearing agency policies 

and procedures to protect the 

confidentiality of trading information of 

clearing agency participants. 

Each clearing agency shall establish, 

implement, maintain, and enforce 

written policies and procedures 

reasonably designed to protect the 

confidentiality of any and all 

transaction information that the clearing 

agency receives. Such policies and 

procedures shall include, but are not 

limited to: 

(a) Limiting access to confidential 

trading information of clearing members 

to those employees of the clearing 

agency who are operating the system or 

responsible for its compliance with any 

other applicable laws or rules; and 

(b) Standards controlling employees 

and agents of the clearing agency 

trading for their personal benefit or the 

benefit of others. 

6. Section 240.17Ad–24 is added to 

read as follows: 

§ 240.17Ad–24 Exemption from clearing 

agency definition for certain registered 

securities based swap dealers and 

registered security-based swap execution 

facilities. 

A registered security-based swap 

dealer and a registered security-based 

swap execution facility shall be exempt 

from inclusion in the term clearing 

agency, as defined in section 3(a)(23)(A) 

of the Act, where such registered 

security-based swap dealer or registered 

security-based swap execution facility 

would be deemed to be a clearing 

agency solely by reason of functions 

performed by such institution as part of 

customary dealing activities or 

providing facilities for comparison of 

data respecting the terms of settlement 

of securities transactions effected on 

such registered security-based swap 

execution facility, respectively, or solely 

by reason of acting on behalf of a 

clearing agency or participant therein in 

connection with the furnishing by the 

clearing agency of services to its 

participants or the use of services of the 

clearing agency by its participants. 

7. Section 240.17Ad–25 is added to 

read as follows: 

§ 240.17Ad–25 Clearing agency 

procedures to identify and address 

conflicts of interest. 

Each clearing agency shall establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to identify and 

address existing or potential conflicts of 

interest. Such policies and procedures 

must also be reasonably designed to 

minimize conflicts of interest in 

decision making by the clearing agency. 

8. Section 240.17Ad–26 is added to 

read as follows: 

§ 240.17Ad–26 Standards for board or 

board committee members. 

(a) Each clearing agency shall 

establish governance standards for its 

board members and board committee 

members. 

(b) Such standards shall address at 

least the following areas: 

(1) A clear articulation of the roles 

and responsibilities of directors serving 

on the clearing agency’s board and any 

board committees; 

(2) Director qualifications providing 

criteria for expertise in the securities 

industry, clearance and settlement of 

securities transactions, and financial 

risk management; 

(3) Disqualifying factors concerning 

serious legal misconduct, including 

violations of the Federal securities laws; 

and 

(4) Policies and procedures for the 

periodic review by the board or a board 

committee of the performance of its 

individual members. 

9. Section 240.17Aj–1 is added to read 

as follows: 

§ 240.17Aj–1 Dissemination of pricing and 

valuation information by security-based 

swap clearing agencies that perform 

services as a central counterparty. 

Each security-based swap clearing 

agency that performs services as a 

central counterparty shall make 

available to the public, on terms that are 

fair and reasonable and not 

unreasonably discriminatory, all end-ofday settlement prices and any other 

prices with respect to security-based 

swaps that the clearing agency may 

establish to calculate mark-to-market 

margin requirements for its participants 

and any other pricing or valuation 

information with respect to securitybased swaps as is published or 

distributed by the clearing agency to is 

participants. 

Dated: March 3, 2011. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–5182 Filed 3–15–11; 8:45 am] 

BILLING CODE 8011–01–P 


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