Vol. 78 Monday, 

No. 231 December 2, 2013 

Part VI 

Commodity Futures Trading Commission 

17 CFR Parts 39, 140, and 190 

Derivatives Clearing Organizations and International Standards; Final Rule 


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72476 Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Rules and Regulations 

1 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Public Law 111–203, 124 Stat. 1376 

(2010). The text of the Dodd-Frank Act may be 

accessed at http://www.cftc.gov/ucm/groups/public/ 

@swaps/documents/file/hr4173_enrolledbill.pdf. 2Section 701 of the Dodd-Frank Act. 

3 7 U.S.C. 1 et seq. 

4See Section 725(c)(2)(i) of the Dodd-Frank Act 

(giving the Commission explicit authority to 

promulgate rules regarding the core principles 

pursuant to its rulemaking authority under Section 

8a(5) of the CEA, 7 U.S.C. 12a(5)). 

5See Derivatives Clearing Organization General 

Provisions and Core Principles, 76 FR 69334 (Nov. 

8, 2011). These regulations are set forth in Subpart 

A and Subpart B of part 39 of the Commission’s 

regulations (‘‘Subpart A’’ and ‘‘Subpart B,’’ 

respectively). 

6Section 801 of the Dodd-Frank Act. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 39, 140, and 190 

RIN 3038–AE06 

Derivatives Clearing Organizations and 

International Standards 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’) is 

adopting final regulations to establish 

additional standards for compliance 

with the derivatives clearing 

organization (‘‘DCO’’) core principles set 

forth in the Commodity Exchange Act 

(‘‘CEA’’) for systemically important 

DCOs (‘‘SIDCOs’’) and DCOs that elect 

to opt-in to the SIDCO regulatory 

requirements (‘‘Subpart C DCOs’’). 

Pursuant to the new regulations, 

SIDCOs and Subpart C DCOs are 

required to comply with the 

requirements applicable to all DCOs, 

which are set forth in the Commission’s 

DCO regulations on compliance with 

core principles, to the extent those 

requirements are not inconsistent with 

the new requirements set forth herein. 

The new regulations include provisions 

concerning: procedural requirements for 

opting in to the regulatory regime as 

well as substantive requirements 

relating to governance, financial 

resources, system safeguards, special 

default rules and procedures for 

uncovered losses or shortfalls, risk 

management, additional disclosure 

requirements, efficiency, and recovery 

and wind-down procedures. These 

additional requirements are consistent 

with the Principles for Financial Market 

Infrastructures (‘‘PFMIs’’) published by 

the Committee on Payment and 

Settlement Systems and the Board of the 

International Organization of Securities 

Commissions (‘‘CPSS–IOSCO’’). In 

addition, the Commission is adopting 

certain delegation provisions and 

certain technical clarifications. 

DATES: This rule is effective December 

31, 2013, except for the amendments to 

17 CFR 39.31 and 140.94, which are 

effective December 13, 2013, and the 

amendments to 190.09, which are 

effective December 2, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Ananda Radhakrishnan, Director, 

Division of Clearing and Risk (‘‘DCR’’), 

at 202–418–5188 or aradhakrishnan@

cftc.gov; Robert B. Wasserman, Chief 

Counsel, DCR, at 202–418–5092 or 

rwasserman@cftc.gov; M. Laura Astrada, 

Associate Chief Counsel, DCR, at 202– 

418–7622 or lastrada@cftc.gov; Peter A. 

Kals, Special Counsel, DCR, at 202–418– 

5466 or pkals@cftc.gov; Jocelyn 

Partridge, Special Counsel, DCR, at 202– 

418–5926 or jpartridge@cftc.gov; or 

Tracey Wingate, Special Counsel, DCR, 

at 202–418–5319 or twingate@cftc.gov, 

in each case, at the Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Regulatory Framework for Registered 

DCOs 

B. Designation of DCOs as Systemically 

Important under Title VIII of the DoddFrank Act 

C. Existing Standards for SIDCOs 

D. DCO Core Principles and Regulations for 

Registered DCOs 

E. PFMIs 

F. The Role of the PFMIs in International 

Banking Standards 

G. New Regulations Applicable to SIDCOs 

and Subpart C DCOs 

II. Discussion of Revised and New 

Regulations 

A. Regulation 39.2 (Definitions) 

B. Regulation 39.30 (Scope) 

C. Regulation 39.31 (Election to become 

subject to the provisions of Subpart C) 

D. Regulation 39.32 (Governance for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

E. Regulation 39.33 (Financial resources 

requirements for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

F. Regulation 39.34 (System safeguards for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

G. Regulation 39.35 (Default rules and 

procedures for uncovered credit losses or 

liquidity shortfalls (recovery) for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

H. Regulation 39.36 (Risk management for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

I. Regulation 39.37 (Additional disclosure 

for systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

J. Regulation 39.38 (Efficiency for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

K. Regulation 39.39 (Recovery and winddown for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

L. Regulation 39.40 (Consistency with the 

Principles for Financial Market 

Infrastructures) 

M. Regulation 39.41 (Special enforcement 

authority for systemically important 

derivatives clearing organizations) 

N. Regulation 39.42 (Advance notice of 

material risk-related rule changes by 

systemically important derivatives 

clearing organizations) 

O. Regulation 140.94 (Delegation of 

authority to the Director of the Division 

of Clearing and Risk) 

P. Regulation 190.09 (Member property) 

III. Effective Date 

A. Congressional Review Act 

B. Administrative Procedure Act 

IV. Related Matters 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act 

C. Consideration of Costs and Benefits 

I. Background 

A. Regulatory Framework for Registered 

DCOs 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’).1 Title VII of the 

Dodd-Frank Act, entitled the ‘‘Wall 

Street Transparency and Accountability 

Act of 2010,’’ 2 amended the Commodity 

Exchange Act (‘‘CEA’’ or the ‘‘Act’’) 3 to 

establish a comprehensive regulatory 

framework for over-the-counter (‘‘OTC’’) 

derivatives, including swaps. 

Section 725(c) of the Dodd-Frank Act 

amended Section 5b(c)(2) of the CEA, 

which sets forth core principles that a 

DCO must comply with in order to 

register and maintain registration with 

the Commission. In furtherance of the 

goals of the Dodd-Frank Act to reduce 

risk, increase transparency, and promote 

market integrity, the Commission, 

pursuant to the Commission’s enhanced 

rulemaking authority,4 adopted 

regulations establishing standards for 

compliance with the DCO core 

principles.5

B. Designation of DCOs as Systemically 

Important under Title VIII of the DoddFrank Act 

Title VIII of the Dodd-Frank Act, 

entitled ‘‘Payment, Clearing, and 

Settlement Supervision Act of 2010,’’ 6


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7Section 802(b) of the Dodd-Frank Act. 

8An FMU includes any person that manages or 

operates a multilateral system for the purpose of 

transferring, clearing, or settling payments, 

securities, or other financial transactions among 

financial institutions or between financial 

institutions and the person. Section 803(6)(A) of the 

Dodd-Frank Act. 

9Section 804(a)(1) of the Dodd-Frank Act. The 

term ‘‘systemically important’’ means a situation 

where the failure of or a disruption to the 

functioning of a financial market utility could 

create, or increase, the risk of significant liquidity 

or credit problems spreading among financial 

institutions or markets and thereby threaten the 

stability of the financial system of the United States. 

Section 803(9) of the Dodd-Frank Act. See also 

Authority to Designate Financial Market Utilities as 

Systemically Important, 76 FR 44763, 44774 (July 

27, 2011) (final rule). 

10Under Section 804(a)(2) of the Dodd-Frank Act, 

in determining whether an FMU is or is likely to 

become systemically important, the Council must 

take into consideration the following: (A) The 

aggregate monetary value of transactions processed 

by the FMU; (B) the aggregate exposure of an FMU 

to its counterparties; (C) the relationship, 

interdependencies, or other interactions of the FMU 

with other FMUs or payment, clearing or settlement 

activities; (D) the effect that the failure of or a 

disruption to the FMU would have on critical 

markets, financial institutions or the broader 

financial system; and (E) any other factors the 

Council deems appropriate. 

11 76 FR 44766. 

12See Press Release, Financial Stability Oversight 

Council, Financial Stability Oversight Council 

Makes First Designations in Effort to Protect Against 

Future Financial Crises (July 18, 2012), available at 

http://www.treasury.gov/press-center/pressreleases/Pages/tg1645.aspx. 

13While Chicago Mercantile Exchange, Inc. 

(‘‘CME Clearing’’), ICE Clear Credit LLC (‘‘ICE Clear 

Credit’’), and The Options Clearing Corporation 

(‘‘OCC’’) are the CFTC-registered DCOs that were 

designated as systemically important by the 

Council, the CFTC is the Supervisory Agency only 

for CME Clearing and ICE Clear Credit; the 

Securities and Exchange Commission (‘‘SEC’’) 

serves as OCC’s Supervisory Agency. 

14See Section 803(8)(A) of the Dodd-Frank Act 

(defining ‘‘Supervisory Agency’’ as the federal 

agency that has primary jurisdiction over a 

designated financial market utility under federal 

banking, securities or commodity futures laws). 

15See Section 805(a)(2) of the Dodd-Frank Act. 

The Commission notes that, under section 805 of 

the Dodd-Frank Act, the Commission also has the 

authority to prescribe risk management standards 

governing the operations related to payment, 

clearing, and settlement activities for FMUs that are 

designated as systemically important by the Council 

and are engaged in activities for which the 

Commission is the appropriate financial regulator. 

16Section 752(a) of the Dodd-Frank Act, codified 

at 15 U.S.C. 8325, provides, in relevant part, that 

in order to promote effective and consistent global 

regulation of swaps and security based swaps, the 

CFTC, the SEC, and the prudential regulators (as 

that term is defined in section 1a(30) of the CEA), 

as appropriate, shall consult and coordinate with 

foreign regulatory authorities on the establishment 

of international standards with respect to the 

regulation of swaps and swap entities. In addition, 

section 752(b) of the Dodd-Frank Act states that in 

order to promote effective and consistent global 

regulation of contracts of sale of a commodity for 

future delivery and options on such contracts, the 

CFTC shall consult and coordinate with foreign 

regulatory authorities on the establishment of 

international standards with respect to the 

regulation of contracts of a sale of a commodity for 

future delivery and on options on such contracts. 

17See Financial Resources Requirements for 

Derivatives Clearing Organizations, 75 FR 63113, 

63119 (Oct. 14, 2010) (notice of proposed 

rulemaking) and Risk Management Requirements 

for Derivatives Clearing Organizations, 76 FR 3697 

(Jan. 20, 2011) (notice of proposed rulemaking). 

18Specifically, in that final rulemaking, the 

Commission amended part 39 by creating a Subpart 

C and adding regulations that (1) increased the 

minimum financial resource requirements for 

SIDCOs, (2) restricted the use of assessments by 

SIDCOs in meeting such financial resource 

obligations, (3) enhanced the system safeguards 

requirements for SIDCOs, and (4) granted the 

Commission special enforcement authority over 

SIDCOs pursuant to Section 807 of the Dodd-Frank 

Act. See Enhanced Risk Management Standards for 

Systemically Important Derivatives Clearing 

Organizations, 78 FR 49663 (Aug. 15, 2013) 

(‘‘SIDCO Final Rule’’). 

19 Derivatives Clearing Organizations and 

International Standards, 78 FR 50260 (Aug. 16, 

2013) (notice of proposed rulemaking). 

20For a summary and description of these core 

principles and Commission regulations, see 78 FR 

50262–50263. 

21See Committee on Payment and Settlement 

Systems and the Technical Committee of the 

Continued 

was enacted to mitigate systemic risk in 

the financial system and promote 

financial stability.7 Section 804 of the 

Dodd-Frank Act requires the Financial 

Stability Oversight Council (‘‘Council’’) 

to designate those financial market 

utilities (‘‘FMUs’’) 8 that the Council 

determines are, or are likely to become, 

systemically important.9

In determining whether an FMU is 

systemically important, the Council 

uses a detailed two-stage designations 

process, using certain statutory 

considerations 10 and other metrics to 

assess, among other things, ‘‘whether 

possible disruptions [to the functioning 

of an FMU] are potentially severe, not 

necessarily in the sense that they 

themselves might trigger damage to the 

U.S. economy, but because such 

disruptions might reduce the ability of 

financial institutions or markets to 

perform their normal intermediation 

functions.’’ 11 On July 18, 2012, the 

Council designated eight FMUs as 

systemically important under Title 

VIII.12 Two of these are CFTC-registered 

DCOs 13 for which the Commission is 

the Supervisory Agency.14

C. Existing Standards for SIDCOs 

Section 805 of the Dodd-Frank Act 

directs the Commission to consider 

relevant international standards and 

existing prudential requirements when 

prescribing risk management standards 

governing the operations related to 

payment, clearing, and settlement 

activities for FMUs that are (1) 

designated as systemically important by 

the Council and (2) engaged in activities 

for which the Commission is the 

Supervisory Agency.15 More generally, 

Section 752 of the Dodd-Frank Act 

directs the Commission to consult and 

coordinate with foreign regulatory 

authorities on the establishment of 

consistent international standards with 

respect to the regulation of, among other 

things, swaps, futures, and options on 

futures.16

In 2013, after careful consideration of 

the comments on the rules that it had 

proposed for SIDCOs in 2010 and 

2011,17 and in light of domestic and 

international market and regulatory 

developments, the Commission 

finalized regulations for SIDCOs in a 

manner consistent with the PFMIs.18

Most recently, the Commission 

proposed the regulations for SIDCOs 

and Subpart C DCOs that are being 

adopted herein (the ‘‘Proposal’’).19

D. DCO Core Principles and Regulations 

for Registered DCOs 

As noted in the Proposal, in order to 

register and maintain registration status 

with the Commission, DCOs must 

comply with all of the DCO core 

principles set forth in Section 5b(c)(2) of 

the CEA, as amended by Section 725 of 

the Dodd-Frank Act, as well as all 

applicable Commission regulations. The 

Proposal did, however, identify and 

discuss those core principles and 

related Commission regulations that 

were most relevant to the proposed 

regulations. Specifically, the Proposal 

discussed the following DCO core 

principles and related Commission 

regulations Core Principle B (Financial 

Resources) and regulations 39.11 and 

39.29; Core Principle D (Risk 

Management) and regulation 39.13; Core 

Principle G (Default Rules and 

Procedures) and regulation 39.16; Core 

Principle I (System Safeguards) and 

regulations 39.18 and 39.30; Core 

Principle L (Public Information) and 

regulation 39.21; Core Principle O 

(Governance Fitness Standards); Core 

Principle P (Conflicts of Interest); and 

Core Principle Q (Composition of 

Governing Boards).20

E. PFMIs 

1. Overview 

In the SIDCO Final Rule, the 

Commission determined that, for 

purposes of meeting its obligation 

pursuant to Section 805(a)(2)(A) of the 

Dodd-Frank Act, the PFMIs, which were 

developed by CPSS–IOSCO over a 

period of several years,21 were the 


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International Organization of Securities 

Commissions, ‘‘Principles for Financial Market 

Infrastructures,’’ (April 2012) available at http://

www.iosco.org/library/pubdocs/pdf/

IOSCOPD377.pdf. See also the Financial Stability 

Board June 2012 Third Progress Report on 

Implementation, available at http://

www.financialstabilityboard.org/publications/r_

120615.pdf (Noting publication of the PFMIs as 

achieving ‘‘an important milestone in the global 

development of a sound basis for central clearing 

of all standardised OTC derivatives’’). 

22 In making this determination, the Commission 

noted that ‘‘the adoption and implementation of the 

PFMIs by numerous foreign jurisdictions highlights 

the role these principles play in creating a global, 

unified set of international risk management 

standards for CCPs.’’ See 78 FR 49666. 

23See id., ¶ 1.19. 

24See Committee on Payment and Settlement 

Systems and the Board of the International 

Organization of Securities Commissions Principles 

for Financial Market Infrastructures: Disclosure 

Framework and Assessment Methodology (Dec. 

2012) (hereinafter ‘‘Disclosure Framework and 

Assessment Methodology’’), available at http://

www.iosco.org/library/pubdocs/pdf/

IOSCOPD396.pdf. 

25 Indeed, Subpart A and Subpart B were 

informed by the consultative report for the PFMIs. 

See generally 76 FR 69334. 

26For a summary and description of these 

principles, see 78 FR 50263–50266. 

27The BCBS is comprised of senior 

representatives of bank supervisory authorities and 

central banks from around the world including, 

Argentina, Australia, Belgium, Brazil, Canada, 

China, France, Germany, Hong Kong SAR, India, 

Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, 

the Netherlands, Russia, Saudi Arabia, Singapore, 

South Africa, Spain, Sweden, Switzerland, Turkey, 

the United Kingdom and the United States. See 

Bank for International Settlements, Basel III: A 

Global Regulatory Framework for More Resilient 

Banks and Banking Systems, December 2010 

(revised June 2011), available at http://www.bis.org/ 

publ/bcbs189.htm. 

28See ‘‘Capital Requirements for Bank Exposures 

to Central Counterparties’’ (July 2012), available at 

www.bis.org/publ/bcbs227.pdf. The Basel CCP 

Capital Requirements are one component of Basel 

III, a framework that ‘‘is part of a comprehensive set 

of reform measures developed by the BCBS to 

strengthen the regulation, supervision and risk 

management of the international banking sector.’’ 

See Bank for International Settlement’s Web site for 

compilation of documents that form the regulatory 

framework of Basel III, available at http://

www.bis.org/bcbs/basel3.htm. 

29 ‘‘Bank’’ is defined in accordance with the Basel 

framework to mean a bank, banking group or other 

entity (i.e. bank holding company) whose capital is 

being measured. See ‘‘Basel III: A Global Regulatory 

Framework,’’ Definition of Capital, paragraph 51. 

The term ‘‘bank,’’ as used herein, also includes 

subsidiaries and affiliates of the banking group or 

other entity. The Commission notes that a bank may 

be a client and/or a clearing member of a DCO. 

30See Basel CCP Capital Requirements, Annex 4, 

Section II, 6(i). See generally 78 FR 50266–50267. 

31See Basel CCP Capital Requirements, Section I, 

A: General Terms. 

32CME at 5, n. 18. 

international standards most relevant to 

the risk management of SIDCOs.22 The 

PFMIs set out 24 principles which 

address the risk management and 

efficiency of a financial market 

infrastructure’s (‘‘FMI’’) operations.23

Assessments of observance with the 

PFMIs focus also on the ‘‘key 

considerations’’ set forth for each of the 

principles.24 While Subpart A and 

Subpart B of part 39 of the 

Commission’s regulations incorporate 

the vast majority of the standards set 

forth in the PFMIs,25 the Commission, 

which is a member of the Board of 

IOSCO, has an obligation under Section 

805(a) of the Dodd-Frank Act to 

implement regulations relating to risk 

management that conform with 

applicable international standards. The 

PFMIs are such standards and, with this 

rulemaking, the Commission intends to 

adopt rules and regulations that are 

fully consistent with the standards set 

forth in the PFMIs by the end of 2013. 

To that end, the Commission has 

recognized that in certain instances, the 

standards set forth in the PFMIs may not 

be fully covered by the requirements set 

forth in Subpart A and Subpart B of part 

39 of the Commission’s regulations. 

Thus, this rulemaking revises Subpart C 

to address those gaps, specifically with 

respect to the following PFMI 

principles: Principle 2 (Governance); 

Principle 3 (Framework for the 

comprehensive management of risks); 

Principle 4 (Credit risk); Principle 6 

(Margin); Principle 7 (Liquidity risk); 

Principle 9 (Money settlements); 

Principle 14 (Segregation and 

portability); Principle 15 (General 

business risk); Principle 16 (Custody 

and investment risks); Principle 17 

(Operational risk); Principle 21 

(Efficiency and effectiveness); Principle 

22 (Communication procedures and 

standards); and Principle 23 (Disclosure 

of rules, key procedures, and market 

data).26

F. The Role of the PFMIs in 

International Banking Standards 

The Commission notes that where a 

central counterparty (‘‘CCP’’) is not 

prudentially supervised in a jurisdiction 

that has domestic rules and regulations 

that are consistent with the standards 

set forth in the PFMIs, the 

implementation of certain international 

banking regulations will have 

significant cost implications for that 

CCP and its market participants. In July 

of 2012, the Basel Committee on 

Banking Supervision (‘‘BCBS’’),27 the 

international body that sets standards 

for the regulation of banks, published 

the ‘‘Capital Requirements for Bank 

Exposures to Central Counterparties’’ 

(‘‘Basel CCP Capital Requirements’’), 

which sets forth interim rules governing 

the capital charges arising from bank 

exposures to CCPs related to OTC 

derivatives, exchange traded 

derivatives, and securities financing 

transactions.28 The Basel CCP Capital 

Requirements create financial incentives 

for banks, including their subsidiaries 

and affiliates,29 to clear financial 

derivatives with CCPs that are 

prudentially supervised in a jurisdiction 

where the relevant regulator has 

adopted rules or regulations that are 

consistent with the standards set forth 

in the PFMIs. Specifically, the Basel 

CCP Capital Requirements introduce 

new capital charges based on 

counterparty risk for banks conducting 

financial derivatives transactions 

through a CCP.30 These incentives 

include (1) lower capital charges for 

exposures arising from derivatives 

cleared through a qualified CCP 

(‘‘QCCP’’) and (2) significantly higher 

capital charges for exposures arising 

from derivatives cleared through nonqualifying CCPs. A QCCP is defined as 

an entity that (i) is licensed to operate 

as a CCP, and is permitted by the 

appropriate regulator to operate as such, 

and (ii) is prudentially supervised in a 

jurisdiction where the relevant regulator 

has established and publicly indicated 

that it applies to the CCP, on an ongoing 

basis, domestic rules and regulations 

that are consistent with the PFMIs.31

The failure of a CCP to achieve QCCP 

status could result in significant costs to 

its bank customers. As one market 

participant noted, the ‘‘ramifications for 

failure to achieve QCCP status are 

onerous for banks’ CCP exposures and 

can result in capital charges on trade 

exposures that are 10–20 times larger 

than capital charges for QCCP trade 

exposures.’’ 32 The increased capital 

charges for transactions through nonqualifying CCPs may have significant 

business and operational implications 

for U.S. DCOs that operate 

internationally and are not QCCPs. For 

instance, banks faced with such higher 

capital charges may transfer their 

clearing business away from such DCOs 

to a QCCP in order to benefit from the 

preferential capital charges provided by 

the Basel CCP Capital Requirements. 

Alternatively, banks may reduce or 

discontinue their clearing business 

altogether. Banks may also pass through 

the higher costs of transacting on a nonqualifying DCO that result from the 

higher capital charges to their 

customers. Accordingly, customers 

using such banks as intermediaries may 

transfer their business to an 

intermediary at a QCCP. In short, a 

DCO’s failure to be a QCCP may cause 

it to face a competitive disadvantage in 

retaining members and customers. 


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33See QCCP definition supra Section I.F. 

34All comment letters are available through the 

Commission’s Web site at: http://

comments.cftc.gov/PublicComments/

CommentList.aspx?id=1391. Comments addressing 

the Proposal were received from the European 

Commission and the following parties: CME Group 

Inc. (‘‘CME’’); The Futures Industry Association 

(‘‘FIA’’); IntercontinentalExchange, Inc. (‘‘ICE’’); 

International Swaps and Derivatives Association 

Inc. (‘‘ISDA’’); LCH.Clearnet Group Limited 

(‘‘LCH’’); The Minneapolis Grain Exchange 

(‘‘MGEX’’); New York Portfolio Clearing LLC 

(‘‘NYPC’’); and Chris Barnard. 

35MGEX at 6. 

36 Id. In addition, ISDA’s comment letter 

addressed the Commission’s examination of 

SIDCOs and Subpart C DCOs. Specifically, ISDA 

stated that revised Subpart C should specify 

whether the Commission will evaluate a SIDCO’s or 

Subpart C DCO’s compliance with Subpart C as part 

of its general rule enforcement review program, or 

whether SIDCOs and Subpart C DCOs will be 

subject to a more rigorous and more frequent (e.g., 

annual) review process. ISDA at 4. This comment 

does not pertain to any of the proposed regulations 

and is, therefore, outside the scope of the Proposal. 

However, the Commission notes that Section 807(a) 

of the Dodd-Frank Act requires the Commission to 

examine a SIDCO at least once annually. 

37 78 FR 50297. 

38The Commission intends to cooperate with 

other regulators, both domestically and 

internationally, to foster efficient and effective 

communication and consultation so that we may 

support each other in fulfilling our respective 

mandates with respect to SIDCOs and Subpart C 

DCOs. See PFMIs, Responsibility E. 

39 ISDA at 1. 

40See Section II.E., infra. 

41See id. 

G. New Regulations Applicable to 

SIDCOs and Subpart C DCOs 

As described in detail in section II 

below, this final rulemaking includes a 

new defined term, a Subpart C DCO, to 

allow registered DCOs that are not 

SIDCOs to elect to become subject to the 

provisions in Subpart C of part 39 of the 

Commission’s regulations (‘‘Subpart 

C’’). Further, this rulemaking revises 

Subpart C so that Subpart C applies to 

SIDCOs and Subpart C DCOs, and 

includes new or revised standards for 

governance, financial resources, system 

safeguards, default rules and procedures 

for uncovered losses or shortfalls, risk 

management, disclosure, efficiency, and 

recovery and wind-down procedures. 

These requirements address the 

remaining gaps between the 

Commission’s regulations and the PFMI 

standards. Thus, Subpart C, together 

with the provisions in Subpart A and 

Subpart B, establish domestic rules and 

regulations that are consistent with the 

PFMIs. Because Subparts A, B, and C 

apply to SIDCOs and Subpart C DCOs 

on a continuing basis, SIDCOs and 

Subpart C DCOs should be QCCPs for 

purposes of the Basel CCP Capital 

Requirements.33

The Commission received twelve 

comment letters, nine of which 

commented on the Proposal.34 All nine 

of these letters were generally 

supportive of the Proposal’s goals. 

Given the importance of obtaining 

QCCP status for a U.S.-based DCO, the 

Commission requested comment on 

additional measures that the 

Commission should take to help ensure 

that Subpart C DCOs obtain QCCP 

status. MGEX responded by asserting 

that steps should be taken to ‘‘ensure 

that the [Commission’s] proposed 

regulations will be recognized by 

applicable regulators as being consistent 

with the PFMIs and that all DCOs 

subject to those regulations would be 

considered QCCPs in all relevant 

jurisdictions.’’ 35 MGEX also requested 

that the Commission ‘‘coordinate with 

other regulators’’ to provide a ‘‘uniform 

framework that recognizes the oversight 

provided by multiple regulatory 

jurisdictions so as not to unnecessarily 

burden DCOs with requirements 

established by multiple regulatory 

jurisdictions.36 As noted in the 

Proposal, the Commission believes that 

the Subpart C regulations in 

combination with the provisions 

contained in Subpart A and Subpart B 

would establish domestic rules and 

regulations that are consistent with the 

PFMIs. Because SIDCOs and Subpart C 

DCOs would have the requirements of 

Subpart A, Subpart B and Subpart C 

applied to them on a continuing basis, 

such entities should qualify as QCCPs 

for purposes of the Basel CCP Capital 

Requirements.37 In addition, the 

Commission notes that it actively 

coordinates with other domestic and 

international regulators informally, as 

required by applicable law (such as 

through the rulemaking consultation 

process under Title VIII), and through 

participation in several working groups 

and international organizations (such as 

IOSCO).38 ISDA, which expressed 

support for the Commission’s goal of 

implementing regulations for DCOs that 

are consistent with the PFMIs by the 

end of 2013, suggested that the 

Commission issue this rulemaking as an 

interim final rule ‘‘so that market 

participants will have an opportunity to 

provide additional substantive 

comments.’’ 39 The Commission 

declines to do so. As is the case with 

other regulations, part 39 of the 

Commissions regulations may be 

reviewed or revised by the Commission 

as necessary. 

The following section will address 

discuss the comments received on 

specific aspects of the Proposal in 

connection with explaining each of the 

amended and new regulations adopted 

herein. 

II. Discussion of Revised and New 

Regulations 

A. Regulation 39.2 (Definitions) 

The Commission proposed amending 

regulation 39.2 by revising one 

definition and adding six new defined 

terms. First, the Commission proposed a 

technical amendment to the definition 

of ‘‘systemically important derivatives 

clearing organization.’’ The definition 

had described a SIDCO as a registered 

DCO ‘‘which has been designated by the 

[Council] to be systemically important 

. . .’’ The proposed definition described 

a SIDCO as a registered DCO ‘‘which is 

currently designated . . .’’ 

Second, the Commission proposed to 

add a definition for the phrase ‘‘activity 

with a more complex risk profile,’’ to 

provide greater clarity as to the types of 

activities that would trigger a Cover 

Two financial resources requirement. 

The Commission proposed to define 

‘‘activity with a more complex risk 

profile’’ to include clearing credit 

default swaps, credit default futures, 

and derivatives that reference either 

credit default swaps or credit default 

futures, as well as any other activity 

designated as such by the Commission. 

The phrase ‘‘activity with a more 

complex risk profile’’ currently appears 

in regulation 39.29 (Financial resources 

requirements), which the Commission 

proposed to revise and renumber as 

regulation 39.33.40

The Commission also proposed to add 

a definition for the term ‘‘subpart C 

derivatives clearing organization.’’ The 

proposed definition would include any 

registered DCO that is not a SIDCO and 

that has elected to become subject to 

Subpart C. 

Finally, the Commission proposed to 

add definitions for ‘‘depository 

institution,’’ ‘‘U.S. branch or agency of 

a foreign banking organization,’’ and 

‘‘trust company.’’ These terms are used 

in the provisions concerning liquidity 

set forth in paragraphs (c) and (d) of 

revised regulation 39.29, which the 

Proposal renumbered as regulation 

39.33.41 As proposed, a ‘‘depository 

institution’’ would have the meaning set 

forth in Section 19(b)(1)(A) of the 

Federal Reserve Act (12 U.S.C. 

461(b)(1)(A)). A ‘‘U.S. branch or agency 

of a foreign banking organization’’ 

would mean the U.S. branch or agency 

of a foreign banking organization as 

defined in Section 1(b) of the 

International Banking Act of 1978 (12 

U.S.C. 3101). A ‘‘trust company’’ would 

mean a trust company that is a member 

of the Federal Reserve System, under 


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42MGEX at 4. 

43See also supra Section I.G. 

44See supra Section I.F. 

45LCH at 3. 

46MGEX at 2–3. 

47MGEX at 3. 

48LCH at 3–4; MGEX at 4. 

49As a technical matter, the Commission 

proposed to move existing paragraph (c) of 

renumbered regulation 39.30 (requiring a SIDCO to 

provide notice to the Commission in advance of any 

proposed change to its rules, procedures, or 

operations that could materially affect the nature or 

level of risks presented by the SIDCO, in 

accordance with the requirements of regulation 

40.10) to proposed new regulation 39.42. Because 

the other provisions of proposed regulation 39.30 

would pertain exclusively to the scope of Subpart 

C, it would be appropriate for existing paragraph (c) 

to be codified in a separate regulation. See infra 

Section II.N. for further detail. 

50See SIDCO Final Rule (Discussion of risk 

management standards). See also Section 805(b) of 

the Dodd-Frank Act. 

51See supra Section I.E. 

52PFMIs ¶ 1.15. 

Section 1 of the Federal Reserve Act (12 

U.S.C. 221), but that does not meet the 

definition of ‘‘depository institution.’’ 

The Commission received only one 

comment on the substance of the 

proposed definitions. Chris Barnard 

stated that he approved of the fact that 

the definition of ‘‘activity with a more 

complex risk profile’’ includes credit 

default swaps and other activities 

designated as such by the Commission 

under regulation 39.33(a). 

In addition, the Commission received 

a comment regarding the wording of a 

defined term. MGEX expressed concern 

regarding the title ‘‘Subpart C DCO.’’ 

Specifically, MGEX stated that the title 

‘‘itself implies to the public that the 

[Subpart C] DCO is of significantly 

lesser status’’ as compared to a SIDCO.42

MGEX requested that the Commission 

instead use the term ‘‘Qualified Central 

Counterparty’’ in its regulations and to 

define that term to include any DCO 

that is held to the standards set forth in 

Subpart C. The Commission declines to 

adopt this suggestion. 

SIDCOs and registered DCOs that 

elect to opt-in to these heightened 

standards are not identically situated in 

that a SIDCO is required to comply with 

the standards set forth in Subpart C 

because of its importance to the US 

financial markets. In other words, a 

Subpart C DCO may rescind its election 

whereas a SIDCO may not. In addition, 

there may be circumstances in which 

the Commission may want to apply a 

particular regulation only to SIDCOs. 

For example, regulation 39.41, enacted 

pursuant to section 807c of the DoddFrank Act, grants the Commission 

special enforcement authority over 

SIDCOs, but not Subpart C DCOs. 

Moreover, SIDCOs are required to 

comply with regulation 40.10, enacted 

consistent with section 806 of the DoddFrank Act, which, among other things, 

requires them to provide notice to the 

Commission not less than 60 days in 

advance of proposed changes to their 

rules, procedures, or operations that 

could materially affect the nature or 

level of risks presented by the 

systemically important derivatives 

clearing organization. This requirement 

is not imposed on Subpart C DCOs. 

Thus, it is necessary and appropriate for 

the Commission to retain the ability to 

differentiate between SIDCOs and other 

registered DCOs in its regulations. 

Moreover, as discussed below, MGEX 

and other commenters have noted that 

the proposed opt-in structure is 

important in that it allows registered 

DCOs that are not SIDCOs to be eligible 

for QCCP status. Once a Subpart C DCO 

successfully attains QCCP status, the 

Commission notes that, in general, its 

regulations do not prohibit a Subpart C 

DCO (or a SIDCO) from stating that it is 

a QCCP in its marketing materials. 

Indeed, the Commission expects that 

Subpart C DCOs would market 

themselves as QCCPs, which is why a 

Subpart C DCO is prohibited from 

marketing itself as a QCCP while in the 

process of rescinding its election. 

For the reasons stated above, the 

Commission believes that the proposed 

revised and new definitions are 

appropriate and, therefore, is adopting 

them as proposed. 

B. Regulation 39.30 (Scope) 

The Commission proposed expanding 

regulation 39.28 (and renumbering it 

regulation 39.30) so that Subpart C 

would apply to SIDCOs and Subpart C 

DCOs. As described above, the rules 

proposed in Subpart C address the gaps 

between Commission regulations and 

the standards set forth in the PFMIs.43

As such, a DCO that is subject to the 

requirements of Subpart A, Subpart B, 

and Subpart C should meet the 

requirements for QCCP status and 

benefit from the lower capital charges 

on clearing member banks and bank 

customers of clearing members for 

exposures resulting from derivatives 

cleared through QCCPs.44 Such a DCO 

may also be viewed more favorably by 

potential members or customers of 

members in that it would be seen to be 

held to international standards. 

The Commission requested comment 

on the proposed rules. 

LCH and MGEX argued that the 

amended and new provisions of Subpart 

C should pertain to all registered DCOs. 

LCH asserted that the BCBS capital rules 

provide significant incentives for a DCO 

to meet the high standards embodied in 

the PFMIs or face the real risk that bank 

clearing members will cease to clear 

through them and therefore all DCOs 

should be required to comply with these 

standards.45 MGEX argued that the 

Commission’s proposed opt-in regime 

grants SIDCOs an unfair competitive 

advantage over other DCOs.46 MGEX 

suggested that the Commission consider 

holding all registered DCOs to these 

higher standards and to provide an 

‘‘opt-out’’ mechanism for those 

registered DCOs that are not SIDCOs 

that do not wish to attain QCCP status.47

In addition, LCH and MGEX requested 

that, if the Commission elects to finalize 

the proposed regulations with the optin regime, DCOs be permitted to petition 

the Commission for additional time to 

comply with all of the Subpart C 

regulations.48

The Commission has decided to adopt 

regulation 39.30 as proposed. First, 

because of the potential benefits 

resulting from QCCP status, as described 

above, the Commission believes that a 

DCO that has not been designated to be 

systemically important should have the 

option to elect to become subject to 

Subpart C.49 However, the Commission 

does not believe that a DCO that is not 

a SIDCO should be required to be held 

to Subpart C if it does not elect to 

because of the potential costs associated 

with compliance with these standards. 

In addition, and as discussed in more 

detail below, those DCOs that elect to be 

held to Subpart C may choose the 

effective date of their election. Because 

a Subpart C DCO is not required to 

comply with the regulations set forth in 

Subpart C until the specified effective 

date, a Subpart C DCO has a certain 

amount of control over the date on 

which it must comply with the Subpart 

C regulations. 

Further, the Commission concludes 

that a SIDCO should be required to 

comply with revised Subpart C in order 

to maintain risk management standards 

that enhance the safety and efficiency of 

a SIDCO, reduce systemic risks, foster 

transparency, and support the stability 

of the broader financial system.50 In 

order to support financial stability, a 

SIDCO must operate in a safe and sound 

manner. If it fails to measure, monitor, 

and manage its risks effectively, a 

SIDCO could pose significant risk to its 

participants and the financial system 

more broadly.51 The Commission shares 

the stated objectives of the PFMIs, 

namely to enhance the safety and 

efficiency of FMIs and, more broadly, 

reduce systemic risk and foster 

transparency and financial stability.52

As discussed in the Proposal, the PFMIs 


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53See 78 FR 50260, 50268. 54See discussion of the role of the PFMIs in 

international banking standards supra Section I.F., 

78 FR 50266–9. 55See Basel CCP Capital Requirements at Section 

I.A.: General Terms. 56As noted above, banks alternatively may reduce 

or discontinue their clearing business or pass 

through to their customers any higher costs of 

transacting through a DCO that is not a QCCP. See 

discussion of the role of the PFMIs in International 

Banking Standards supra Section I.F; 78 FR 50267, 

50269. 

57See discussion of the new regulations 

applicable to SIDCOs and Subpart C DCOs supra 

Section I.G. 

58 Id. 

59Comments on proposed regulation 39.31 were 

received from the European Commission, FIA, 

ISDA, LCH and MGEX. 

60See, e.g., European Commission at 1, LCH at 2, 

MGEX at 1–2. 

61LCH at 1. See also MGEX at 1 (‘‘MGEX 

applauds the Commission for attempting to 

establish an avenue by which DCOs not designated 

as systemically important could qualify for [QCCP] 

status.’’). 

62European Commission at 1. 

63See LCH at 2–4, MGEX at 2–6. 

64See LCH at 3, MGEX at 3. 

65LCH at 2. 

66MGEX at 2. 

67 Id. 

68MGEX at 3–4. 

69MGEX at 3. 

70 Id. 

71See LCH at 2–4, MGEX at 3–4. 

72The Commission notes that, there is no general 

‘‘compliance deadline’’ for non-SIDCO DCOs. While 

a non-SIDCO that wishes to become a Subpart C 

DCO must satisfy all of the Subpart C requirements 

(except the specific obligations for which the DCO 

is permitted to apply for additional time to comply) 

at the time it elects to become subject to Subpart 

C, a DCO is not required to make that election at 

any particular time or at all, unless it determines 

that the cost of such compliance is usurped by the 

benefits it would receive through Subpart C status. 

73LCH at 2–4, MGEX at 3–4. 

have been adopted and implemented by 

numerous foreign jurisdictions.53 The 

Commission notes that none of the 

commenters opposed holding all 

SIDCOs to the Subpart C regulations. 

The Commission believes that a global, 

unified set of international risk 

management standards for systemically 

important CCPs can help support the 

stability of the broader financial system. 

As such, for the reasons described above 

and in the Proposal, the Commission 

believes that SIDCOs should be required 

to comply with all of the requirements 

set forth in part 39 of the Commission’s 

regulations, including the standards set 

forth in Subpart C, as revised herein. 

C. Regulation 39.31 (Election to become 

subject to the provisions of Subpart C) 

As discussed above and in the 

Proposal,54 the Basel CCP Capital 

Requirements impose significantly 

higher capital charges on banks 

(including their subsidiaries and 

affiliates) that clear financial derivatives 

through CCPs that do not qualify as 

QCCPs (i.e., CCPs that are licensed and 

supervised in a jurisdiction where the 

relevant regulator applies to the CCP, on 

an ongoing basis, domestic rules and 

regulations that are not consistent with 

the PFMIs).55 Because such charges 

could create incentives for banks to 

migrate their business to CCPs that are 

QCCPs or to avoid clearing,56 U.S. DCOs 

that operate internationally, but are not 

QCCPs, may face a substantial 

competitive disadvantage. The Subpart 

C requirements, as amended herein, 

address any remaining gaps between the 

Commission’s existing regulations and 

the PFMI standards.57 Accordingly, a 

DCO that is subject to the collective 

obligations contained in Subpart A, 

Subpart B and Subpart C should be a 

QCCP for purposes of the Basel CCP 

Capital Requirements.58

Regulation 39.31, as proposed, would 

provide a mechanism whereby a DCO 

that has not been designated by the 

Council as systemically important may 

elect to become subject to the provisions 

of Subpart C (i.e., may ‘‘opt’’ to become 

subject to the regulations otherwise 

applicable only to SIDCOs) and, 

thereby, attain QCCP status, should the 

DCO individually determine that the 

benefits of achieving such status 

outweigh the costs associated with 

implementing the Subpart C regulations. 

The Commission also proposed 

procedures for withdrawing or 

rescinding that election. 

The Commission received five 

comment letters regarding proposed 

regulation 39.31.59 These comments 

generally supported the adoption of 

procedures that would provide nonSIDCO DCOs the opportunity to become 

QCCPs through adherence to an 

enhanced regulatory regime.60 LCH, for 

example, ‘‘strongly supported’’ the 

adoption of ‘‘heightened regulatory 

standards that would allow both 

SIDCOs and non-SIDCOs to be 

QCCPs.’’ 61 The European Commission 

similarly stated that central 

counterparties ‘‘that wish to operate 

under safer standards and compete on 

the basis of the quality of their riskmanagement . . . should not be 

prevented from doing so.’’ 62

MGX and LCH disagreed, however, 

with the proposed ‘‘opt-in’’ approach 

and suggested alternative means for 

achieving the Commission’s 

objectives.63 As mentioned above, both 

LCH and MGEX suggested that the 

Commission require all currently 

registered DCOs to be held to the 

enhanced regulatory requirements 

proposed to be applicable only to 

SIDCOs and Subpart C DCOs.64 LCH 

asserted that ‘‘it is important for all 

CCPs which clear swaps and other 

derivatives . . . to adhere to the higher 

standards.’’ 65 MGEX claimed that 

requiring DCOs that have not been 

designated by the Council as 

systemically important to ‘‘opt-in’’ to 

Subpart C compliance is ‘‘unnecessarily 

burdensome and discriminatory’’ in 

comparison to the regulatory treatment 

of SIDCOs.66 In support of its position, 

MGEX noted that SIDCOs will be held 

to the same standards as Subpart C 

DCOs, but will not be required to submit 

a Subpart C Election Form, or to 

otherwise engage in the Subpart C 

election process in order to become a 

QCCP.67 MGEX contended that 

requiring all currently registered DCOs 

to be held to the enhanced regulatory 

regime would negate the need for a 

Subpart C Election Form and, therefore, 

would treat all DCOs identically in 

terms of their registration status and 

requirements, which would enable 

DCOs to spend the time that they would 

otherwise spend on preparing a Subpart 

C Election Form on ensuring their 

compliance with the Subpart C 

regulations.68

MGEX recognized, however, ‘‘a 

number of potential issues’’ with 

universal application of the Subpart C 

requirements.69 For example, this 

proposed alternative, by itself, would 

not provide flexibility for DCOs that do 

not wish to be held to the higher 

standards and could require the 

Commission to expend ‘‘considerable 

resources to verify compliance for each 

currently registered DCO shortly after 

implementation’’ and to engage in the 

processes necessary to revoke the 

Subpart C DCO status of those DCOs 

that fail to satisfy the proposed 

regulations.70 Both MGEX and LCH 

suggested alternatives. Specifically, 

these commenters recommended that 

the Commission replace the proposed 

‘‘opt-in’’ regime with a regime under 

which the Subpart C standards would 

be applicable to all DCOs, but a DCO 

would be permitted to ‘‘opt-out’’ of the 

heightened standards, if it believed that 

attaining QCCP status was not important 

for its business.71 Both entities 

recommended that the opt-out regime be 

accompanied by an extension of the 

compliance deadline 72 for all or some of 

the substantive proposed Subpart C 

regulations.73 Specifically, LCH and 

MGEX voiced concern that it would be 

difficult or unlikely for non-SIDCO 

DCOs to satisfy the Subpart C election 

and implementation requirements 

necessary to achieve QCCP status prior 


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74LCH at 2, MGEX at 2. The Basel III 

Counterparty Credit Risk and Exposures to Central 

Counterparties-Frequently Asked Questions (‘‘Basel 

III FAQs’’) state that, if a CCP’s primary regulator 

has publicly stated that it is working towards 

implementing regulations consistent with the 

PFMIs, then such CCP may be treated as a QCCP 

until December 31, 2013. After December 31, 2013, 

the Basel III FAQs state that the CCP’s primary 

regulator must have implemented regulations 

consistent with the PFMIs and these regulations 

must be applied to the CCP on an ongoing basis in 

order for such CCP to be eligible for QCCP status. 

See Basel III FAQs, Question 5.6, available at: 

http://www.bis.org/publ/bcbs237.pdf. 

75See LCH at 3, 4. 

76MGEX at 4. 

77See LCH at 3, 4. 

78See LCH at 3, MGEX at 3. 

79See LCH at 4, MGEX at 2. 

80MGEX at 2. 

81LCH at 4. In support of this assertion, however, 

LCH cites to just one aspect of the Subpart C 

requirements—the recovery and wind-down 

plans—which may not be required of certain EU 

CCPs in order to become and maintain QCCP status. 

Specifically, LCH asserts that ‘‘CCPs in the 

European Union will not be required to provide 

recovery and wind-down plans to become and 

remain QCCPs as EMIR, which implements the 

PFMIs in Europe, does not include such a 

requirement. EU legislation implementing the 

recovery and wind resolution aspects of the PMIs 

is not expected to be proposed by the European 

Commission until early next year’’ and 

‘‘implementation is unlikely before 2016 at the 

earliest.’’ Id. LCH also notes that laws in some EU 

jurisdictions will require CCPs to have recovery 

plans prior to implementation of EU legislation. 

LCH at 4, n. 4. As noted below, the Commission 

will permit SIDCOs and Subpart C DCOs the 

opportunity to request that the Commission grant 

the SIDCO or Subpart C DCO an extension of the 

deadline with respect to recovery and wind-down 

plans for up to one year. See infra Section II.K. 

(Regulation 39.39 (Recovery and wind down for 

systemically important derivatives clearing 

organizations and subpart C derivatives clearing 

organizations)). 

82See LCH at 2, 4. LCH claims that requiring a 

Subpart C DCO to comply with the Subpart C 

regulations by the end of 2013 would ‘‘likely result 

in Subpart C DCO’s not being able to achieve QCCP 

status prior to that time’’ and that the failure of a 

Subpart C DCO to achieve QCCP status would put 

the Subpart C DCO at a completive disadvantage to 

non-QCCPs that are ‘‘grandfathered’’ as QCCPs. 

LCH at 2. As noted below, the Commission believes 

that permitting Subpart C DCOs a broad-based 

opportunity to delay compliance with the Subpart 

C regulations, as suggested by LCH, could put a 

DCO at greater risk of failing to obtain QCCP status. 

83See 78 FR 50268–50269. 

84See discussion of existing standards for SIDCOs 

supra Section I.C. 

85See infra Section II.F. (Regulation 39.34 

(System safeguards for systemically important 

derivatives clearing organizations and subpart C 

derivatives clearing organizations)), Section G 

(Regulation 39.35 (Default rules or procedures for 

uncovered credit losses or liquidity shortfalls 

(recovery) for systemically important derivatives 

clearing organizations and subpart C derivatives 

clearing organizations)), and Section II.K 

(Regulation 39.35 (Recovery and wind-down for 

systemically important derivatives clearing 

organizations and subpart C derivatives clearing 

organizations)). 

to December 31, 2013.74 LCH 

specifically stated that additional time 

is necessary to come into compliance 

with the regulations ‘‘governing 

financial resources, system safeguards, 

risk management, and recovery and 

wind-down plans.’’ 75 Both MGEX and 

LCH commented on the particular 

difficulty of developing a recovery and 

wind down plan citing, respectively, the 

‘‘complexity and potential effects the 

contents of such a plan would have on 

the operation of a DCO’’ 76 and the fact 

that the Commission has not previously 

proposed any requirements with respect 

to such plans.77

In support of their requests for 

additional time to comply with the 

Subpart C requirements, LCH and 

MGEX cited the time needed to identify 

gaps between their current rules and 

procedures and the Subpart C 

regulations, to implement any necessary 

changes to comply with the Subpart C 

regulations, and to prepare and submit 

their Subpart C Election Forms.78 Both 

entities objected to the amount of time 

between the publication of the Proposal 

and the time when compliance will be 

required in order to qualify for QCCP 

status by the end of the 2013.79

MGEX also objected to the alleged 

disparate treatment afforded SIDCOs 

which ‘‘have been able to prepare for 

compliance with the enhanced 

standards at least since the release of the 

PFMIs in April 2012.’’ 80 In addition, 

LCH asserted that, as proposed, the 

Commission would be requiring Subpart 

C DCOs to come into compliance with 

all aspects of the PFMIS ‘‘prior to many 

non-US CCPs.’’ 81 LCH suggested that 

adopting the final regulations, but 

permitting compliance at a later date, 

would allow the Commission to adopt 

the PFMIs prior to the end of 2013 

while, at the same time, providing DCOs 

with an ‘‘ability to achieve QCCP status 

by the end of 2013.’’ 82

The Commission continues to believe 

that non-SIDCO DCOs that are willing 

and able to satisfy the enhanced 

regulatory requirements contained in 

Subpart C, should, when they are able 

to do so, be afforded the opportunity to 

attain QCCP status and to reap the 

benefits that may result from that 

designation 83 and that the application 

of Subpart C non-SIDCO DCOs that wish 

to become subject to regulations that are 

consistent with the standards set forth 

in the PFMIs helps promote the 

international consistency called for in 

Section 752 of the Dodd-Frank Act.84

Commenters addressing proposed 

regulation 39.31 were unanimously 

supportive of this objective. 

Accordingly, the Commission has 

determined to adopt a regulatory 

framework that permits a DCO that has 

not been designated as systemically 

important by the Council to elect to 

become subject to the heightened 

standards set forth in Subpart C. 

In response to the comments 

recommending that the’’ Commission 

apply the regulatory requirements to all 

DCOs or employ an ‘‘opt-out’’ regime in 

lieu of the proposed ‘‘opt-out’’ 

procedures, the Commission notes that 

neither commenter advocating such 

alternatives provided any quantitative 

data or qualitative analyses of the costs 

and benefits of its suggested 

alternatives, particularly as compared to 

the Commission’s Proposal. The 

Commission believes it would be 

inappropriate to adopt the proffered 

alternatives absent such analyses and 

without sufficient opportunity for the 

public to review and comment upon 

them. 

The Commission also is concerned 

that an ‘‘opt-out’’ regime would unfairly 

shift certain costs associated with the 

Subpart C regulations to those nonSIDCO DCOs that do not intend to avail 

themselves of the opportunity to 

become QCCPs. Specifically, regulation 

39.31, as proposed and finalized herein, 

would require only those non-SIDCO 

DCOs that wish to become subject to the 

Subpart C regulations (and to attain the 

benefits of QCCP status) to complete 

and file a Subpart C Election Form. 

Non-SIDCO DCOs that do not wish to 

become subject to the Subpart C 

regulations (nor to obtain the benefits of 

QCCP status) are not obligated to take 

any further action. In contrast, an ‘‘optout’’ regime would impose an obligation 

to file an opt-out application on those 

DCOs that do not intend to seek the 

benefit of QCCP status, while removing 

the Subpart C Election Form obligation 

from those DCOs that do. 

In response to commenters’ requests 

for additional time for Subpart C DCOs 

to comply with the new Subpart C 

regulations, and as discussed in more 

detail below, the Commission has 

determined that it would be appropriate 

to permit SIDCOs and Subpart C DCOs 

to request extensions of time to comply 

with the requirements for system 

safeguards, default rules and procedures 

for uncovered credit losses or liquidity, 

and recovery and wind-down plans 

contained in regulations 39.34, 39.35 

and 39.39, respectively.85 The 

Commission is declining, however, to 

permit requests from a DCO for, or to 

generally provide, a wholesale 

extension of time to comply with the 

new Subpart C regulations. Thus, a DCO 

seeking to become a Subpart C DCO will 

otherwise be required to be in 

compliance with the Subpart C 

regulations at the time it makes its 


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86Notwithstanding its timing concerns, LCH has 

indicated that it intends to ‘‘take advantage of the 

Subpart C election process. LCH at 3. 87See supra n 91. 

88See supra Section I.F. (The Role of the PFMIs 

in International Banking Standards). 

89 Joint Press Release, Board of Governors of the 

Federal Reserve System, the Commodity Futures 

Trading Commission and the Securities and 

Exchange Commission, CPSS–IOSCO Issue Final 

Report on Principles for Financial Market 

Infrastructures’’ (April 16, 2012). 

90Basel III FAQs at 23. In the Final SIDCO Rule 

the Commission explicitly advised the public of its 

intention toward implementing regulations that are 

fully consistent with the PFMIs by the end of 2013. 

See SIDCO Final Rule at 4966 (‘‘Moreover, the 

Commission, which is a member of the Board of 

IOSCO, is working towards implementing rules and 

regulations that are fully consistent with the PFMIs 

by the end of 2013’’). 

91 78 FR 50298. 

92 78 FR 50271, 50298–99. 

93See supra Section II.C. (Regulation 39.31 

(Election to become subject to the provisions of 

Subpart C)). 

94MGEX at 5. 

95MGEX at 5 (citing 78 FR 50271). 

96 78 FR 50271. 

97This distinction is even more important in the 

case of a clearing organization, such as MGEX, that 

was ‘‘grandfathered in’’ to DCO status under the 

Commodity Futures Modernization Act of 2000 

(Pub. L. No. 106–554, 114 Stat. 2763, sec. 112(f) 

(adding sec. 5a(b) to the CEA) and thus never filed 

an application for registration as a DCO. 

98See Subpart C Election Form, Exhibit 

Instructions at no 2, (‘‘If the [DCO] is an Applicant, 

in its Form DCO, the [DCO] may summarize such 

information and provide a cross reference to the 

Exhibit in this Subpart C Election Form that 

contains the required information’’ (emphasis 

added)). 

Subpart C election. The new Subpart C 

regulations finalized herein seek to 

provide DCOs that have not been 

designated by the Council as 

systemically important the opportunity 

to qualify as QCCPs. Despite LCH’s 

assertion to the contrary,86 the 

Commission is concerned that a broadbased extension of the compliance 

deadline (in contrast to individually 

justified extensions with respect to 

particular requirements) would be more 

likely to jeopardize the ability of a 

Subpart C DCO to achieve QCCP status. 

As noted above, rules and regulations 

that are consistent with the PFMIs must 

be implemented by the end of 2013.87

Moreover, as noted above, a QCCP is 

defined, in part, as a CCP that is 

prudentially supervised in a jurisdiction 

where the relevant regulator applies to 

the CCP, on an ongoing basis, domestic 

rules and regulations that are consistent 

with the PFMIs.88

The Commission further notes that a 

non-SIDCO DCO is obligated to comply 

with the Subpart C regulations only if— 

and when—the DCO affirmatively elects 

to become subject to such regulations, 

based upon its own examination of the 

benefits (including, but not limited to, 

the opportunity to attain QCCP status) 

and burdens thereof. No non-SIDCO 

DCO is obligated to elect to become a 

Subpart C DCO and thereby comply 

with the Subpart C regulations by 

December 31, 2013 or any other date 

unless it believes that it is prudent to do 

so in light of its particular business. The 

Commission stands ready to review the 

application of any DCO that is prepared 

to be held to the Subpart C standards, 

whether the DCO is prepared to do so 

on December 31, 2013 or any later date. 

The Commission also disagrees with 

commenters’ assertions that potential 

Subpart C DCOs have only recently been 

advised of the nature of the additional 

regulations to which they, if they 

choose, will be subject. The final PFMIs 

were published in April of 2012. In the 

same month, the Commission and other 

domestic financial regulators issued a 

joint press release explicitly notifying 

the public of the publication of the final 

PFMIs.89 At a minimum, therefore, 

DCOs have been on notice of the 

specific requirements of the PFMIs since 

April 2012. Moreover, the Basel CCP 

Capital Requirements were published in 

July of 2012, and as mentioned above, 

the Basel FAQs, which were published 

in December of 2012, state that during 

2013, if a CCP regulator has not yet 

implemented the PFMIs but has 

publicly stated that it is working 

towards implementing these principles, 

the CCPs that are regulated by the CCP 

regulator may be treated as QCCPs.90

Thus, by December of 2012, DCOs were 

on notice of the preferential capital 

treatment that would result from 

becoming subject to regulations that are 

consistent with the PFMIs by the end of 

2013. 

1. Regulation 39.31(a)—Eligibility 

Requirements 

Regulation 39.31(a), as proposed, set 

forth the two categories of entities that 

would be eligible to elect to become 

subject to the provisions in Subpart C. 

As proposed: (1) A DCO that is not a 

SIDCO could request such election 

using the procedures set forth in 

proposed regulation 39.31(b) and (2) an 

entity applying for registration as a DCO 

pursuant to regulation 39.3 (‘‘DCO 

Applicant’’) could request the election 

in conjunction with its application for 

registration (‘‘Registration Application’’) 

using the procedures set forth in 

proposed regulation 39.31(c). The 

Commission did not receive any 

comments specifically addressing 

proposed regulation 39.31(a). 

Accordingly, for the reasons cited in the 

Proposal,91 the Commission is adopting 

regulation 39.31(a) as proposed. 

2. Regulation 39.31(b)—Subpart C 

Election and Withdrawal Procedures for 

Registered DCOs 

Regulation 39.31(b), as proposed, 

would establish the procedures by 

which a DCO that is already registered 

could elect to become subject to the 

provisions of Subpart C and the 

procedure by which the DCO could 

withdraw that election.92 Comments 

generally addressing the Proposal to 

adopt regulations that would permit a 

DCO to elect to become subject to 

Subpart C (i.e., comments on the ‘‘optin’’ regime) are discussed above.93 In 

addition, the Commission received one 

comment referencing the Subpart C 

Election Form. MGEX asserted that the 

Commission should ‘‘waive’’ the 

Subpart C Election Form as ‘‘it seems 

overly burdensome and costly for a 

currently registered DCO to be required 

to complete an entirely new application 

which calls for submission of the same 

or similar information and analysis that 

the DCO previously provided [in its 

DCO Application]’’.94 In support of this 

request, MGEX cites to a statement in 

the Proposal that the Commission 

‘‘anticipates considerable overlap 

between the information and 

documentation contained in the 

Registration Application files [sic] by a 

DCO Applicant and the information and 

documentation that would be required 

to be submitted to the Commission as 

part of the Subpart C Election Form.’’ 95

This reference is misplaced. The cited 

statement was made in the portion of 

the Proposal describing the proposed 

election and withdrawal procedures for 

new DCO applicants.96 The ‘‘overlap in 

information and documentation’’ to 

which the Commission was referring is 

the overlap between the materials that 

would be submitted by new applicants 

for DCO registration in their DCO 

applications and the materials that a 

newly registered DCO would supply as 

part of a Subpart C Election Form 

submitted shortly thereafter.97 In 

contrast, the information supplied by a 

currently registered DCO as part of the 

Form DCO that was filed when such 

DCO applied for registration is likely to 

be stale and would need to be 

updated.98 Moreover, the Subpart C 

Election Form simply calls for the 

electing DCO to demonstrate its 

compliance with the requirements of 

Subpart C, with fairly minimal 

formatting requirements. The form is 

intended to provide the Commission, 

clearing members, and customers (and, 

significantly, the regulators of such 


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99See 78 FR 50269. 

100MGEX at 5. 

101 Id. 

102See supra Section II.I. (Regulation 39.37 

(Additional disclosure for systemically important 

derivatives clearing organizations and subpart C 

derivatives clearing organizations)). 

103MGEX at 8–9. 

104 78 FR 50272. 

105MGEX at 5. 

106 78 FR 50268–69. 

107See infra at sections II.F. (Regulation 39.34— 

System Safeguards), II.G. (Regulation 39.35— 

Default Rules and Procedures), and II.K. (Regulation 

39.39 (Recovery and Wind-Down). 

108Regulation 39.34(d), as finalized herein, 

provides that the Commission may, upon request, 

grant a SIDCO or Subpart C DCO an extension of 

up to one year to comply with any of the provisions 

of regulation 39.34. Regulation 39.39(f), as finalized 

herein, similarly provides that a SIDCO or Subpart 

C DCO, upon request, may be granted an extension 

of up to one year to comply with the provisions of 

regulations 39.35 and 39.39. Any such requests 

made by a DCO seeking to become a Subpart C DCO 

will become part of that DCO’s Subpart C Election 

Form. 

109The Commission notes that it is not 

prescribing a particular time period elapse between 

the filing of applications for compliance extensions 

and the filing of the Subpart C Election Form. 

110 78 FR 50269–50270. 

111See infra Section II.C.5. (Regulation 39.31(e)— 

Rescission). 

112See supra Section II.C. (Regulation 39.31 

(Election to become Subject to Subpart C) for a 

discussion of comments regarding the proposed 

opt-in regime and process generally and the Subpart 

C Election Form. 

113 78 FR 50271. 

clearing members and customers) with 

assurance that the electing DCO will be 

held to and will be required to meet the 

standards set forth in Subpart C.99 Thus, 

the Commission continues to believe 

that it is necessary and appropriate to 

require DCOs electing to become subject 

to Subpart C to submit such information 

to the Commission. 

MGEX further asserts that the Subpart 

C Election Form requirement puts 

Subpart C DCOs at a risk of ‘‘delayed 

regulatory approval’’ not borne by 

SIDCOs, which it claims are 

‘‘grandfathered in to Subpart C . . . due 

to their SIDCO status.’’ 100 MGEX states 

that to ‘‘ensure equal treatment’’ among 

all DCOs, any requirements to provide 

information as part of the Subpart C 

election process should be imposed 

upon SIDCOs as well.101 The 

Commission notes that SIDCOs, having 

been designated as systemically 

important by the Council, are subject to 

annual examinations under Title VIII 

and are, therefore, in a different position 

than DCOs that have not been so 

designated, but wish to elect to be held 

to the same international standards in 

an effort to attain QCCP status. The 

Commission also notes that SIDCOs, as 

well as Subpart C DCOs, are required by 

regulation 39.37, as finalized herein, to 

complete and publically disclose their 

responses to the Disclosure 

Framework.102 As such, and since 

SIDCOs are required to be subject to the 

Subpart C regulations, the Commission 

does not feel it necessary to require 

SIDCOs to complete a Subpart C 

Election Form. In addition, because the 

Commission declines to require all 

DCOs to comply with the regulations in 

Subpart C, the Subpart C Election Form 

is necessary to provide a mechanism by 

which a registered DCO may elect to 

become subject to Subpart C. 

In its comments on proposed 

regulation 39.37, MGEX also asserted 

that, while requiring the submission of 

a Quantitative Disclosure Document is 

‘‘consistent with the PFMIs,’’ the 

Commission should delay 

implementation of this requirement 

until the Quantitative Disclosure 

Document is finalized in order to allow 

DCOs time to review and comment 

upon it or to otherwise prepare for 

compliance.103 The Commission 

confirms that, as noted in the Subpart C 

Election Form, as proposed and 

finalized herein, completion and 

publication of the Quantitative 

Information Disclosure will not be 

required until the criteria for such 

disclosure has been finalized and 

published, which has not yet occurred. 

Finally, MGEX responded to the 

Commission’s request for comment104

on whether or not the Commission 

should add a requirement that the 

certifications contained in the Subpart C 

Election Form be made under penalty of 

perjury. MGEX opposed the addition of 

this requirement.105 The Commission 

notes that such a requirement would be 

inconsistent with the current Form 

DCO, which does not include a similar 

requirement. Therefore, the Commission 

has decided not to add a perjury 

certification to the Subpart C Election 

Form. 

Accordingly, after careful review and 

consideration of the comments, and for 

the reasons cited above and set forth in 

the Proposal,106 the Commission is 

adopting regulation 39.31(b) as 

proposed. The Commission has, 

however, altered the Subpart C Election 

Form in two respects. 

As discussed further below,107 DCOs 

that seek to become Subpart C DCOs (as 

well as SIDCOs) will be permitted to 

request an extension of up to one year 

to comply with any of the provisions of 

regulations 39.34, 39.35, or 39.39 

pursuant to those regulations.108 The 

Commission has determined that, to the 

extent that a DCO elects to request any 

such extensions, it must do so prior to 

filing the Subpart C Election Form and 

the General Instructions to the Subpart 

C Election Form have been modified 

accordingly.109 The Commission also 

has made technical modifications to the 

certifications contained in the Subpart C 

Election Form to account for any 

extensions of time granted pursuant to 

regulation 39.34(d) and/or 39.39(f). 

As noted in the Proposal,110 the 

Commission emphasizes that, consistent 

with the certification required to be 

provided by a DCO as part of its Subpart 

C Election Form, a DCO, as of the date 

that its election to become subject to 

Subpart C becomes effective, would be 

held to the requirements of Subpart C. 

As of that date, the DCO would be 

subject to examination for compliance 

with Subpart C and to potential 

enforcement action for non-compliance. 

This status would continue until such 

time, if any, that the election is properly 

vacated as set forth in regulation 

39.31(e), as finalized.111 To the extent 

that compliance with Subpart C would 

require the DCO to implement new rules 

or rule amendments, all such rules or 

rule amendments must be approved or 

permitted to take effect prior to the 

effective date of the DCO’s election. 

3. Regulation 39.31(c)—Election and 

Withdrawal Procedures for DCO 

Applicants 

Regulation 39.31(c), as proposed, sets 

forth procedures through which a DCO 

Applicant could request to become 

subject to the provisions of Subpart C at 

the time the DCO Applicant files its 

Registration Application. The 

Commission did not receive any 

comments specifically addressing 

proposed regulation 39.31(c).112

Accordingly, for the reasons cited in the 

Proposal,113 the Commission is adopting 

regulation 39.31(c) as proposed. In the 

interest of administrative economy, the 

Commission continues to encourage 

DCO Applicants to make their election 

to become subject to Subpart C at the 

time that their Registration Application 

is filed. Simultaneous filings would 

appear to allow Commission resources 

to be used more efficiently and 

effectively. 

4. Regulation 39.31(d)—Public 

Information 

Regulation 39.31(d), as proposed, 

would provide that certain portions of 

the Subpart C Election Form will be 

considered public documents that may 

routinely be made available for public 

inspection. The Commission did not 

receive any comments with respect to 

proposed regulation 39.31(d). 

Accordingly, for the reasons set forth in 


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114 Id. 

115 ISDA at 3–4. 

116 17 CFR 39.3(e). 

117FIA at 5. 

118 78 FR 50272. 

119FIA at 4. 

120FIA at 4–5. 

121 78 FR 50271–72. 

122See 12 CFR 1320.13(b) (procedure for the 

Council to rescind a designation of systemic 

importance for a systemically important financial 

market utility). 

123 78 FR 50272. 

124 In 2010 and 2011, the Commission proposed 

regulations concerning the governance of DCOs (the 

‘‘2010/2011 Proposals’’). See Requirements for 

Derivatives Clearing Organizations, Designated 

Contract Markets, and Swap Execution Facilities 

Regarding the Mitigation of Conflicts of Interest, 75 

FR 63732 (Oct. 18, 2010); see also Governance 

Requirements for Derivatives Clearing 

Organizations, Designated Contract Markets, and 

Swap Execution Facilities, 76 FR 722 (Jan. 8, 2011). 

The Commission notes that the regulations 

contained in the 2010/2011 Proposals are the 

subject of a separate rulemaking. The Commission 

is not addressing those regulations in this 

rulemaking. 

the Proposal,114 the Commission is 

adopting regulation 39.31(d) as 

proposed. 

5. Regulations 39.31(e)—Rescission 

Regulation 39.31(e), as proposed, 

would permit a Subpart C DCO to 

rescind its election to comply with 

Subpart C by filing a notice of its intent 

to rescind the election with the 

Commission. Such rescission would, 

however, be subject to certain 

conditions. As proposed, the rescission 

of a DCO’s election to become subject to 

Subpart C would become effective on 

the date specified by the Subpart C DCO 

in its notice of intent to rescind the 

Subpart C election, except that the 

rescission could not become effective 

any earlier than 90 days after the date 

the notice of intent to rescind is filed 

with the Commission. The Subpart C 

DCO would be required to comply with 

all of the provisions of Subpart C until 

such rescission is effective and the 

Commission would retain its authority 

concerning any activities or events 

occurring during the time that the DCO 

maintained its status as a Subpart C 

DCO. 

Regulation 39.31(e), as proposed, also 

would require a Subpart C DCO that 

files a notice of intent to rescind to (1) 

provide specified notices to each of its 

clearing members, and to have rules in 

place requiring each of its clearing 

members to provide such notices to 

each of the clearing member’s 

customers; (2) provide specified notices 

to the general public; and (3) remove 

references to its Subpart C DCO (and 

QCCP) status on its Web site and in 

other materials that it provides to its 

clearing members and customers, other 

market participants, or members of the 

public. In addition, the employees and 

representatives of the Subpart C DCO 

would be prohibited from making any 

reference to the organization as a 

Subpart C DCO (or QCCP) on and after 

the date that the notice of its intent to 

rescind is filed. 

The Commission received two 

comments addressing proposed 

regulation 39.31(e). ISDA recommended 

that the Commission modify the 

proposed regulation to require, as a 

condition to a Subpart C DCO’s 

rescission of its Subpart C election, ‘‘to 

certify that it has obtained approval 

from clearing members (e.g., by member 

ballot) to rescind the election.’’ 115 In 

response to ISDA’s suggestion, the 

Commission believes that this is a 

matter of corporate governance and the 

DCO should follow its own policies and 

procedures with respect to internal 

decisions regarding rescission. The 

Commission further notes that existing 

regulation 39.3(e) does not require a 

DCO to certify that it has obtained the 

approval of its clearing members to 

vacate its DCO registration prior to filing 

with the Commission a request to do 

so 116 and, thus, requiring the 

certification suggested by ISDA would 

be in tension with existing regulations. 

Accordingly, the Commission has 

declined to accept ISDA’s 

recommendation. 

FIA recommended that the 

Commission extend the time period 

between the date that a DCO files a 

notice of intent to rescind its election to 

be subject to Subpart C and the date that 

such rescission could become effective 

from 90 days to 180 days.117 In support 

of its recommendation, the FIA agreed 

with the view voiced by the 

Commission in the Proposal 118 that a 

delay in the effective date of the 

rescission is necessary to provide banks 

and other entities that wish to limit 

their cleared transactions to clearing 

solely through a QCCP sufficient time to 

transfer their business to another 

Subpart C DCO or a SIDCO.119 The FIA 

expressed concern, however, that the 90 

day delay is insufficient ‘‘to allow a 

clearing member to make a 

determination whether to withdraw as a 

clearing member and, if it elects to do 

so, notify its customers, find one or 

more clearing members prepared to 

accept each customer and allow the new 

clearing member and each customer to 

negotiate the terms of their 

agreement.’’ 120 The Commission 

recognizes that the clearing members of 

a DCO that has filed a notice of intent 

to rescind its election to become subject 

to Subpart C may need additional time 

to determine and to effectuate the 

actions they may wish to take in light 

of such filing and believes that a 180 

day waiting period until such rescission 

may become effective is reasonable. 

Accordingly, the Commission has 

decided to lengthen the minimum time 

period between the date a notice of 

intent to rescind an election to become 

subject to Subpart C is filed and the date 

that such rescission may become 

effective to 180 days. For the reasons 

cited above and set forth in the 

Proposal,121 the Commission is adopting 

regulation 39.31(e) as proposed in all 

other respects. 

6. Regulations 39.31(f)—Loss of SIDCO 

Designation 

Regulation 39.31(f), as proposed, 

would provide that a SIDCO that is 

registered with the Commission, but 

whose designation of systemic 

importance is rescinded by the 

Council,122 would immediately be 

deemed to be a Subpart C DCO. Such 

Subpart C DCO would be subject to the 

Subpart C provisions unless and until it 

elects to rescind its status as a Subpart 

C DCO. The Commission did not receive 

any comments on proposed regulation 

39.31(f). Accordingly, for the reasons set 

forth in the Proposal,123 the 

Commission is adopting regulation 

39.31(f) as proposed. 

7. Regulation 39.31(g) 

Regulation 39.31(g), as proposed, 

provides that all forms and notices 

required by regulation 39.31 shall be 

filed electronically with the Secretary of 

the Commission in the format and 

manner specified by the Commission. 

The Commission did not receive any 

comments on proposed regulation 

39.31(g) and, thus, is adopting the 

regulation as proposed. 

D. Regulation 39.32 (Governance for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

The Commission proposed adding 

regulation 39.32 in order to implement 

DCO Core Principles O (Governance 

Fitness Standards), P (Conflicts of 

Interest), and Q (Composition of 

Governing Boards) for SIDCOs and 

Subpart C DCOs in a manner that would 

be consistent with PFMI Principle 2 

(Governance).124

As discussed above, DCO Core 

Principle O states that each DCO must 

establish governance arrangements that 

are transparent to fulfill public interest 

requirements and to permit the 


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125See supra Section I.D. 

126PFMIs at Principle 2, K.C. 4–5. 

127The provisions concerning transparency 

describe which information, including the 

identities of board members, should be disclosed to 

the public and/or the Commission. 

128See supra Section II.C. (Regulation 39.31 

(Election to become subject to the provisions of 

Subpart C)). 

consideration of the views of owners 

and participants.125 DCO Core Principle 

O also requires each DCO to establish 

and enforce appropriate fitness 

standards for (i) directors, (ii) members 

of any disciplinary committee, (iii) 

members of the DCO, (iv) any other 

individual or entity with direct access to 

the settlement or clearing activities of 

the DCO, and (v) any party affiliated 

with any entity mentioned in (i)–(v) 

above. In addition, DCO Core Principle 

P requires each DCO to establish and 

enforce rules to minimize conflicts of 

interest in the decision making process 

of the DCO, and DCO Core Principle Q 

states that each DCO must ensure that 

the composition of the governing board 

or committee of the DCO includes 

market participants. These core 

principles are substantively similar to 

PFMI Principle 2, which states that a 

CCP ‘‘should have governance 

arrangements that are clear and 

transparent, promote the safety and 

efficiency of [the CCP], and support the 

stability of the broader financial system, 

other relevant public interest 

considerations, and the objectives of 

relevant stakeholders.’’ Additionally, 

under PFMI Principle 2, a CCP should 

have procedures for managing conflicts 

of interest among board members, and 

board members and managers should be 

required to have ‘‘appropriate skills,’’ 

‘‘incentives,’’ and ‘‘experience.’’ 126

As proposed, subsection (a) (General 

rules) would require a SIDCO or Subpart 

C DCO to establish governance 

arrangements that: (1) Are written, clear 

and transparent, place a high priority on 

the safety and efficiency of the SIDCO 

or Subpart C DCO, and explicitly 

support the stability of the broader 

financial system and other relevant 

public interest considerations; (2) 

ensure that the design, rules, overall 

strategy, and major decisions of the 

SIDCO or Subpart C DCO appropriately 

reflect the legitimate interests of 

clearing members, customers of clearing 

members, and other relevant 

stakeholders; and (3) disclose, to an 

extent consistent with other statutory 

and regulatory requirements on 

confidentiality and disclosure: (i) Major 

decisions of the board of directors to 

clearing members, other relevant 

stakeholders, and to the Commission, 

and (ii) Major decisions of the board of 

directors having a broad market impact 

to the public.127

As proposed, subsection (b) 

(Governance arrangements) would 

require the rules and procedures of a 

SIDCO or Subpart C DCO to: (1) 

Describe the SIDCO’s or Subpart C 

DCO’s management structure; (2) clearly 

specify the roles and responsibilities of 

the board of directors and its 

committees, including the establishment 

of a clear and documented risk 

management framework; (3) clearly 

specify the roles and responsibilities of 

management; (4) establish procedures 

for managing conflicts of interest among 

board members; and (5) assign 

responsibility and accountability for 

risk decisions and for implementing 

rules concerning default, recovery, and 

wind-down. 

As proposed, subsection (c) (Fitness 

standards for the board of directors and 

management) would require that board 

members and managers have the 

appropriate experience, skills, 

incentives and integrity; risk 

management and internal control 

personnel have sufficient independence, 

authority, resources and access to the 

board of directors; and that the board of 

directors include members who are not 

executives, officers or employees of the 

SIDCO or Subpart C DCO or of their 

affiliates. 

The Commission requested comment 

on proposed regulation 39.32 and asked 

that commenters include a detailed 

description of any alternatives to 

proposed regulation 39.32 and estimates 

of the costs and benefits of such 

alternatives. LCH commented that a 

SIDCO or Subpart C DCO should be 

permitted to petition the Commission 

for additional time to comply with new 

regulation 39.32 and with all other 

substantive regulations contained in this 

rulemaking. The Commission does not 

believe that a SIDCO or Subpart C DCO 

should be permitted to petition for 

additional time to comply with new 

regulation 39.32 for the reasons stated 

above.128

LCH also requested clarification as to 

which major decisions of the board of 

directors should be disclosed under new 

regulation 39.32(a)(3). LCH stated that a 

board may make a resolution that is not 

determinative, for example to 

commence exploratory negotiations for 

making an acquisition. LCH stated that 

it did not believe Principle 2 would 

require it to publish such a decision 

because Explanatory Note 3.2.18 to 

Principle 2 states that an FMI need not 

disclose a major decision where doing 

so would endanger commercial 

confidentiality. The Commission agrees 

with LCH that there is a distinction 

between exploratory negotiations and a 

final decision. The Commission also 

agrees with the suggestion made in 

Explanatory Note 3.2.18 that it is 

reasonable for a DCO to focus on 

disclosing the ‘‘outcome’’ of decisions 

made by the board rather than decisions 

that are not determinative. It should also 

be noted that paragraph (a)(3) does not 

require a disclosure that would 

compromise ‘‘statutory and regulatory 

requirements on confidentiality and 

disclosure.’’ 

Similarly, MGEX requested 

clarification as to: what qualifies as a 

‘‘major decision’’ under proposed 

paragraph (a)(3); which ‘‘information’’ 

the Commission was referring to in 

footnote 137 of the Proposal; and 

whether the disclosure provision of 

paragraph (a) is intended to be a 

‘‘reiteration of existing law[s] or 

regulation[s].’’ MGEX also suggested 

that paragraph (a) be amended to 

include a provision stating that a DCO 

may withhold disclosing a major 

decision of the board of directors if 

disclosing it would ‘‘stifle candid board 

debate or endanger commercial 

confidentiality.’’ The Commission 

agrees with MGEX that regulation 39.32 

affords a DCO reasonable discretion in 

determining which decisions are 

‘‘major’’ so as to warrant disclosure 

under paragraph (a)(3) and which 

decisions should not be disclosed due to 

concerns about confidentiality. 

Moreover, paragraph (a)(3) requires 

disclosure of ‘‘decisions,’’ rather than 

the debate preceding them. The 

Commission concludes that the 

language of proposed paragraph (a)(3) 

suffices in these regards. 

ISDA commented that regulation 

39.32 should address decision-making 

by a SIDCO or Subpart C DCO during a 

crisis or emergency. Specifically, ISDA 

suggests that there should be a provision 

requiring a SIDCO or Subpart C DCO to 

obtain the views and approval of 

member representatives (e.g. through 

the DCO’s risk committee or otherwise) 

before taking any material action in 

response to an emergency. The 

Commission has decided not to include 

this requested provision because the 

Commission has decided not to impose 

requirements beyond those required by 

Principle 2 as part of this rulemaking. 

Accordingly, the Commission has 

decided to finalize regulation 39.32 as 

proposed. The governance requirements 

set forth in the proposed regulation 

were designed to enhance risk 

management and controls by promoting 

fitness standards for directors and 

managers, promoting transparency of 


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129See SIDCO Final Rule 78 FR 49666. 

130The Commission’s amendment to regulation 

140.94(a) delegates the authority to make these 

determinations to the Director of the Division of 

Clearing and Risk. 131The preamble to the SIDCO Final Rule 

adopting release made clear that paragraph (b) 

applied to both Cover One and Cover Two, but the 

Commission has decided to add clarifying language 

to the regulation text. See generally SIDCO Final 

Rule. 132See PFMIs, E.N. 3.7.1. 

133 In determining whether the liquidity resources 

that are eligible under paragraph (c)(3) are sufficient 

in amount to meet the obligation specified under 

paragraph (c)(1) (resources that ‘‘enable’’ the DCO 

to meet its settlement obligations), it is important 

to avoid double counting. For example, one may not 

count both a committed repurchase arrangement 

and U.S. Treasury Bills that would be used to 

collateralize that arrangement. 

134Times of financial stress and the event of the 

default of a member of the DCO are, of course, the 

times when reliable liquidity arrangements are most 

needed. 

governance arrangements, and making 

sure that the interests of a SIDCO’s or 

Subpart C DCO’s clearing members and, 

where relevant, customers are taken into 

account. Because of the potential impact 

that a SIDCO’s failure could have on the 

U.S. financial markets, the Commission 

believes that that these requirements 

should be applicable to SIDCOs. 

Moreover, it would be beneficial to 

Subpart C DCOs, their members and 

customers, and the financial system 

generally, for regulation 39.32 to apply 

to Subpart C DCOs. 

E. Regulation 39.33 (Financial resources 

requirements for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

In August of 2013, the Commission 

finalized Regulation 39.29, which sets 

forth financial resource requirements for 

SIDCOs in a manner that parallels the 

financial resources standard in Principle 

4 of the PFMIs.129 The Commission 

proposed to amend regulation 39.29 to 

enhance financial resources 

requirements for SIDCOs and Subpart C 

DCOs and to achieve consistency with 

the relevant provisions of the PFMIs, in 

particular Principle 4 and Principle 7. 

The Commission first proposed to 

renumber existing regulation 39.29 to 

39.33 and to apply the requirements set 

forth therein to Subpart C DCOs. The 

Commission further proposed, for 

purposes of organization, deleting from 

paragraph (a)(1) the requirement that, 

where a clearing member controls 

another clearing member or is under 

common control with another clearing 

member, a SIDCO treat affiliated 

clearing members as a single clearing 

member (the ‘‘Clearing Member 

Aggregation Requirement’’). The 

Commission proposed to include such 

language in new paragraph (a)(4) to 

clarify that the Clearing Member 

Aggregation Requirement applies when 

a SIDCO or Subpart C DCO calculates its 

financial resources requirements under 

regulation 39.33(a) as well as its 

liquidity resources requirements under 

regulation 39.33(c). 

The Commission also proposed 

amending paragraph (a) to state that the 

Commission shall, if it deems 

appropriate, determine whether a 

SIDCO or Subpart C DCO is systemically 

important in multiple jurisdictions. In 

making this determination, the 

Commission would, in order to limit 

such determinations to appropriate 

cases, review whether another 

jurisdiction had determined the SIDCO 

or Subpart C DCO to be systemically 

important according to a designations 

process that considers whether the 

foreseeable effects of a failure or 

disruption of the derivatives clearing 

organization could threaten the stability 

of each relevant jurisdiction’s financial 

system. In addition, the Commission 

proposed amending paragraph (a) to 

state that the Commission shall also 

determine, if it deems appropriate, 

whether any of the activities of a SIDCO 

or Subpart C DCO, in addition to 

clearing credit default swaps, credit 

default futures, or any derivatives that 

reference either, has a more complex 

risk profile and that in making this 

determination, the Commission may 

take into consideration characteristics 

such as non-linear and discrete jump-todefault price changes.130 The 

Commission also proposed amending 

paragraph (b) to clarify that the 

prohibition on including assessments as 

a financial resource applies to 

calculating financial resources needed 

to cover the default of the largest and, 

where applicable, second largest 

clearing member, in extreme but 

plausible circumstances.131

The PFMI Explanatory Notes explain 

that liquidity risk arises in an FMI (such 

as a DCO) when settlement obligations 

are not completed when due as part of 

its settlement process. Liquidity risk can 

arise in a number of ways: between an 

FMI and its participants, between an 

FMI and other entities (such as the 

FMI’s settlement banks and liquidity 

providers), or between an FMI’s 

participants.132 The Commission 

proposed adding paragraphs (c), (d), and 

(e) to address the liquidity of SIDCOs’ 

and Subpart C DCOs’ financial 

resources. The liquidity resources 

discussed in paragraphs (c), (d), and (e) 

should be sufficient to address the 

different exposures to liquidity risk 

applicable to that DCO. 

Under proposed paragraph (c)(1), a 

SIDCO or Subpart C DCO would be 

required to maintain eligible liquidity 

resources that will enable the SIDCO or 

Subpart C DCO to meet its intraday, 

same-day, and multiday settlement 

obligations, as defined in regulation 

39.14(a), with a high degree of 

confidence under a wide range of stress 

scenarios, including the default of the 

member creating the largest liquidity 

requirements under extreme but 

plausible circumstances. Under 

proposed paragraph (c)(2), a SIDCO or 

Subpart C DCO would be required to 

maintain liquidity resources that are 

sufficient to satisfy the obligations 

required by new paragraph (c)(1) in all 

relevant currencies for which the SIDCO 

or Subpart C DCO has settlement 

obligations to its clearing members. 

Under proposed paragraph (c)(3), a 

SIDCO or Subpart C DCO would be 

limited to using only certain types of 

liquidity resources to satisfy the 

minimum liquidity requirement set 

forth in proposed paragraph (c)(1).133

Among these ‘‘qualifying liquidity 

resources’’ are ‘‘committed lines of 

credit,’’ ‘‘committed foreign exchange 

swaps,’’ and ‘‘committed repurchase 

agreements.’’ ‘‘Committed’’ is intended 

to connote a legally binding contract 

under which a liquidity provider agrees 

to provide the relevant liquidity 

resource without delay or further 

evaluation of the DCO’s 

creditworthiness, e.g., a line of credit 

that cannot be withdrawn at the election 

of the liquidity provider during times of 

financial stress, or in the event of the 

default of a member of the SIDCO or 

Subpart C DCO.134

Under proposed paragraph (c)(3)(ii), a 

SIDCO or Subpart C DCO would be 

required to take appropriate steps to 

verify that its qualifying liquidity 

arrangements do not include material 

adverse change provisions and are 

enforceable, and will be highly reliable, 

even in extreme but plausible market 

conditions. 

Also consistent with Principle 7, 

under proposed paragraph (c)(4), if a 

SIDCO or Subpart C DCO maintains 

liquid financial resources in addition to 

those required to satisfy the Cover One 

requirement, then those resources 

should be in the form of assets that are 

likely to be saleable with proceeds 

available promptly or acceptable as 

collateral for lines of credit, swaps, or 

repurchase agreements on an ad hoc 

basis. In addition, Principle 7 provides 

and proposed paragraph 39.33(c)(4) 

requires that a SIDCO or Subpart C DCO 

should consider maintaining collateral 

with low credit, liquidity, and market 


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135 It should be noted that the requirement of 

proposed paragraph (c)(4) that a SIDCO or Subpart 

C DCO consider maintaining certain types of 

collateral, like the requirement of proposed 

paragraph (c)(1)(ii), does not include a requirement 

as to the decision to be made following such 

consideration. 

136This provision is consistent with PFMI 

Principle 4, K.C. 4. 

137Regulation 39.11 requires DCOs to maintain 

financial resources sufficient to cover a wide range 

of potential stress scenarios, which include, but are 

not limited to, the default of the participant and its 

affiliates that would potentially cause the largest 

aggregate financial exposure to the CCP in extreme 

but plausible market conditions, otherwise known 

as ‘‘Cover One.’’ 

138The term ‘‘Cover Two’’ refers to the 

requirement that a DCO maintain financial 

resources sufficient to enable it to meet its financial 

obligations to its clearing members notwithstanding 

a default by the two clearing members creating the 

largest combined loss (which would include both 

proprietary and customer accounts) for the SIDCO 

in extreme but plausible market conditions. 

139European Commission at 2. 

140 Id. 

141 Id. 

142 Id. 

143European Commission at 2–3. 

144European Commission at 3. 

145As discussed in the final rule on Enhanced 

Risk Management Standards for Systemically 

Important Derivatives Clearing Organizations, ICE 

Clear Credit clears credit default swaps (which is 

a product with a more complex risk profile) and 

currently meets a Cover Two requirement. See 78 

FR 49670. Further, CME Clearing currently sizes its 

guaranty fund for interest rate swaps and its 

guaranty fund for credit default swaps to a Cover 

Two standard, and is required to meet a Cover Two 

standard for its base guaranty fund pursuant to 

regulation 39.29(a) by the end of 2013 because its 

clears credit default swaps. See 78 FR 49671. 

146Chris Barnard at 2. 

147LCH at 5. 

risks that is typically accepted by a 

central bank of issue for any currency in 

which it may have settlement 

obligations, but shall not assume the 

availability of emergency central bank 

credit as a part of its liquidity plan.135

Pursuant to proposed paragraphs 

(d)(1)–(2), a SIDCO or Subpart C DCO 

would be required to monitor its 

liquidity providers in a manner 

consistent with Principle 7. Proposed 

paragraph (d)(1) would define ‘‘liquidity 

provider’’ to mean any of the following: 

(i) A depository institution, a U.S. 

branch or agency of a foreign banking 

organization, a trust company, or a 

syndicate of depository institutions, 

U.S. branches or agencies of foreign 

banking organizations, or a trust 

companies providing a line of credit, 

foreign exchange swap facility or 

repurchase facility to the SIDCO or 

Subpart C DCO; and (ii) Any other 

counterparty relied upon by a SIDCO or 

Subpart C DCO to meet its minimum 

liquidity resources requirement under 

paragraph (c) of this section. In 

addition, proposed paragraph (d)(4) 

would require a SIDCO or Subpart C 

DCO to regularly test its procedures for 

accessing its liquidity resources. 

Finally, pursuant to proposed 

subsection (e) and consistent with 

Principle 4, a SIDCO or Subpart C DCO 

would be required to document its 

supporting rationale for, and have 

appropriate governance arrangements 

relating to, the amount of total financial 

resources it maintains pursuant to 

regulation 39.33(a) and the amount of 

total liquidity resources it maintains 

pursuant to regulation 39.33(c).136

The Commission requested comment 

on all aspects of proposed regulation 

39.33. ISDA, MGEX and the European 

Commission each commented on 

paragraph (a)(1). ISDA requested 

clarification of the term ‘‘credit 

exposure,’’ which the Proposal used to 

replace the term ‘‘financial obligation,’’ 

which currently appears in regulation 

39.29 (renumbered as regulation 39.33 

as part of this rulemaking). In response 

to this comment, the Commission will 

revert to the term financial obligation. 

MGEX requested clarification that a 

Subpart C DCO that is neither 

systemically important in multiple 

jurisdictions nor involved in activities 

with a more complex risk profile would 

be required to meet only the Cover One 

financial resources requirement,137 not 

the Cover Two requirement.138 The 

Commission notes that MGEX 

understood paragraph (a)(1) correctly, 

and the Commission believes that the 

language in paragraph (a)(1) is 

sufficiently clear. 

The European Commission disagreed 

with the Commission’s decision to 

require a SIDCO or Subpart C DCO to 

meet the Cover Two financial resources 

requirement only if it is systemically 

important in multiple jurisdictions or is 

involved in activities with a more 

complex risk profile. The European 

Commission suggested that all SIDCOs 

should be required to comply with the 

Cover Two requirement for the 

following reasons. First, any DCO that 

serves non-US clearing members or nonUS trading venues is systemically 

important.139 In addition, any DCO that 

is systemically important in the U.S. is 

systemically important 

internationally.140 Second, requiring 

certain DCOs to meet the Cover One 

requirement while requiring other DCOs 

to meet the Cover Two requirement 

would be ‘‘detrimental to the object of 

building equal conditions of fair 

competition’’ between U.S.-registered 

DCOs and DCOs registered in other 

jurisdictions.141 Third, banking 

regulators cannot deem various SIDCOs 

and Subpart C DCOs to all be QCCPs if 

some are required to meet the Cover 

One requirement while others are 

requirement to meet the Cover Two 

requirement.142 Fourth, differing 

financial resources requirements would 

make the European Commission’s 

equivalence assessment of U.S.- 

registered DCOs more difficult.143 Fifth, 

it would be more prudent from a risk 

management perspective if the Cover 

Two requirement applied to all products 

and not only those ‘‘with a more 

complex risk profile.’’ 144

The applicability of the Cover Two 

requirement in paragraph (a)(1) is 

consistent with Principle 4 of the 

PFMIs. Further, while the European 

Commission raises important points, 

further work would need to be done to 

consider the costs versus the benefits of 

imposing a Cover Two financial 

resources requirements on all DCOs 

regardless of whether that DCO was 

affirmatively found to be systemically 

important by the Council (or other 

jurisdictions) and regardless of the types 

of products that DCO clears. 

Nonetheless, the Commission notes that 

the two existing SIDCOs will, in fact, be 

subject to a Cover Two financial 

resources requirement.145

Chris Barnard commented that he 

supported the language of paragraph 

(a)(3) (determination of whether an 

activity has a more complex risk profile) 

and that it will appropriately result in 

higher financial resources requirements 

for such activities. Chris Barnard 

commented further that this should 

improve the robustness of a DCO’s 

clearing system and help protect the 

financial system from contagion.146

With respect to proposed paragraph 

(c)(2)(satisfaction of settlement in all 

relevant currencies), LCH commented 

that it seeks confirmation that the 

provision is intended to pertain to 

‘‘material currencies only, which are 

indeed the ones [for which a liquidity 

shortfall would be] likely to disrupt the 

SIDCO’s [or Subpart C DCO’s] services 

and impact financial stability.’’ 147

There is no support for the implied 

assertions that a DCO could fail to meet 

its obligations in certain currencies on 

time without disrupting its services or 

impacting financial stability, and that a 

DCO could forgo arrangements to meet 

its obligations in certain currencies 

consistent with Principle 7. Any default 

by a DCO to meet its obligations on time 

would be likely to disrupt its services 

and impact financial stability. Thus, in 

this context, new paragraph (c)(2) covers 

those currencies for which the SIDCO or 

Subpart C DCO has obligations to 

perform settlements, as defined in 

§ 39.14(a)(1), to its clearing members. 


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148CME at 10. 

149 Id. 

150 Id. 

151 11 USC 761(i). 

152CME at 10. 

153CME at 3–4. 

154CME at 4. 

155 Id. 

156 Id. 

157 ISDA at 4. 

158 Id. 

159CME at 7–8. 

160CME at 8. 

161CME at 9–12. 

162CME at 10. 

163CME at 9. As noted above, this assertion is 

unsupported, and is contradicted by Subchapter IV 

of Chapter 7 of the Bankruptcy Code. 

164CME at 11. 

165CME at 12–13. See also section IV.C., infra. 

166FIA at 3–4. 

167 Id. 

The Commission believes that this 

interpretation is consistent with 

Principle 7. To be sure, where an FMI’s 

obligations in a particular currency are 

relatively small, the depth and 

complexity of the arrangements 

necessary to establish high reliability is 

likely proportionately less demanding. 

In addition, with respect to proposed 

paragraph (c)(2), CME commented that 

it clears derivatives that settle in 

approximately 14 currencies and that it 

would be difficult to obtain committed 

credit facilities for currencies other than 

G–7 currencies.148 For those other 

currencies, CME claimed that it would 

be forced to require a restrictive set of 

margin policies, including requiring a 

clearing member to post margin in the 

same currency as the settlement 

currency.149 This, CME argued, would 

require CME’s bank affiliated clearing 

members to face increased capital 

charges because it may be difficult for 

cash collateral in such currencies to 

receive bankruptcy remote treatment 

(and, therefore, a smaller capital 

requirement) unless such cash is posted 

with a central bank.150

As an initial matter, CME provided no 

support for the assertion that cash 

collateral would not be bankruptcy 

remote in the case of a DCO. To the 

contrary, section 761(10) of the 

Bankruptcy Code defines customer 

property to include both cash and 

securities, and 761(16) defines member 

property in terms of customer property. 

Section 766(i) provides that, in the case 

of the insolvency of a clearing 

organization, both customer and 

member property will be protected.151 A 

SIDCO or Subpart C DCO will have 

discretion to determine the most 

efficient means of ensuring sufficient 

liquidity, which may include requiring 

(or incentivizing) members to post all or 

a part of their collateral in the 

settlement currency. 

With respect to proposed paragraph 

(c)(3)(i)(E), CME commented that it is 

inconsistent with Principle 7 to require 

U.S. Treasury securities, which are held 

by a SIDCO or Subpart C DCO for 

purposes of meeting the minimum 

amount of liquidity resources required 

under proposed paragraph (c)(1), to be 

subject to ‘‘committed’’ funding 

arrangements.152 CME commented that 

it interprets Principle 7 to require only 

‘‘investments’’ to be subject to 

‘‘prearranged and highly reliable 

funding arrangements’’ and not ‘‘highly 

marketable collateral,’’ of which U.S. 

Treasury securities are an example.153

CME stated further that the European 

Securities and Markets Authority 

(ESMA), the Monetary Authority of 

Singapore (MAS), and the Reserve Bank 

of Australia (RBA) have each taken a 

‘‘more flexible approach’’ than proposed 

paragraph (c)(3)(i)(E) in interpreting the 

qualifying liquid resources provisions of 

Principle 7.154 According to CME, these 

other regulators do not, in some cases, 

require highly marketable collateral 

such as U.S. Treasury securities to be 

subject to committed funding 

facilities.155 In addition, CME stated 

that other regulators do not, in some 

cases, require highly marketable 

collateral to be subject to prearranged 

and highly reliable funding 

arrangements.156

ISDA commented that it would be 

neither necessary nor appropriate to 

require that U.S. Treasuries, used to 

satisfy the minimum liquid resources 

requirement, be subject to prearranged 

and highly reliable funding 

arrangements.157 According to ISDA, 

such a requirement has the potential to 

exacerbate a liquidity crisis and pass on 

risk from the DCO to its liquidity 

providers.158

CME further argued that it would be 

unnecessary to require U.S. Treasury 

securities to be subject to committed 

funding arrangements because the U.S. 

Treasury market is the world’s global 

standard for reliable liquidity and that 

same-day settlement of U.S. Treasury 

securities is reliably available in 

material sizes for a negligible yield 

concession of 1–2 basis points per 

annum.159 CME noted that banks are 

permitted to classify U.S. Treasury 

securities as ‘‘High Quality Liquid 

Assets’’ (HQLA) under the Basel III 

capital rules. CME also stated that due 

to their robust liquidity and eligibility to 

be pledged at the Federal Reserve Bank 

discount window, U.S. Treasury 

securities are extremely safe for banks to 

accept under uncommitted repurchase 

agreements.160

CME also argued that there would be 

several negative consequences if the 

Commission required a DCO to arrange 

for U.S. Treasury securities to be subject 

to a committed funding arrangement.161

First, CME stated that this provision 

would necessitate CME to limit the 

amount of U.S. Treasury securities a 

CME-clearing member could deposit to 

meet initial margin and guaranty fund 

obligations.162 To compensate, the 

clearing members would have to deposit 

additional cash. CME argued that this 

would be detrimental to bank affiliated 

clearing members because the Basel III 

capital rules may require banks to take 

higher capital charges for cash collateral 

than for other types of collateral, 

including U.S. Treasury securities 

because cash collateral is not confirmed 

to be bankruptcy remote.163 CME also 

stated that there would be difficulties 

establishing a committed liquidity 

facility for U.S. Treasury securities. 

CME asserted that the banks that are 

affiliated with CME clearing members 

are the best sources of such liquidity 

resources, and such banks may be 

prevented from participating in a large 

committed facility because of the risk 

that they would breach their single 

counterparty exposure limits under 

proposed Basel III capital rules. As a 

result, bank affiliated clearing members 

may reduce their customer clearing 

business, which could, in turn, increase 

costs to customers or prevent customers 

from taking advantage of the risk 

mitigating benefits of central clearing.164

Finally, CME suggested that the 

market for committed liquidity facilities 

may not be large enough to offer a 

facility that would enable CME to satisfy 

the proposed liquidity provisions of 

regulation 39.33(c). CME also discussed 

a cost estimate for establishing 

committed facilities. This cost estimate 

is addressed in the cost benefit 

considerations, below.165

FIA also commented that U.S. 

Treasury securities should be 

considered a qualifying liquid resource 

under paragraph (c)(3), even if they are 

not subject to funding arrangements in 

accordance with proposed subparagraph 

(E)(2).166 FIA argued that, alternatively, 

subparagraph (E)(2) should permit a 

DCO to arrange for U.S. Treasury 

securities to be subject to uncommitted 

repurchase agreements. FIA supports 

CME’s comment that U.S. Treasury 

securities are ‘‘high quality liquid 

assets’’ under BCBS standards and have 

remained highly liquid during times of 

stress.167

However, in appealing to the 

standards established by other 

jurisdictions, CME acknowledged that 


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168CME at 6, quoting European Market 

Infrastructure Regulation Regulatory Technical 

Standards, Article 33 (emphasis supplied here). 

169CME at 6 (emphasis supplied). 

170 ISDA at 4. 

171 Id. 

172 Id. 

173 ISDA at 4–5. 

174MGEX at 7. 

175 Id. 

176 Id. 

177Principle 7, K.C. 2 requires a CCP to measure, 

monitor, and manage liquidity risk effectively. This 

includes the CCP maintaining sufficient liquid 

resources in all relevant currencies in order to effect 

same-day and, where applicable, intraday and 

multiday settlement of payment obligations in a 

wide range of potential stress scenarios, including 

the default of the participant that would create the 

largest aggregate payment obligations in extreme 

but plausible market conditions. In addition, 

Principle 7, K. C. 5 limits a CCP to counting only 

certain qualifying liquid resources for the purpose 

of meeting its financial resources requirement. 

These resources include: cash in the currency of the 

requisite obligations, held either at the central bank 

of issue or at a creditworthy commercial bank; 

committed lines of credit; or high quality, liquid, 

general obligations of a sovereign nation. In 

addition, Principle 7, K. C. 4 states that a CCP that 

is systemically important in multiple jurisdictions 

or that is involved in activities with a more 

complex risk profile should consider maintaining 

sufficient qualifying liquid resources to meet the 

default of the two participants that would create the 

largest aggregate payment obligations in such 

circumstances. Principle 7, K. C. 7 also requires a 

CCP to monitor its liquidity providers, including 

clearing members, by undertaking due diligence to 

confirm that they have sufficient information to 

understand and manage their liquidity risks and 

have the capacity to perform as required under their 

commitments to the CCP. 

the EMIR Regulatory Technical 

Standards limit CCPs to ‘‘count[ing] 

‘highly marketable financial instruments 

. . . that the CCP can demonstrate are 

readily available and convertible into 

cash on a same day basis using 

prearranged and highly reliable funding 

arrangements, including in stressed 

market conditions.’ ’’ 168 Similarly, CME 

refers to United Kingdom requirements 

for a liquidity resource to be qualifying 

that include that the CCP needs to 

‘‘demonstrate its ability to liquidate the 

resource for same day cash.’’ 169 The 

Commission agrees that the obligation of 

a SIDCO or Subpart C DCO with respect 

to highly marketable collateral will be to 

demonstrate that, as stated in 

subparagraph (E)(2), those assets are, in 

fact, readily available and convertible 

into cash pursuant to prearranged and 

highly reliable funding arrangements, 

even in extreme but plausible market 

conditions. 

ISDA commented that proposed 

paragraph (c)(3)(ii), which requires a 

SIDCO or Subpart C DCO to take steps 

to verify that the prearranged and highly 

reliable funding arrangements for U.S. 

Treasury securities or other sovereign 

bonds do not include material adverse 

change provisions, is unnecessary 

because the PFMIs do not specifically 

require this.170 ISDA also noted that 

credit arrangements generally include 

such clauses in order to protect the 

financial institution providing the 

credit, to protect that institution’s 

shareholders, and to prevent the spread 

of risk from a DCO to financial 

institutions.171

In light of these comments, the 

Commission has decided to make minor 

revisions to the language in 

39.33(c)(3)(E)(1) and (E)(2) to more 

closely align with the language used in 

key consideration 5 to Principle 7. 

The purpose of the reference to the 

material adverse change clauses is to 

ensure that a SIDCO or Subpart C DCO 

not rely on a credit or liquidity 

arrangement that can be declined (i.e., 

would not be reliably enforceable) at the 

very point in time when the DCO 

would, in fact, need to use the 

arrangement. In other words, these 

funding arrangements are intended to 

ensure that a SIDCO or Subpart C DCO 

will be able to meet its obligations when 

they come due even after a default in 

extreme but plausible conditions. If a 

funding arrangement includes a 

provision that there be no material 

adverse changes as a condition to draw, 

then such funding arrangement will not 

in fact serve its intended purpose. By 

contrast, a representation that there 

have been no material adverse changes 

for some period prior to execution of a 

liquidity arrangement, where the truth 

of such representation is not a condition 

to enforceability of the obligation to 

provide liquidity, would not be a 

condition that defeats the purpose of the 

liquidity arrangement. The Commission 

believes this interpretation is consistent 

with key consideration 5 of Principle 7, 

which states in relevant part that ‘‘For 

the purpose of meeting its minimum 

liquid resource requirement, an FMI’s 

qualifying liquid resources in each 

currency include . . . highly marketable 

collateral held in custody and 

investments that are readily available 

and convertible into cash with 

prearranged and highly reliable funding 

arrangements, even in extreme but 

plausible market conditions.’’ 

Accordingly, the Commission has 

decided to modify paragraph (c)(3)(ii) to 

replace the phrase ‘‘material adverse 

change clause’’ with ‘‘material adverse 

change condition’’ and to add the ‘‘even 

in extreme but plausible market 

conditions’’ language from key 

consideration 5 to clarify this issue and 

to ensure consistency with Principle 7 

with respect to this point. 

With respect to proposed paragraph 

(c)(4), ISDA commented that if a SIDCO 

or Subpart C DCO maintains financial 

resources in an amount greater than the 

Cover One financial resources 

requirement, then the SIDCO or Subpart 

C DCO should be required to maintain 

collateral with a low credit risk to cover 

such greater amount.172 ISDA also 

commented that the phrase ‘‘with 

proceeds available promptly’’ should be 

deleted because it does not appear in 

the PFMIs and is not clearly defined.173

The Commission notes that the financial 

resources at issue in this paragraph are 

in excess of those required by Principle 

7 and regulation 39.33(a). Therefore, the 

Commission believes it is appropriate 

for attendant requirements to be less 

stringent than those that apply to 

required financial resources. In 

addition, the requirement in paragraph 

(c)(4) that a SIDCO or Subpart C DCO 

should consider maintaining collateral 

with low credit risk for any excess 

financial resources is consistent with 

Principle 7. Moreover, the Commission 

disagrees with ISDA and believe that the 

concept of ‘‘with proceeds available 

promptly’’ is covered by, and consistent 

with, the PFMIs. 

In response to the Commission’s 

question as to whether proposed 

paragraph (d)(4) should specify the 

frequency with which a SIDCO or 

Subpart C DCO must test its procedures 

for accessing liquidity resources, MGEX 

commented that it believes the proposed 

language is sufficient.174 MGEX 

commented that the proposed language 

appropriately affords a DCO the 

discretion to determine the frequency of 

testing its procedures for accessing 

liquidity resources.175 MGEX stated that 

a DCO is in the best position to 

determine this frequency and that 

unnecessary, redundant testing would 

cause a DCO to incur unnecessary 

costs.176

The Commission has decided to 

finalize regulation 39.33 as modified 

above. New paragraphs (c), (d), and (e) 

are intended to address the gaps 

between current part 39 requirements 

and standards set forth in Principle 7.177

The Commission believes these new 

provisions are appropriate and will 

reduce risk for SIDCOs and Subpart C 

DCOs, their clearing members, and 

customers of clearing members. In 

particular, new paragraph (c)(1) will 

help prevent a SIDCO or Subpart C DCO 

from defaulting on its obligations to 

non-defaulting clearing members, which 

is particularly important for a SIDCO 

because of the potential impact that the 

failure of a SIDCO could have on the 

U.S. financial markets, because 


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178See generally Financial Stability Oversight 

Council 2012 Annual Report, Appendix A at 163 

(finding that ‘‘the contagion effect of a CME failure 

could impose material financial losses on CME’s 

clearing members and other market participants 

(such as customers) and could lead to increased 

liquidity demands and credit problems across 

financial institutions, especially those that are 

active in the futures and options markets.’’). 

179See SIDCO Final Rule 78 FR 49672–49674. 

180 Id. 

181 In response to comments received, regulation 

39.39, as finalized herein, will permit the 

Commission, upon request, to grant newly 

designated SIDCOs and Subpart C DCOs up to one 

year to comply with the provisions of regulation 

39.35 and 39.39. To harmonize regulation 39.34 

with this revision, the Commission has determined 

to make a technical correction to proposed 

regulation 39.34 that replaces the phrase ‘‘upon 

application’’ with the phrase ‘‘upon request.’’ 

182MGEX at 7. 

183 Id. 

184 Id. 

185 Id. 

186 DCO Core Principle G requires a DCO to have 

rules and procedures ‘‘designed to allow for the 

efficient, fair, and safe management of events 

during which [clearing] members or participants— 

(I) become insolvent; or (II) otherwise default on the 

obligations of the members or participants to the 

[DCO].’’ Each DCO ‘‘is required to (I) clearly state 

the default procedures on the [DCO]; (II) make 

publicly available the default rules of the [DCO]; 

and (III) ensure that the [DCO] may take timely 

action—(aa) to contain losses and liquidity 

pressures; and (bb) to continue meeting each 

obligation of the DCO.’’ See supra Section I.D. and 

78 FR 50263. 

maintaining resources that enable the 

DCO to meet its intraday, same-day, and 

multiday settlement obligations. New 

paragraph (c)(2) will require a SIDCO to 

meet its obligations in each relevant 

currency in a timely manner. This is 

important because if a SIDCO has 

sufficient funds to meet an obligation, 

but the funds are not in the correct 

currency, then the SIDCO cannot meet 

that obligation in a timely manner, 

which could lead to a disruption of the 

SIDCO’s services. Such disruption 

could, in turn, have a significant impact 

on the financial stability of the U.S. 

economy. 

New paragraph (c)(1)(ii) will require a 

SIDCO or Subpart C DCO that is 

systemically important in multiple 

jurisdictions, or that is involved in 

activities with a more complex risk 

profile, to consider maintaining certain 

eligible liquidity resources that, at a 

minimum, will enable it to meet its 

intraday, same-day, and multiday 

settlement obligations, stress scenarios 

that include a default of the two clearing 

members creating the largest aggregate 

liquidity obligation for the DCO in 

extreme but plausible market 

conditions. The proposed list of these 

resources is consistent with those set 

forth in Principle 7. The financial 

integrity of a SIDCOs and or Subpart C 

DCOs might be enhanced if it considers 

meeting this enhanced standard. The 

provisions of new paragraph (c)(4) 

(pertaining to, among other issues, the 

liquidity of financial resources held in 

addition to those financial resources 

required by the Cover One standard) are 

designed to enhance the financial 

condition of SIDCOs and Subpart C 

DCOs and help reinforce stability.178

F. Regulation 39.34 (System safeguards 

for systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

In August of 2013, the Commission 

finalized regulation 39.30, which 

enhanced system safeguards 

requirements for SIDCOs with respect to 

business continuity and disaster 

recovery, and included a two-hour 

recovery time objective (‘‘RTO’’).179 As 

discussed in the adopting release, the 

two-hour RTO is consistent with 

Principle 17 of the PFMIs and increases 

the soundness and operating resiliency 

of the SIDCO, which in turn, increases 

the overall stability of the U.S. financial 

markets.180 The Commission proposed 

renumbering regulation 39.30 as 

regulation 39.34 and amending the 

regulation to cover Subpart C DCOs in 

addition to SIDCOs. The Commission 

also made a technical correction to 

paragraph (b) to make clear that 

subparagraphs (1), (2), and (3) concern 

each activity necessary for the daily 

processing, clearing, and settlement of 

existing and new contracts. Finally, the 

Commission proposed amending the 

regulation to allow the Commission to, 

upon request, grant newly designated 

SIDCOs and Subpart C DCOs up to one 

year to comply with the provisions of 

regulation 39.34.181

MGEX commented that it 

‘‘appreciates the additional time granted 

for complying’’ with regulation 39.34.182

The Commission notes that MGEX’s 

statement implies an automatic 

compliance extension, which is 

inaccurate because regulation 39.34(d) 

permits a SIDCO or Subpart C DCO to 

request that the Commission grant it up 

to one year to comply with regulation 

39.34. In reviewing such requests, the 

Commission will be attentive to whether 

the DCO has a well-developed plan to 

comply with the requirement by the end 

of the requested extension, with 

reasonable milestones that can be 

monitored by the Commission. MGEX 

also commented that it would like 

flexibility in developing a business 

continuity and disaster recovery 

plan.183 MGEX stated that the regulation 

would require it to hire three or four 

new employees outside of Minneapolis, 

which would be very costly.184 MGEX 

suggested it would be less costly to 

comply with the regulation if it 

outsourced its business continuity 

compliance, but it does not wish to do 

that because employees, rather than 

contractors, are more likely to act in the 

best interests of MGEX.185

First, the Commission notes that to 

facilitate the two-hour RTO, regulation 

39.34 specifically requires a SIDCO or 

Subpart C DCO to maintain personnel, 

who live and work outside the relevant 

area of the physical and technological 

resources the SIDCO or Subpart C DCO 

normally relies upon to conduct its 

clearing activities. This requirement 

might be met in a number of ways. As 

MGEX notes, one way is to engage 

outsourced personnel. An alternative 

would be to base employees at a 

geographically diverse location. In 

general, a SIDCO or Subpart C DCO does 

have flexibility in designing its business 

continuity and disaster recovery plan, 

although such plan must comply with 

the requirements set forth in regulation 

39.34 as well as any other applicable 

Commission regulations. The 

Commission expects all SIDCOs and 

Subpart C DCOs to fully comply with 

these, and all other applicable, 

regulations, and anticipates that a 

registered DCO would carefully weigh 

any costs associated with compliance 

with Subpart C prior to electing to 

become subject to Subpart C. Second, 

the proposed amendment to allow the 

Commission, upon request, to grant 

newly designated SIDCOs and Subpart 

C DCOs up to one year to comply with 

the provisions of regulation 39.34 was 

intended to provide flexibility to 

address the time practically required to 

obtain the necessary physical and 

technological resources, and to organize 

human resources, as appropriate to 

implement a two-hour RTO. As such, 

the Commission has decided to finalize 

regulation 39.34 as proposed. 

G. Regulation 39.35 (Default rules and 

procedures for uncovered credit losses 

or liquidity shortfalls (recovery) for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

The Commission proposed regulation 

39.35 in order to add requirements 

pursuant to DCO Core Principle G, to 

address certain potential gaps between 

Commission regulations and Principles 

4 and 7.186 Regulation 39.16 currently 

requires a DCO to adopt procedures 

permitting it to take timely action to 

contain losses and liquidity pressures 

and to continue meeting its obligations 

in the event of a default on the 

obligations of a clearing member to the 


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187 17 CFR 39.16(c). 

188The Commission has delegated authority to 

approve such requests. See Section II.O. (discussion 

of regulation 140.94) infra. 

189See new paragraph (f) of regulation 39.39 and 

Section II.K., infra (discussing regulation 39.39). 

190See 78 FR 50262–50263. DCO Core Principle 

D requires each DCO to possess the ability to 

manage the risks associated with discharging the 

responsibilities of the DCO through the use of 

appropriate tools and procedures. It further requires 

each DCO to measure its exposure to loss from the 

default of each clearing member not less than once 

during each business day and to monitor each such 

exposure periodically during the business day. Core 

Principle D also requires each DCO to limit its 

exposure to potential losses from defaults by 

clearing members, through margin requirements 

and other risk control mechanisms, to reduce the 

risk that its operations would not be disrupted and 

that non-defaulting clearing members would not be 

exposed to losses that non-defaulting clearing 

members cannot anticipate or control. Finally, Core 

Principle D requires that the margin that the DCO 

requires from each clearing member be sufficient to 

cover potential exposures in normal market 

conditions, and that each model and parameter 

used in setting such margin requirements be riskbased and reviewed on a regular basis. 

191See supra Section I.D. Moreover, such stress 

tests should enable the SIDCO or Subpart C DCO 

to address procyclicality initial margin 

requirements and collateral haircuts, consistent 

with Principle 6, K.C. 3 and Principle 5, K.C. 3. 

192See discussion of Principles 4 and 6 supra 

Section I.E.1. 

193MGEX at 8. 

DCO.187 Under proposed regulation 

39.35, SIDCOs and Subpart C DCOs 

would be required to adopt additional 

procedures to address certain issues 

arising from extraordinary stress events, 

including the default of one or more 

clearing members. Specifically, 

consistent with Principle 4 of the 

PFMIs, proposed paragraph (a) would 

require a SIDCO or Subpart C DCO to 

adopt rules and procedures addressing 

the following: 

1. How the SIDCO or Subpart C DCO 

would allocate losses exceeding the 

financial resources available to the 

SIDCO or Subpart C DCO; 

2. How the SIDCO or Subpart C DCO 

would arrange for the repayment of any 

funds the SIDCO or Subpart C DCO may 

borrow; and 

3. How the SIDCO or Subpart C DCO 

would replenish any financial resources 

it may employ during such a stress 

event, so that the SIDCO or Subpart C 

DCO would be able to continue to 

operate in a safe and sound manner. 

Consistent with Principle 7 of the 

PFMIs, proposed paragraph (b) would 

require a SIDCO or Subpart C DCO to 

establish rules and procedures enabling 

it to promptly meet all of its settlement 

obligations, on a same day and, where 

appropriate, on an intraday and 

multiday basis, in the context of the 

occurrence of either or both of the 

following scenarios: (i) Following an 

individual or combined default 

involving one or more clearing 

members’ obligations to the SIDCO or 

Subpart C DCO or (ii) if there is an 

unforeseen liquidity shortfall exceeding 

the financial resources of the SIDCO or 

Subpart C DCO. Such rules and 

procedures should be established ex 

ante and may provide for the means of: 

Increasing available assets (e.g. by using 

assessments) and/or reducing the size of 

liabilities (e.g. by engaging in variation 

margin haircuts or tear-ups); as well as 

obtaining liquidity from participants 

(e.g. through rules-based repurchase 

arrangements); employing a sequenced 

application of such tools; and 

replenishing any credit and liquidity 

resources that may be employed during 

a stress event. 

The Commission requested comment 

on all aspects of these proposals. MGEX 

requested additional time to comply 

with regulation 39.35, along the lines of 

proposed regulation 39.34(d), which 

permits a SIDCO or Subpart C to request 

that the Commission grant the SIDCO or 

Subpart C DCO additional time of up to 

one year to comply with regulation 

39.34. MGEX commented that it would 

be very difficult, if not impossible, to 

perform the analyses required to satisfy 

regulation 39.35 by December 31, 2013. 

The Commission agrees and has decided 

to permit a SIDCO or Subpart C DCO to 

request up to a one year extension to 

comply with regulation 39.35.188

The Commission notes that regulation 

39.35 was designed to protect SIDCOs, 

Subpart C DCOs, their clearing 

members, customers of clearing 

members, and the financial system more 

broadly by requiring SIDCOs and 

Subpart C DCOs to have plans and 

procedures to address credit losses and 

liquidity shortfalls beyond their 

prefunded resources, thus promoting 

their ability to promptly fulfill their 

obligations and continue to perform 

their critical functions. As proposed, 

regulation 39.35 addresses significant 

consequences that could result from a 

clearing member’s default. Specifically, 

a DCO might not have sufficient 

financial resources following a clearing 

member’s default either to cover the 

default or to fulfill its settlement 

obligations. Similarly, a DCO may be 

unable to fulfill its settlement 

obligations due to a liquidity shortfall 

exceeding its financial resources. In 

order to avoid the negative effect on its 

clearing members, their customers, and 

on the financial system more broadly of 

a DCO’s failure promptly to meet its 

settlement obligations, it would be 

prudent for a DCO to have a recovery 

plan that addresses these scenarios and, 

given their importance to the U.S. 

financial system, it is critical for SIDCOs 

to have such plans. In addition, because 

this plan would be specified in the 

DCO’s rules and/or procedures, it would 

be disclosed to clearing members, their 

customers, and the broader public. Such 

transparency would likely help clearing 

members, their customers, and other 

market participants properly allocate 

capital and other resources as well as 

facilitate the development of their own 

recovery plans. 

For the reasons set forth above and in 

the Proposal, the Commission has 

decided to finalize regulation 39.35 

substantively as proposed but will 

permit a SIDCO or Subpart C DCO to 

request that the Commission grant up to 

a one year extension to comply with 

regulation 39.35 and regulation 39.39, as 

discussed below.189

H. Regulation 39.36 (Risk management 

for systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

As proposed, regulation 39.36 would 

establish additional risk management 

requirements for SIDCOs and Subpart C 

DCOs. Current regulation 39.13 

establishes the risk management 

requirements that a DCO must meet in 

order to comply with Core Principle 

D 190 including, among other things, 

specific criteria for stress tests that a 

DCO must conduct.191

The Commission proposed regulation 

39.36 in order to address certain gaps 

between Commission regulations and 

Principles 4, 6, 7, and 9.192 In particular, 

proposed regulation 39.36 would 

require a SIDCO or Subpart C DCO to 

enhance its stress testing procedures in 

ways that will make it more likely that 

the SIDCO or Subpart C DCO will be 

able to understand the risks posed by its 

members, so that it can ensure that the 

relationship between its resources and 

obligations enables it to meet its 

obligations promptly. 

The Commission requested comment 

on all aspects of proposed regulation 

39.36. 

MGEX, the European Commission, 

and Chris Barnard commented on 

proposed regulation 39.36(a)(stress tests 

of financial resources). MGEX stated 

that the regulation should permit a 

SIDCO or Subpart C DCO to have the 

flexibility to use stress test parameters 

that can be justified by relevant data and 

to select relevant time periods to review 

when conducting stress tests.193 DCOs 

do have such flexibility, so long as the 


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194European Commission at 3. 

195 Id. 

196 Id. 

197European Commission at 3–4. 

198European Commission at 4. 

199 Id. 

200Chris Barnard at 2. 

201 Id. 

202MGEX at 8. 

203 Id. 

204Chris Barnard at 2. 

205Public disclosure requirements for all 

registered DCOs are set forth in Regulation 39.21, 

which implements DCO Core Principle L (Public 

Information), and requires DCOs to provide to 

market participants sufficient information to enable 

them to identify and evaluate accurately the risks 

and costs associated with using the services of the 

DCO. 

206See also section II.C.2, supra. 

207Available at: http://www.bis.org/publ/

cpss106.pdf. 

208See supra section II.C.2. for a discussion of the 

Quantitative Information Disclosure (referencing 

section 2.5 of the CPSS–IOSCO Disclosure 

Framework). 

meet the performance standards set 

forth in the regulation. 

The European Commission stated that 

regulation 39.36 should be more 

detailed in order to set a meaningful 

benchmark for all SIDCOs and Subpart 

C DCOs.194 For example, the European 

Commission suggests that SIDCOs and 

Subpart C DCOs should be required to 

conduct an assessment of the theoretical 

and empirical properties of the margin 

model and that such requirement, 

should prescribe minimum liquidation 

periods for each type of product.195 The 

European Commission noted that 

explanatory note 3.6.7 to Principle 6 

states that ‘‘close-out periods should be 

set on a product-specific basis’’ because 

less liquid products may require longer 

close-out periods.196 The European 

Commission opined that there should be 

a minimum liquidation period of twodays for ‘‘listed derivatives’’ (i.e., 

futures and options) rather than the oneday minimum prescribed in current 

regulation 39.13(g)(2)(ii)(A).197 The 

European Commission also stated more 

generally that its rules and this 

Commission’s rules diverge in the area 

of initial margin requirements and that 

this divergence ‘‘is a source of 

competitive distortion between the E.U.- 

and U.S.-listed derivative markets as 

well as a threat to global financial 

stability.’’ 198 The European 

Commission also stressed that this 

Commission’s risk management rules 

should do more to ‘‘mitigate the procyclicality inherent to initial 

margin.’’ 199

Regulation 39.13(g)(2) already sets out 

minimum liquidation times for swaps, 

futures, and swaps on agricultural 

commodities, energy commodities, and 

metals. In addition, pursuant to 

regulation 39.13(g)(2), a DCO is already 

required to use ‘‘[s]uch longer 

liquidation time as is appropriate based 

on the specific characteristics of a 

particular product or portfolio’’ and the 

Commission expressly reserved the right 

to establish, by order, shorter or longer 

liquidation times for particular products 

or portfolios. Moreover, under that 

regulation, all DCOs are obligated to 

consider the appropriateness of 

liquidation times in light of the specific 

characteristics of particular products or 

portfolios. Reg. 39.36(b)(2)(i) has been 

amended to clarify this point with 

respect to SIDCOs and Subpart C DCOs. 

Chris Barnard suggested that DCOs 

should be required to stress test the 

liquidity of its financial resources in 

such a way that considers market stress, 

idiosyncratic stress, combinations 

thereof.200 In addition, Chris Barnard 

stated that assets used to offset projected 

funding needs should be discounted to 

reflect their credit risk and market 

volatility.201 In response, the 

Commission notes that regulation 

39.36(a), as proposed, would require a 

SIDCO or Subpart C DCO to address 

these topics. 

With regard to paragraph (c)(6) 

(reporting stress test results to the risk 

management committee or board of 

directors), MGEX suggested that this 

provision should be amended to permit 

the reporting of high-level summaries, 

redacted versions, or subsets of stress 

test results.202 Otherwise, MGEX stated 

that this provision would create 

conflicts of interest because stress test 

results reveal confidential information 

about MGEX clearing members, and 

members of the MGEX risk management 

committee or board of directors may 

also be MGEX clearing members.203 The 

Commission expects that stress-tests 

will be reported to the board of directors 

at a summary level. In complying with 

new paragraph (c)(6), a DCO should 

structure its reporting and governance 

arrangements in such a way that 

balances effective governance and risk 

management with confidentiality 

considerations. 

With respect to proposed regulation 

39.36(e) (annual validation of financial 

and liquidity risk management models), 

Chris Barnard commented that persons 

responsible for the development, 

implementation, or operation of the 

systems and models being tested not 

carry out the annual validation.204 The 

Commission agrees that would be a 

prudent aspect of an appropriately 

designed validation process. 

The Commission has decided to 

finalize regulation 39.36 as amended 

with the clarification discussed above 

for the reasons discussed above and in 

the Proposal. 

I. Regulation 39.37 (Additional 

disclosure for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

The Commission proposed regulation 

39.37 to set forth additional public 

disclosure requirements for SIDCOs and 

Subpart C DCOs.205 These requirements 

were intended to address differences 

between current requirements and PFMI 

Principles 14 and 23. In particular, 

proposed regulation 39.37 was designed 

to enable members of SIDCOs and 

Subpart C DCOs, their customers, and 

the general public to understand the risk 

of exposures to such DCOs, and to 

promote their ability to evaluate the 

quality of such DCOs, thereby 

enhancing competition and market 

discipline. 

Specifically, proposed regulation 

39.37 would require SIDCOs and 

Subpart C DCOs to disclose certain 

information to the public and to the 

Commission. First, consistent with 

Principle 23, a SIDCO or Subpart C DCO 

would be required to disclose its 

responses to the CPSS–IOSCO 

Disclosure Framework.206 Further, to 

ensure the continued accuracy and 

usefulness of a SIDCO or Subpart C 

DCO’s responses, a SIDCO or Subpart C 

DCO would be required to review and 

update them (a) at least every two years 

and (b) following material changes to 

the SIDCO’s or Subpart C DCO’s system 

or its environment.207 A material change 

to the SIDCO’s or Subpart C DCO’s 

system or environment is a change that 

would significantly change the accuracy 

and usefulness of the SIDCO’s or 

Subpart C DCO’s existing responses. 

Under proposed regulation 39.37(c), a 

SIDCO or Subpart C DCO would also be 

required to disclose, publicly and to the 

Commission, relevant basic data on 

transaction volume and values. This 

requirement is intended to be consistent 

with the Quantitative Information 

Disclosure that CPSS–IOSCO are in the 

process of developing.208

Also under proposed regulation 39.37, 

a SIDCO or Subpart C DCO would be 

required, consistent with Principle 14, 

to publish its rules, policies, and 

procedures describing whether 

customer funds are protected on an 

individual or omnibus basis and 

whether customer funds are subject to 

any legal or operational constraints that 

may impair the ability of the SIDCO or 

Subpart C DCO to segregate or port the 


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209MGEX at 8–9. 

210 Id. 

211See Section II.L. discussing Regulation 39.40 

(Consistency with the Principles for Financial 

Market Infrastructures). 

212CPSS–IOSCO, Consultative Report, Public 

Quantitative Disclosure Standards for Central 

Counterparties, October 15, 2013, available at 

http://www.bis.org/publ/cpss114.pdf. 

213 Id. at 1. 

214See PFMIs at E.N. 3.21.1. 

215PFMIs at E.N. 3.21.2. 

216PFMIs at E.N. 3.21.5. 

217MGEX at 9. 

218 Id. 

219 Id. 

220PFMIs at E.N. 3.21.1. 

positions and related collateral of a 

clearing member’s customers. 

The Commission requested comment 

on all aspects of these proposals. MGEX 

commented that it is premature for 

regulation 39.37(c) to require a SIDCO 

or Subpart C DCO to complete the 

CPSS–IOSCO Quantitative Disclosure 

Document because that document has 

not yet been made available for public 

comment.209 It is for this reason that 

MGEX also stated that it cannot 

comment on the potential costs of 

complying with regulation 39.37(c).210

The Commission notes that regulation 

39.37(c) requires the disclosure of 

relevant basic data on transaction 

volume and values, which requirement 

is consistent with key consideration 5 in 

Principle 23. Further, given the 

Commission’s goal of establishing 

regulations that are consistent with the 

PFMIs,211 to the extent that final 

international standards are established 

for the disclosure of relevant basic data 

on transaction volume and values, 

SIDCOs and Subpart C DCOs should 

look to such standards in complying 

with the requirements set forth in 

regulation 39.37(c). Further, the 

Commission notes that on October 15, 

2013, CPSS–IOSCO published a 

consultative document on public 

quantitative disclosure standards for 

central counterparties.212 Moreover, 

CPSS–IOSCO states that these 

quantitative disclosures, together with 

the PFMI Disclosure framework also 

published by CPSS–IOSCO, would form 

the minimum disclosures expected of 

CCPs under Principle 23, Key 

Consideration 5, of the Principles.213

Thus, if and when such public 

quantitative disclosure standards are 

finalized, the Commission would expect 

SIDCOs and Subpart C DCOs to look to 

such standards in complying with the 

requirements set forth in regulation 

39.37(c). Moreover, the Commission 

notes that MGEX is not obligated to 

comply with regulation 39.37(c) unless 

and until MGEX elects to become 

subject to Subpart C. As discussed 

above, a DCO that is not a SIDCO may 

submit a Subpart C Election Form any 

time on or after the effective date of 

these final rules and may, should it so 

choose, delay such submission until 

such time as the public quantitative 

disclosure standards for central 

counterparties are finalized. 

The new additional disclosures will 

help regulators and market participants 

assess SIDCOs and Subpart C DCOs, 

particularly with respect to a SIDCO’s or 

Subpart C DCO’s compliance with the 

PFMIs. Because of a SIDCO’s 

importance to the U.S. financial 

markets, such public assessment should 

help provide confidence to market 

participants, which could prove to be a 

stabilizing force in times of severe 

market stress. For the reasons set forth 

herein, and in the Proposal, the 

Commission has decided to adopt 

regulation 39.37 as proposed. 

J. Regulation 39.38 (Efficiency for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

Consistent with Principle 21, the 

Commission proposed regulation 39.38 

in order to require a SIDCO or Subpart 

C DCO efficiently and effectively to 

design its clearing and settlement 

arrangements, operating structure and 

procedures, product scope, and use of 

technology. Further, under proposed 

regulation 39.38, a SIDCO or Subpart C 

DCO would be required to establish 

clearly defined goals and objectives that 

are measurable and achievable, 

including goals with regards to 

minimum service levels, risk 

management expectations, and business 

priorities. Moreover, a SIDCO or 

Subpart C DCO would be required to 

facilitate efficient payment, clearing, 

and settlement by accommodating 

internationally accepted communication 

procedures and standards. The 

explanatory notes to Principle 21 

observe that an efficient CCP has the 

required resources to perform its 

functions 214 and the efficiency of the 

CCP depends on the choice of clearing 

and settlement arrangement, operating 

structure, scope of products cleared or 

settled, and integration of technology 

and procedures.215 In addition, the 

explanatory notes state that an effective 

CCP reliably meets its obligations in a 

timely manner and achieves the public 

policy goals of safety and efficiency for 

participants and the markets it 

serves.216 Finally, consistent with 

Principle 22, proposed regulation 

39.38(d) would require each SIDCO and 

Subpart C DCO to facilitate efficient 

payment, clearing, and settlement by 

accommodating internationally 

accepted communication procedures 

and standards. 

The Commission requested comment 

on all aspects of these proposals. MGEX 

commented that regulation 39.38(d) 

should permit a SIDCO or Subpart C 

DCO to make independent business 

decisions for establishing 

communication methods that best serve 

its clearing members and market 

participants.217 MGEX stated it is 

unclear as to whom or what 

organization is responsible for 

establishing international 

communication standards and would 

expect that there may be multiple 

acceptable communication methods.218

MGEX suggested that the Commission 

take a flexible approach in reviewing 

the efficiency of a DCO’s methods of 

communication.219 The Commission 

notes that regulation 39.38(d) refers 

broadly to ‘‘internationally accepted 

communication procedures and 

standards.’’ Therefore, the Commission 

believes that there may be more than 

one way for a SIDCO or Subpart C DCO 

to comply with regulation 39.38(d). The 

Commission appreciates MGEX 

suggestion regarding flexibility, but as 

examinations are fact specific, the 

Commission declines to discuss what 

approach it would or would not take in 

a particular review in the abstract. 

It would appear to be prudent for 

SIDCOs and Subpart C DCOs to comply 

with such international standards of 

efficiency and effectiveness. A SIDCO or 

Subpart C DCO that is inefficient or 

ineffective could distort financial 

activity and market structure, increasing 

financial and other risks to the SIDCO’s 

or Subpart C DCO’s participants.220 For 

the reasons set forth in the foregoing 

discussion, and in the Proposal, the 

Commission has decided to finalize 

regulation 39.38 as proposed. 

K. Regulation 39.39 (Recovery and winddown for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

The Commission proposed regulation 

39.39 to require a SIDCO or Subpart C 

DCO to maintain viable plans for 

recovery and orderly wind-down. In 

particular, regulation 39.39 was 

designed to protect the members of such 

DCOs and their customers, as well as 

the financial system more broadly from 

the consequences of a disorderly failure 

of such a DCO. 


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221See supra Section I.E.1. 

222See supra id. 

223See id. 

224See supra Section I.D. 

225 78 FR 50282. 

226LCH at 2–4, MGEX at 9, and NYPC at 2. 

227NYPC at 1–2. 

228See new paragraph (f) of regulation 39.39, new 

paragraph (d) of regulation 39.34, footnote 108 

supra, and Section II.G. supra (discussing 

regulation 39.35). 

229 ISDA at 1–2. 

230The Consultative Report notes that it ‘‘is not 

intended to create additional standards for FMIs, or 

authorities, beyond those set out in the CPSS– 

IOSCO ‘Principles for financial market 

infrastructures’.’’ Id. at 1. 

231MGEX at 10. 

232MGEX at 9–10. 

233 Id. 

As noted above, Principle 3 requires 

a CCP to have a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, and other risks.221 Under 

Principle 3, such a framework would 

include identifying scenarios that may 

prevent the CCP from providing critical 

operations and services as a going 

concern and would assess the 

effectiveness of a full range of options 

for recovery or orderly wind-down. 

Similarly, Principle 15 requires a CCP to 

identify, monitor, and manage its 

general business risk and hold sufficient 

liquid net assets funded by equity to 

cover potential general business losses 

so that the CCP can continue operations 

and services as a going concern if those 

losses materialize.222 Further, these 

liquid net assets should, at all times, be 

sufficient to allow for recovery or 

orderly wind-down of critical 

operations and services.223 Although 

there is no Core Principle that pertains 

directly to the establishment of a 

recovery and wind-down plan, 

proposed regulation 39.37 promotes 

concepts set forth in Core Principles B 

(Financial Resources), D (Risk 

Management), G (Default Rules and 

Procedures), and I (System 

Safeguards).224

Accordingly, under proposed 

regulation 39.39, a SIDCO or Subpart C 

DCO would be required to develop 

additional plans that specifically 

address ‘‘recovery’’ and ‘‘wind-down.’’ 

The Commission proposed defining 

‘‘recovery’’ as the actions of a SIDCO or 

Subpart C DCO, consistent with its 

rules, procedures, and other ex-ante 

contractual arrangements, to address 

any uncovered credit loss, liquidity 

shortfall, capital inadequacy, or 

business, operational or other structural 

weakness, including the replenishment 

of any depleted pre-funded financial 

resources and liquidity arrangements, as 

necessary to maintain the SIDCO’s or 

Subpart C DCO’s viability as a going 

concern so that it can continue to 

provide its critical services without 

requiring the commencement of an 

insolvency proceeding or the use of 

resolution powers by the Federal 

Deposit Insurance Corporation or any 

other relevant resolution authority. The 

Commission proposed defining ‘‘winddown’’ as the actions of a SIDCO or 

Subpart C DCO to effect the permanent 

cessation or sale or transfer of one or 

more services. The Commission also 

proposed adding a definition for 

‘‘general business risk,’’ which would 

mean any potential impairment of a 

SIDCO’s or Subpart C DCO’s financial 

position, as a business concern, as a 

consequence of a decline in its revenues 

or an increase in its expenses, such that 

expenses exceed revenues and result in 

a loss that the SIDCO or Subpart C DCO 

must charge against capital. In addition, 

the Commission proposed defining 

‘‘operational risk’’ to mean the risk that 

deficiencies in information systems or 

internal processes, human errors, 

management failures or disruptions 

from external events will result in the 

reduction, deterioration, or breakdown 

of services provided by a SIDCO or 

Subpart C DCO. Furthermore, the 

Commission proposed defining 

‘‘unencumbered liquid financial assets’’ 

to include cash and highly liquid 

securities. These proposed definitions 

were designed to be consistent with the 

meaning of such terms in the PFMIs. 

The Commission requested comment as 

to whether these definitions were 

appropriate. Specifically, the 

Commission requested comment on 

whether the definition of ‘‘recovery’’ is 

appropriate in light of emerging 

international consensus. 

The Commission proposed requiring 

each SIDCO and Subpart C DCO to 

maintain viable plans for: (i) Recovery 

or orderly wind-down, necessitated by 

credit losses or liquidity shortfalls; and 

(ii) recovery or orderly wind-down, 

necessitated by general business risk, 

operational risk, or any other risk that 

threatens the SIDCO’s or Subpart C 

DCO’s viability as a going concern. The 

Commission also proposed requiring 

that the recovery and wind-down plans 

of SIDCOs and Subpart C DCOs meet 

certain standards, set forth in proposed 

subsection (c).225 Under proposed 

regulation 39.39(d), a SIDCO or Subpart 

C DCO would be required to establish 

recovery and wind-down plans that are 

supported by certain resources. 

The Commission requested comment 

on all aspects of these proposals. In 

their comment letters, LCH, MGEX, and 

NYPC suggested that the Commission 

provide additional time to a SIDCO or 

Subpart C DCO for developing recovery 

and wind-down plans in accordance 

with regulation 39.39.226 Further, NYPC 

suggested that a SIDCO or Subpart C not 

be required to comply with regulation 

39.39 until (1) CPSS–IOSCO and the 

Financial Stability Board finalize their 

reports on CCP recovery and resolution 

and (2) CCPs have been allowed a 

reasonable amount of time to implement 

the guidance included in such 

reports.227 Because reports on CCP 

recovery and resolution are still under 

consideration by the relevant 

international bodies, and further work 

in these areas may inform the 

Commission’s views on a SIDCO’s or 

Subpart C DCO’s recovery or winddown plans, the Commission has 

decided to permit a SIDCO or Subpart 

C DCO to request that the Commission 

grant the SIDCO or Subpart C DCO up 

to one year to comply with regulation 

39.39 and 39.35 (Default rules and 

procedures), in a similar manner to the 

process by which a SIDCO or Subpart 

DCO may request that the Commission 

grant the SIDCO or Subpart C additional 

time for complying with regulations 

39.34 (System safeguards).228

ISDA suggested that regulation 39.39 

include more details about the required 

recovery and wind-down plans, such as 

the details provided in CPSS–IOSCO’s 

Consultative Report, ‘‘Recovery of 

Financial Market Infrastructures.’’ 229

The Commission notes that the 

Consultative Report lists suggested 

tools, not mandatory standards.230 This 

rulemaking, by contrast, is intended to 

address what the PFMIs require. 

Therefore, it would be inappropriate for 

Subpart C to reflect the Consultative 

Report. 

With respect to proposed regulation 

39.39(b)(2), MGEX commented that the 

Commission should delete the phrase 

‘‘or any other risk that threatens the 

DCO’s viability as a going concern.’’ 231

MGEX stated that Principle 15 requires 

a DCO to establish recovery and orderly 

wind-down plans necessitated only by 

general business risk or operational 

risk.232 MGEX commented further that 

this phrase is ambiguous.233 Although 

the phrase does not appear in Principle 

15, the Commission notes that key 

consideration 3 of Principle 3 

specifically requires an FMI to ‘‘identify 

scenarios that may potentially prevent it 

from being able to provide its critical 

operations and services as a going 

concern and assess the effectiveness of 

a full range of options for recovery or 

orderly wind-down.’’ Thus, the 

inclusion of the phrase ‘‘or any other 

risk that threatens the DCO’s viability as 


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234 Id. 

235As mentioned earlier in this section, the 

phrase ‘‘funded by equity’’ comes from Principle 

15. See also supra Section I.E.1. 

236See new paragraph (d) of regulation 39.39 and 

Section II.G. supra (discussing regulation 39.35). 237See SIDCO Final Rule. 

238See supra Section II.B. and note 111. 

239The Commission promulgated this provision 

as part of the SIDCO Final Rule. 

240See supra Section II.B. (discussing proposed 

revised regulation 39.28, renumbered as regulation 

39.30). 

a going concern’’ is consistent with the 

PFMIs. Moreover, a SIDCO or Subpart C 

DCO should be aware of, and have plans 

to address, the risks that threaten their 

viability without being limited in their 

analysis to pre-defined risks. 

With respect to proposed regulation 

39.39(d)(2), MGEX commented that a 

SIDCO or Subpart C DCO that 

demonstrates adequate liquidity 

capabilities should be permitted to use 

an established line of credit for meeting 

potential business losses, particularly if 

the line of credit is offered on the basis 

that the DCO meet ‘‘certain equity 

covenants.’’ 234 The Commission notes 

that, so long as the DCO has sufficient 

assets funded by the equity of its 

owners, arrangements such as this one 

may be effective in providing a DCO 

with a tool that would be adequate for 

providing the related liquidity necessary 

to comply with regulation 39.39(d)(2). A 

DCO would need to demonstrate that 

such an arrangement would: (i) enable 

the DCO to have sufficient 

unencumbered liquid financial assets to 

fund its recovery and wind-down plans 

and (ii) make that liquidity available to 

the DCO even in a scenario in which the 

DCO is facing recovery or wind-down. 

The Commission notes that regulation 

39.39(d)(2) uses the phrase ‘‘funded by 

equity . . .’’ to connote financial 

resources that are part of the SIDCO’s or 

Subpart C DCO’s owners’ equity/

shareholder capital.235

For the reasons set forth above and in 

the Proposal, the Commission has 

decided to finalize regulation 39.39 

substantively as proposed but, as 

discussed above, will permit a SIDCO or 

Subpart C DCO to request that the 

Commission grant the SIDCO or Subpart 

C DCO up to one year to comply with 

regulation 39.39.236 This new regulation 

is intended to address certain 

differences between existing 

Commission regulations and the 

standards set forth in the PFMIs. In 

addition, it would appear to be 

necessary for a SIDCO to maintain and 

(as part of such maintenance, regularly 

update) a recovery and wind-down plan 

so as to reduce, or attempt to control, 

the potential impact a failure or 

disruption of the SIDCO’s operations 

would have on the stability of the U.S. 

financial markets. 

L. Regulation 39.40 (Consistency with 

the Principles for Financial Market 

Infrastructures) 

Proposed regulation 39.40 was 

intended to make clear that Subpart C 

is intended to establish regulations that, 

together with Subpart A and Subpart B, 

are consistent with the DCO Core 

Principles set forth in Section 5b(c)(2) of 

the CEA and the PFMIs. Specifically, to 

the extent of any ambiguity, the 

Commission intends to interpret the 

regulations set forth in part 39 in a 

manner that is consistent with the 

standards set forth in the PFMIs. 

The Commission requested comment 

on all aspects of this proposal. ISDA 

commented that regulation 39.40 should 

state that subpart C is intended to be 

consistent with the PFMIs ‘‘except to 

the extent inconsistent with other 

regulations of the Commission.’’ 

According to ISDA, this would make 

clear that part 22, which pertains to the 

protection of Cleared Swaps Customer 

Collateral by DCOs and FCMs, would 

not be trumped by any future 

international standards, such as the 

CPSS–IOSCO Consultative Report, 

‘‘Recovery of Financial Market 

Infrastructures.’’ The Commission notes 

that regulation 39.40 requires 

consistency with both the CEA and with 

the PFMIs. Thus, ISDA’s suggested 

language is not necessary because an 

international standard that is not 

consistent with the CEA would not 

trump a Commission regulation that 

implements or derives from the CEA. 

Consistency between part 39 and the 

PFMIs would appear to promote 

international harmonization and is 

intended to allow the bank clearing 

members and bank customers of SIDCOs 

and Subpart C DCOs to receive the more 

favorable capital treatment under the 

Basel CCP Capital Requirements. For the 

reasons set forth above and in the 

Proposal, the Commission has decided 

to finalize regulation 39.40 as proposed. 

M. Regulation 39.41 (Special 

enforcement authority for systemically 

important derivatives clearing 

organizations) 

In August of 2013, the Commission 

adopted regulation 39.31, which 

implemented special enforcement 

authority over SIDCOs granted to the 

Commission under section 807(c) of the 

Dodd-Frank Act.237 In the Proposal, the 

Commission renumbered regulation 

39.31 as regulation 39.41 and did not 

propose any other changes. The 

Commission did not receive any 

comments on regulation 39.41 and thus, 

as part of this final rulemaking, the 

Commission is adopting regulation 

39.41 as proposed. 

N. Regulation 39.42 (Advance notice of 

material risk-related rule changes by 

systemically important derivatives 

clearing organizations) 

The Commission proposed moving 

existing paragraph (c) of regulation 

39.30 (Scope) to proposed regulation 

39.42.238 This paragraph instructs a 

SIDCO to provide advance notice to the 

Commission of any proposed change to 

its rules, procedures, or operations that 

could materially affect the nature or 

level of risks presented by the SIDCO, 

in accordance with regulation 40.10.239

Because the other provisions of 

proposed revised regulation 39.28 

(renumbered as regulation 39.30) 

pertain to the scope of Subpart C,240 it 

would be appropriate for paragraph (d) 

to be codified in a separate regulation. 

The Proposal did not suggest any 

substantive amendments to this 

provision. The Commission did not 

receive any comments on regulation 

39.41 and thus, as part of this final 

rulemaking, the Commission is moving 

the provision to regulation 39.42 as 

proposed. 

O. Regulation 140.94 (Delegation of 

authority to the Director of the Division 

of Clearing and Risk) 

The Commission proposed amending 

regulation 140.94 so that certain 

Commission functions contained in 

these proposed regulations would be 

delegated to the Director of the Division 

of Clearing and Risk and to such staff 

members as the Director may designate. 

Specifically, the Commission proposed 

to delegate all functions reserved to the 

Commission in proposed regulation 

39.31 including, for example, the 

authority to request that a DCO provide 

information supplementing a Subpart C 

Election Form that it has filed with the 

Commission; to determine whether an 

election to be subject to Subpart C 

should be permitted to become effective, 

stayed or denied; and to provide any 

notices regarding the foregoing. The 

Commission also proposed to delegate 

to the Director of the Division of 

Clearing and Risk and to his or her 

designees the decision described in 

regulation 39.34(d) (whether to grant a 

SIDCO or a Subpart C DCO up to one 

year to comply with any provision of 

regulation 39.34). 


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241See Sections II.G. and II.K, supra. 242Regulation 140.94(c)(13), as finalized, replaces 

the term ‘‘applications’’ with ‘‘requests’’ to comport 

with the language used in final regulations 39.34 

and 39.39. 

243See 5 U.S.C. 804(2) (defining a ‘‘major rule’’ 

for purposes of the Congressional Review Act). 

244 Id. at 801(a)(3). 

245 Id. at 808(2). 

246See supra Sections I.B. and I.C. 

247See supra Section I.F. 

248 Id. 

249 Id. See also CME at 5, n. 18 (stating that the 

‘‘ramifications for failure to achieve QCCP status are 

onerous for banks’ CCP exposures and can result in 

capital charges on trade exposures that are 10–20 

times larger than capital charges for QCCP trade 

exposures.’’). 

250 See CME at 5, n. 18 (stating that ‘‘in order 

for banks to achieve preferential QCCP capital 

treatment for their exposures to given CCPs, the 

CCP’s primary regulator, among other things, must 

have implemented the PFMIs by January 1, 2014.’’ 

See also ‘‘Basel III Counterparty Credit Risk and 

Exposures to Central Counterparties-Frequently 

Asked Questions’’ (December 2012) available at 

http://www.bis.org/publ/bcbs237.pdf (stating that 

during 2013, if a CCP’s primary regulator has 

publicly stated that it is working towards 

implementing regulations consistent with the 

PFMIs, then such CCP may be treated as a QCCP 

until the December 31, 2013. After December 31, 

2013, the CCP’s primary regulator must have 

implemented regulations consistent with the PFMIs 

Continued 

As discussed above, in response to 

comments from LCH, MGEX, and NYPC, 

the Commission has decided to permit 

a SIDCO or Subpart C DCO to request 

that the Commission grant the SIDCO or 

Subpart C DCO additional time of up to 

one year to comply with the 

requirements to establish default rules 

and procedures for uncovered losses or 

shortfalls pursuant to new regulation 

39.35 and to establish recovery and 

wind-down plans pursuant to new 

regulation 39.39.241 In this connection, 

just as proposed amended regulation 

140.94 would delegate the disposition of 

such a request concerning compliance 

with regulation 39.34 to the Director of 

the Division of Clearing and Risk, the 

Commission has decided to delegate the 

disposition of a request for delayed 

compliance with regulation 39.39 to the 

Director of the Division of Clearing and 

Risk.242 Otherwise, the Commission 

believes that the proposed amendments 

to regulation 140.94 provide appropriate 

delegations to the Director of the 

Division of Clearing and Risk. 

Therefore, the Commission has decided 

to finalize the other amendments as 

proposed. 

P. Regulation 190.09 (Member property) 

Certain of the proposed requirements 

for SIDCOs and Subpart C DCOs 

necessitated certain clarifications to part 

190 of the Commission’s regulations. 

Specifically, new regulation 39.35(a) 

requires a SIDCO or Subpart C DCO to 

‘‘adopt explicit rules and procedures 

that address fully any loss arising from 

any individual or combined default 

relating to any clearing members’ 

obligations to the SIDCO or Subpart C 

DCO.’’ New regulation 39.39(b) requires 

a SIDCO or Subpart C DCO to maintain 

viable plans for recovery and orderly 

wind-down. In addition, SIDCOs and 

Subpart C DCOs must comply with Core 

Principle R, which require all registered 

DCOs to ‘‘have a well-founded, 

transparent, and enforceable legal 

framework for each aspect of the 

activities of the DCO.’’ Recognizing the 

diversity of financial safeguard 

arrangements among DCOs, the 

Commission noted in the Proposal that 

it would appear to be prudent to clarify 

certain language in part 190 to 

materially aid compliance with Core 

Principle R and the proposed 

regulations specified above. 

The Commission proposed amending 

paragraph (b) of regulation 190.09 to 

clarify that the scope of member 

property will be determined based on 

the by-laws and rules of the relevant 

DCO. 

The Commission requested comment 

on all aspects of this proposal. The 

Commission did not receive any 

comments on the proposed amendments 

to regulation 190.09. The Commission 

believes that the proposed amendments 

to regulation 190.09(b) make 

appropriate clarifications, as described 

above. For the reasons set forth herein 

and in the Proposal, the Commission 

has decided to finalize the amendments 

to regulation 190.09(b) as proposed. 

III. Effective Date 

A. Congressional Review Act 

This final rulemaking is a major rule 

for purposes of the Congressional 

Review Act (‘‘CRA’’).243 Generally, 

under the CRA, a major rule takes effect 

60 days after the date on which the rule 

is published in the Federal Register.244

However, Section 808(2) of the CRA 

provides that any rule which an agency 

for good cause finds that notice and 

public procedure thereon are 

impracticable, unnecessary, or contrary 

to the public interest (and incorporates 

the finding and a brief statement of 

reasons therefore in the rule issued), 

shall take effect at such time as the 

federal agency promulgating the rule 

determines.245 For the regulations in 

this final rule, the Commission has 

determined that good cause exists to 

waive the CRA effective date 

requirement and make the regulations 

effective in less than 60 days. 

For revised regulation 190.09, the 

Commission is making the regulation 

effective upon publication. In 

accordance with section 808(2), the 

Commission finds good cause to make 

this provision effective upon 

publication because the regulation does 

not impose any new, substantive 

obligations on regulated entities and 

only serves to clarify an existing 

regulation in order to aid DCOs in their 

compliance with Commission 

regulations, including the final rules 

adopted herein. Moreover, the final 

regulation is being adopted as proposed, 

including the effective date. Market 

participants are thus familiar with the 

clarification and the timing of its 

implementation. Furthermore, the 

Commission received no comments on 

any aspect of revised regulation 190.09. 

Therefore, the Commission has 

determined that good cause exists to 

make revised regulation 190.09 effective 

upon publication. 

Regarding regulation 39.31, the 

Commission is making this regulation 

effective as of December 13, 2013. In 

accordance with section 808(2), the 

Commission finds that a 60 day effective 

date for this regulation is contrary to the 

public interest because such delay will 

cause public harm by significantly 

increasing (for the reasons discussed 

below) the costs for market participants 

to clear OTC and exchange-traded 

derivatives with DCOs. More broadly, 

the increase in costs will have an 

adverse effect on competition and may 

lead to a disruption in the financial 

markets. Regulation 39.31 does not 

impose any requirements on regulated 

entities; rather it is a permissive 

provision that gives DCOs that have not 

been designated as systemically 

important by the Council the 

opportunity to opt-into and become 

subject to the provisions of an enhanced 

regulatory scheme that is otherwise only 

applicable to SIDCOs.246 Compliance 

with this enhanced regulatory scheme 

as well as existing Commission 

regulations is necessary for such DCOs 

to be subject to standards that are 

consistent with the PFMIs, and thus 

enable them to gain QCCP status.247

Attaining QCCP status will increase a 

DCO’s ability to compete in the global 

financial markets by allowing such DCO 

to offer lower capital charges to banks 

(including their subsidiaries and 

affiliates) that clear derivative 

transactions with the DCO.248 Banks 

that transact with U.S. DCOs that do not 

have QCCP status will be charged 

substantially higher capital charges 

which they may pass along to their bank 

customers.249 In order to benefit from 

QCCP status by December 31, 2013,250


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and these regulations must be applied to the CCP 

on an ongoing basis in order for such CCP to be 

eligible for QCCP status). 

251See 5 U.S.C. 804(3) (defining the term ‘‘rule’’ 

for purposes of the CRA not to include any rule 

relating to agency management or personnel or any 

rule of agency organization, procedure, or practice). 

252These regulations set forth enhanced 

regulatory standards relating to governance, 

financial resources, system safeguards, risk 

management, special default rules and procedures 

for uncovered losses or shortfalls, additional 

disclosure requirements, efficiency, and recovery 

and wind-down procedures. Pursuant to Title VIII 

of the Dodd-Frank Act, the Commission prescribed 

these regulations in consultation with the Council 

and the Board. See Section 805 of the Dodd-Frank 

Act. 253See generally 5 U.S.C. 553(d). 

the Commission must receive a DCO’s 

election form, as set out in regulation 

39.31, by December 13, 2013. This date 

is necessary to allow the Commission a 

review period to stay, deny or permit 

the election by December 31, 2013. For 

those DCOs that wish to gain QCCP 

status, an effective date beyond 

December 13, 2013, would delay the 

election process and cause financial 

harm by adversely impacting the ability 

of these DCOs to compete with CCPs 

that have attained QCCP status by the 

end of 2013. Therefore the Commission 

has determined that good cause exists to 

make regulation 39.31 effective as of 

December 13, 2013. 

The Commission is also making 

regulation 140.94 effective as of 

December 13, 2013. In accordance with 

section 804(3), the Commission finds 

that this provision is not covered by the 

CRA as it concerns agency management 

and procedures.251 Nevertheless, in 

accordance with section 808(2), the 

Commission finds that a 60 day effective 

date for this regulation is not necessary 

because regulation 140.94 imposes no 

requirements on DCOs. Rather it 

amends the current regulation 140.94 to 

allow certain functions set forth in 

regulation 39.31 to be delegated to 

Commission staff, for which there is no 

need to provide for a delayed effective 

date. Therefore the Commission has 

determined that good cause exists to 

make regulation 140.94 effective as of 

December 13, 2013. 

The remaining regulations, adopted 

herein,252 require SIDCOs to establish 

additional enhanced standards, which 

along with existing Commission 

regulations, will enable SIDCOs to be 

compliant with the PFMIs and thus, be 

able to attain QCCP status and offer the 

lower capital charges to banks, their 

subsidiaries and/or affiliates. For these 

regulations, the Commission is making 

the effective date as of December 31, 

2013. For SIDCOs, a delay in attaining 

QCCP status beyond that date could 

create significant business and 

operational losses which in turn, could 

constrain the availability of liquidity 

and credit, thereby destabilizing the US 

financial markets. In accordance with 

section 808(2), the Commission finds 

that a 60 day effective date for these 

regulations is contrary to the public 

interest because such delay in obtaining 

QCCP status will cause public harm by 

significantly increasing the costs for 

market participants to clear OTC and 

exchange-traded derivatives with 

SIDCOs and hindering the ability of 

SIDCOs to compete with internationally 

similarly situated CCPs, which would 

be contrary to public interest. Therefore 

the Commission has determined that 

good cause exists to make the remaining 

regulations effective as of December 31, 

2013. 

B. Administrative Procedure Act 

The Administrative Procedure Act 

(‘‘APA’’) generally requires that the 

rules promulgated by an agency not be 

made effective less than 30 days after 

publication in the Federal Register, 

except for, inter alia, interpretative rules 

and statements of policy and as 

otherwise provided by the agency for 

good cause found.253 For the same 

reasons cited above, the Commission 

also finds that good cause exists under 

the APA to make revised regulation 

190.09, regulation 39.31 and regulation 

140.94 effective on the dates set forth by 

the Commission. 

Specifically, the Commission 

concludes that good cause exists to 

waive the 30 day effective date for 

revised regulation 190.09 because the 

regulation does not impose any new, 

substantive obligations on regulated 

entities and only clarifies the scope of 

an existing regulation. Thus, the 

Commission is of the view that this 

provision is not subject to the 30-day 

effective date requirement. Furthermore, 

because market participants are familiar 

with the regulation and no comments 

were received on the proposed change 

to the regulation, the Commission 

believes that a 30 day effective date is 

unnecessary and that good cause exists 

to make regulation 190.09 effective 

upon publication. 

The Commission also concludes that 

good cause exists to waive the 30 day 

effective date for regulation 39.31 

because a 30 day effective date would 

cause public financial harm by 

constraining the ability of certain DCOs 

to compete with other CCPs, 

particularly in global markets, which in 

turn, may substantially increase costs 

for market participants that transact in 

OTC and exchange traded derivatives. 

Moreover, as discussed above, 

regulation 39.31 does not impose any 

requirements on regulated entities or 

alter the status quo in any way; rather 

it is a permissive provision that gives 

DCOs that have not been designated as 

systemically important by the Council 

the opportunity to opt-into and become 

subject to the provisions of an enhanced 

regulatory scheme that is otherwise only 

applicable to SIDCOs. Compliance with 

this enhanced regulatory scheme as well 

as existing Commission regulations is 

necessary for such DCOs to be subject to 

standards that are consistent with the 

PFMIs, and thus enable them to gain 

QCCP status. Attaining QCCP status will 

increase a DCO’s ability to compete in 

the global financial markets by allowing 

such DCO to offer lower capital charges 

to banks (including their subsidiaries 

and affiliates) that clear derivative 

transactions with the DCO. Banks that 

transact with U.S. DCOs that do not 

have QCCP status will be charged 

substantially higher capital charges 

which they may pass along to their bank 

customers. In order to benefit from 

QCCP status by December 31, 2013, the 

Commission must receive a DCO’s 

election form, as set out in regulation 

39.31, by December 13, 2013. This date 

is necessary to allow the Commission a 

review period to stay, deny or permit 

the election by December 31, 2013. For 

those DCOs that wish to gain QCCP 

status by December 31, 2013, an 

effective date beyond December 13, 

2013, would delay the election process 

and cause financial harm by adversely 

impacting the ability of these DCOs to 

compete with CCPs that have attained 

QCCP status by the end of 2013. 

Therefore, the Commission has 

determined that good cause exists to 

make regulation 39.31 effective as of 

December 13, 2013. 

Lastly, the Commission concludes 

that good cause exists to waive the 30 

day effective date requirement for 

regulation 140.94 because the regulation 

pertains to agency management and 

procedures and imposes no duty on the 

Commission’s regulated entities. Rather 

it amends the current regulation 140.94 

to allow certain functions set forth in 

regulation 39.31 to be delegated to 

Commission staff, for which there is no 

need to provide for a delayed effective 

date. Therefore, the Commission has 

determined that good cause exists to 

make regulation 140.94 effective as of 

December 13, 2013. The effective date 

for the remaining regulations is 

December 31, 2013 in accordance with 

the APA. 


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254See 35 U.S.C. 3501(2) and (3). 255 MGEX at 2. 

IV. Related Matters 

A. Paperwork Reduction Act 

The Paperwork Reduction Act 

(‘‘PRA’’), 44 U.S.C. 3501 et seq., 

provides that an agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a valid 

control number from the Office of 

Management and Budget (‘‘OMB’’). This 

rulemaking contains recordkeeping and 

reporting requirements that are 

collections of information within the 

meaning of the PRA. Although the 

Commission does not anticipate that 

more than ten persons will respond 

initially to this collection of 

information, the term ‘‘ten or more 

persons,’’ which triggers PRA 

compliance, has been deemed to apply 

to ‘‘[a]ny recordkeeping, reporting, or 

disclosure requirement contained in a 

rule of general applicability.’’ 5 C.F.R. 

1320.3(c)(4). This rule amends existing 

OMB control number 3038–0081, titled 

‘‘General Regulations and Derivatives 

Clearing Organizations.’’ Therefore, the 

Commission has submitted this notice 

of final rulemaking along with 

supporting documentation for OMB’s 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. 

This rulemaking contains many 

provisions that would qualify as 

collections of information, for which the 

Commission has already sought and 

obtained a control number from OMB. 

The burden hours associated with those 

provisions are not replicated here 

because the Commission is obligated to 

account for PRA burden once, and the 

PRA encourages multiple applications 

of a single collection.254 Accordingly, 

the burdens associated with the 

collections contained in this 

rulemaking, and the information 

collection request that has been 

submitted to OMB, have been estimated 

only to the extent that the rulemaking 

imposes collections of information that 

OMB has not yet reviewed and 

approved. 

It should be noted that among the 

thirteen DCOs presently registered with 

the Commission, only two are SIDCOs. 

Moreover, not all remaining DCOs or all 

DCO Applicants are likely to elect to 

become Subpart C DCOs (for example, 

DCOs that are based outside of the U.S. 

may seek to obtain QCCP status through 

regulation by their home country 

regulator). Thus, the burden 

calculations herein are based on an 

estimate of how many DCOs are SIDCOs 

and how many DCOs and DCO 

Applicants are likely to elect to become 

Subpart C DCOs. Additionally, many of 

the collections herein, in particular 

those related to electing Subpart C DCO 

status, are expected to be one-time 

events for a DCO. It is anticipated that 

three DCOs will elect to become subject 

to Subpart C in the year following the 

adoption of these final rules, with 

possibly one or two additional elections 

thereafter. 

Finally, it is not possible to precisely 

estimate the reporting and 

recordkeeping burden for the SIDCOs 

and Subpart C DCOs that will be 

affected by the collections contained in 

this rulemaking, as the actual burden 

will be dependent on the operations and 

staffing of each particular SIDCO and 

Subpart C DCO and the manner in 

which they choose to implement 

compliance with certain requirements. 

Therefore, the burden estimates below 

are meant to be a composite of the 

burdens that will be absorbed across all 

SIDCOs and Subpart C DCOs, to the 

extent that the provisions for which 

information collection burdens are 

applicable. 

1. Collections Only Applicable to 

Subpart C DCOs 

Regulations 39.31(b) and 39.31(c), as 

proposed and adopted, establish the 

process whereby DCO and DCO 

Applicants, respectively, may elect to 

become Subpart C DCOs subject to the 

provisions of Subpart C. The election 

involves filing the Subpart C Election 

Form that would be contained in 

appendix B to part 39 of the 

Commission’s regulations. The Subpart 

C Election Form involves completing 

the certifications therein, providing 

exhibits A through G, and drafting and 

publishing the DCO’s responses to the 

Disclosure Framework, and, when 

applicable, the DCO’s Quantitative 

Information Disclosure. Additionally, 

regulation 39.31(b)(2) and (c)(3), as 

proposed and adopted, provide for 

Commission requests for supplemental 

information from those requesting 

Subpart C DCO status; regulation 

39.31(b)(3) and (c)(4), as proposed and 

adopted, require amendments to the 

Subpart C Election Form in the event 

that a DCO or DCO Applicant, 

respectively, discovers a material 

omission or error in, or if there is a 

material change in, the information 

provided in the Subpart C Election 

Form; regulation 39.31 (b)(7) and (c)(5), 

as proposed and adopted, permit a DCO 

or DCO Applicant, respectively, to 

submit a notice of withdrawal to the 

Commission in the event the DCO or 

DCO Applicant determines not to seek 

Subpart C DCO status prior to such 

status becoming effective; and 

regulation 39.31(e), as proposed and 

adopted, establishes the procedures by 

which a Subpart C DCO may rescind its 

Subpart C DCO status after it has been 

permitted to take effect. Each of these 

requirements implies recordkeeping that 

would be produced by a DCO to the 

Commission on an occasional basis to 

demonstrate compliance with the rules. 

As noted above, the relevant final 

regulations were adopted as proposed 

and did not include any additional 

information collection requirements that 

would warrant a revision of the burden 

hour estimates. 

The Proposal noted that, while it was 

is likely that only three DCOs will elect 

to become Subpart C DCOs, it was 

conservatively estimated that, 

collectively, five DCOs or DCO 

Applicants may elect to become Subpart 

C DCOs. The Proposal also noted that, 

while it is unlikely that any DCO or 

DCO Applicant will withdraw its 

election to become subject to Subpart C 

prior to such election becoming 

effective, an estimate of compliance 

with the withdrawal procedures by one 

DCO was included in the burden hours 

for the information collection. Finally, 

the Proposal estimated that, while it is 

likely that none of the Subpart C DCOs 

will elect to rescind its election, the 

Commission conservatively estimated 

that one Subpart C DCO may rescind its 

election. 

The Commission received one 

comment that referenced the estimated 

burden hours of the collection of 

information in this rulemaking. 

Specifically, MGEX referenced the 

‘‘Commission’s estimate’’ of the ‘‘1,020 

hours’’ that ‘‘would be required to 

complete the Subpart C Election Form’’ 

and the ‘‘1,125 hours estimated for 

responding to requests for supplemental 

information.’’ 255 MGEX did not, 

however, indicate that it disagreed with 

the burden hour assessments set forth in 

the Proposal. Accordingly, the 

Commission has not altered its 

calculations. The Commission did not 

receive any additional comments on its 

original hour burden estimates and 

believes that those estimates, as set forth 

below, remain appropriate for PRA 

purposes: 

Reporting—Certifications—Subpart C 

Election Form 

Estimated number of reporters: 5 

Estimated number of reports per reporter: 

1 

Average number of hours per report: 25 

Estimated gross annual reporting burden: 

125 

Reporting—Exhibits A through G—Subpart C 

Election Form 


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256 78 FR 50285–86. 

Estimated number of reporters: 5 

Estimated number of reports per reporter: 

1 

Average number of hours per report: 155 

Estimated gross annual reporting burden: 

775 

Reporting—Preparing and Publishing 

Disclosure Framework Responses 

Estimated number of reporters: 5 

Estimated number of reports per reporter: 

1 

Average number of hours per report: 200 

Estimated gross annual reporting burden: 

1,000 

Reporting—Preparing Quantitative 

Information Disclosures 

Estimated number of reporters: 5 

Estimated number of reports per reporter: 

1 

Average number of hours per report: 80 

Estimated gross annual reporting burden: 

400 

Reporting—Requests for Supplemental 

Information 

Estimated number of reporters: 5 

Estimated number of reports per reporter: 

5 

Average number of hours per report: 45 

Estimated gross annual reporting burden: 

1,125 

Reporting—Amendments to Subpart C 

Election Form 

Estimated number of reporters: 5 

Estimated number of reports per reporter: 

3 

Average number of hours per report: 8 

Estimated gross annual reporting burden: 

120 

Reporting—Withdrawal Notices 

Estimated number of reporters: 1 

Estimated number of reports per reporter: 

1 

Average number of hours per report: 2 

Estimated gross annual reporting burden: 2 

Reporting—Rescission Notices 

Estimated number of reporters: 1 

Estimated number of reports per reporter: 

75 

Average number of hours per report: 3 

Estimated gross annual reporting burden: 

225 

Recordkeeping 

Estimated number of recordkeepers: 5 

Estimated number of records per 

recordkeeper: 82 

Average number of hours per record: 1 

Estimated gross annual recordkeeping 

burden: 410 

2. Collections Applicable Both to 

SIDCOs and Subpart C DCOs 

Regulations 39.32(a) and (b), as 

proposed and adopted, establish 

governance requirements applicable to 

each SIDCO and Subpart C DCO, 

including specific provisions requiring 

written and disclosed governance 

arrangements and the disclosure of 

certain decisions on particular, not 

regularly scheduled, occasions, to the 

Commission, the SIDCO or Subpart C 

DCO’s clearing members, other relevant 

stakeholders and/or the public. 

Regulation 39.33(d), as proposed and 

adopted, requires a SIDCO or Subpart C 

DCO to conduct due diligence on its 

liquidity providers and to conduct 

periodic testing with respect to its 

access to liquidity resources. Regulation 

39.33(e), as proposed and adopted, 

establishes documentation requirements 

with respect to the supporting rationale 

for the financial and liquidity resources 

it maintains pursuant to regulations 

39.33(a) and 39.33(c), respectively. 

Regulation 39.36(c)(6), as proposed 

and adopted, requires each SIDCO and 

Subpart C DCO to report stress test 

results to its risk management 

committee or board of directors. 

Regulation 39.37(a), as proposed and 

adopted, requires each SIDCO and 

Subpart C DCO to complete and to 

publicly disclose its responses to the 

Disclosure Framework and, when 

applicable, to complete and disclose a 

Quantitative Information Disclosure. As 

described above and as accounted for in 

the previous portion of this PRA burden 

estimate, these tasks will be conducted 

by Subpart C DCOs as part of their 

election to become subject to Subpart C. 

SIDCOs and DCOs also are required to 

update their Disclosure Framework 

responses and Quantitative Information 

Disclosure every two years. Regulations 

39.37(c) and (d), as proposed and 

adopted, require each SIDCO or Subpart 

C DCO to disclose, publicly and to the 

Commission, certain data on transaction 

volume and values and their rules, 

policies, and procedures related to the 

segregation and the portability of 

customers’ positions and funds. 

Regulation 39.38, as proposed and 

adopted, requires each SIDCO or 

Subpart C DCO to establish a process to 

review the efficiency and effectiveness 

of its clearing and settlement 

arrangements, operating structure and 

procedures, scope of products cleared 

and use of technology. Finally, 

regulations 39.39(b) and (c), as proposed 

and adopted, require each SIDCO and 

Subpart C DCO to develop and maintain 

viable plans for the recovery or winddown of the SIDCO or Subpart C DCO 

necessitated by certain circumstances. 

Each of these requirements implies 

recordkeeping that would be produced 

by the SIDCO or Subpart C DCO to the 

Commission on an occasional basis to 

demonstrate compliance with the 

proposed rules. 

It is not possible to estimate with 

precision how many DCOs may, in the 

future, be determined to be SIDCOs and 

how many may elect to become Subpart 

C DCOs, but it was conservatively 

estimated in the Proposal that, 

collectively, a total of seven DCOs may 

be determined to be SIDCOs or may opt 

to become Subpart C DCOs. Presently, 

there are two SIDCOs and it has been 

estimated that five DCOs will elect to 

become Subpart C DCOs. 

The Commission did not receive any 

comments on the estimated costs or 

burden hours of this collection of 

information and the Commission 

believes that its original estimates, as set 

forth below and in the Proposal,256

remain appropriate for PRA purposes: 

Reporting—Governance Requirements— 

Written Governance Arrangements 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 1 

Average number of hours per report: 200 

Estimated gross annual reporting burden: 

1,400 

Reporting—Governance Requirements— 

Required Disclosures 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 6 

Average number of hours per report: 3 

Estimated gross annual reporting burden: 

126 

Reporting—Financial and Liquidity Resource 

Documentation 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 1 

Average number of hours per report: 120 

Estimated gross annual reporting burden: 

840 

Reporting—Stress Test Results 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 16 

Average number of hours per report: 14 

Estimated gross annual reporting burden: 

1,568 

Reporting—Preparing and Publishing 

Disclosure Framework Responses 

(SIDCOs only) 

Estimated number of reporters: 2 

Estimated number of reports per 

recordkeeper: 1 

Average number of hours per report: 200 

Estimated gross annual reporting burden: 

400 

Reporting—Updating and Republishing 

Disclosure Framework Responses 

(SIDCOs and Subpart C DCOs) 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 1 

Average number of hours per report: 80 

Estimated gross annual reporting burden: 

560 

Reporting—Preparing and Publishing 

Quantitative Information Disclosures 

(SIDCOs only) 

Estimated number of reporters: 2 

Estimated number of reports per reporter: 

1 

Average number of hours per report: 80 

Estimated gross annual reporting burden: 

160 

Reporting—Updating and Republishing 

Quantitative Information Disclosures 

(SIDCOs and Subpart C DCOs) 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 1 


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257 5 U.S.C 601 et seq. 

258Policy Statement and Establishment of 

Definitions of ‘‘Small Entities’’ for Purposes of the 

Regulatory Flexibility Act, 47 FR 18618 (Apr. 30, 

1982). 

259See 66 FR 45609. 

260 7 U.S.C. 19(a). 

261See supra Section I.G. 

262See supra Section I.F. (discussion of the Basel 

CCP Capital Requirements). 

263See generally Chris Barnard, NYPC, FIA, ICE, 

ISDA, European Commission, CME, LCH and 

MGEX comment letters. 

264See generally CME comment letter. 

Average number of hours per report: 35 

Estimated gross annual reporting burden: 

245 

Reporting—Transaction, Segregation, 

Portability Disclosures 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 2 

Average number of hours per report: 35 

Estimated gross annual reporting burden: 

490 

Reporting—Efficiency and Effectiveness 

Review 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 1 

Average number of hours per report: 3 

Estimated gross annual reporting burden: 

21 

Reporting—Recovery and Wind-Down Plan 

Estimated number of reporters: 7 

Estimated number of reports per 

recordkeeper: 1 

Average number of hours per report: 480 

Estimated gross annual reporting burden: 

3,360 

Recordkeeping—Liquidity Resource Due 

Diligence and Testing 

Estimated number of recordkeepers: 7 

Estimated number of records per 

recordkeeper: 4 

Average number of hours per record: 10 

Estimated gross annual recordkeeping 

burden: 280 

Recordkeeping—Financial and Liquidity 

Resources, Excluding Due Diligence and 

Testing 

Estimated number of recordkeepers: 7 

Estimated number of records per 

recordkeeper: 4 

Average number of hours per record: 10 

Estimated gross annual recordkeeping 

burden: 280 

Recordkeeping—Generally 

Estimated number of recordkeepers: 7 

Estimated number of records per 

recordkeeper: 28 

Average number of hours per record: 10 

Estimated gross annual recordkeeping 

burden: 1960 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that agencies consider 

whether the rules they propose will 

have a significant economic impact on 

a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact.257 The rules adopted herein will 

only affect DCOs. The Commission has 

previously established certain 

definitions of ‘‘small entities’’ to be used 

by the Commission in evaluating the 

impact of its regulations on small 

entities in accordance with the RFA.258

The Commission has previously 

determined that DCOs are not small 

entities for the purpose of the RFA.259

Accordingly, the Chairman, on behalf of 

the Commission, hereby certifies 

pursuant to 5 U.S.C. 605(b) that the 

rules adopted herein will not have a 

significant economic impact on a 

substantial number of small entities. 

The Chairman made the same 

certification in the proposed 

rulemaking, and the Commission did 

not receive any comments on the RFA. 

C. Consideration of Costs and Benefits 

1. Introduction 

Section 15(a) requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders.260

Section 15(a) further specifies that the 

costs and benefits shall be evaluated in 

light of five broad areas of market and 

public concern: (1) protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission’s cost and benefit 

considerations in accordance with 

Section 15(a) are discussed below. 

2. Background 

In this final rulemaking, the 

Commission is adopting regulations to 

(1) address gaps between part 39 of the 

Commission’s regulations and the 

standards set forth in the PFMIs, (2) 

provide a mechanism for DCOs to elect 

to opt-in the SIDCO enhanced 

regulatory framework set out in the 

provisions of Subpart C; and (3) make 

related technical amendments to 

regulations 140.94 and 190.09. As 

finalized herein, revised Subpart C, 

together with Subpart A and Subpart B, 

will establish regulations that are 

consistent with the PFMIs 261 and 

provide SIDCOs and Subpart C DCOs 

with the opportunity to become QCCPs 

for purposes of the Basel CCP Capital 

Requirements.262

In promulgating the final rule, the 

Commission considered the following 

alternatives: (1) not to adopt any of the 

proposed additional standards for 

SIDCOs, (2) to adopt the proposed 

additional standards for SIDCOs only, 

(3) to adopt the proposed additional 

standards for SIDCOs and also for DCOs 

that have not been designated as 

systemically important by the Council 

but that seek adherence to the enhanced 

regulatory framework for purposes of 

gaining QCCP status, or (4) to adopt the 

proposed additional standards for all 

DCOs. As detailed above, the 

Commission has concluded it is 

necessary and appropriate to adopt 

regulations which set forth enhanced 

regulatory standards for SIDCOs and 

also to extend this framework to DCOs 

that have not been designated 

systemically important in order to 

provide the opportunity to for all DCOs 

to become QCCPs. 

The Commission invited public 

comment on all aspects of the proposed 

rulemaking, including (1) the 

competitive impact, the costs as well as 

benefits, resulting from, or arising out 

of, requiring SIDCOs to comply with the 

provisions set forth in Subpart C, while 

permitting other registered DCOs to 

elect to become subject to these 

requirements (or to forego such 

election), (2) the potential costs and 

benefits to a SIDCO or Subpart C DCO 

to comply with all aspects of the 

proposed rule, (3) alternative means to 

establish, for Subpart C DCOs, 

requirements consistent with the PFMIs 

and the costs (or cost savings) and 

benefits associated with such 

alternatives, and (4) any costs that 

would be imposed on and any benefits 

that would be conferred on other market 

participants or the financial system 

more broadly. As discussed above in 

more detail, the Commission received 

comment letters which generally 

supported the proposed rule and the 

Commission’s objective to harmonize 

U.S. regulations with the international 

standards set forth by the PFMIs.263

However, the Commission received only 

one comment that provided quantitative 

data from which the Commission could 

calculate the costs and benefits of the 

proposed regulations.264 The remainder 

of the comment letters provided 

qualitative comments on the 

Commission’s proposed consideration 

of costs and benefits, generally, as well 

as specifically with regard to certain 

proposed regulations. These comments 

are summarized below in connection 

with the Commission’s consideration of 

costs and benefits on the final rules 

being promulgated herein pursuant to 

section 15(a) of the CEA. 

3. Costs and Benefits of the Final Rule 

a. Costs 

The Commission requested 

quantitative data or specific cost 


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265See generally MGEX and LCH comment 

letters. 

266 78 FR 50287. 

267See supra Section II.C. (discussing regulation 

39.31). 

268See 76 FR 69448. 

269See generally MGEX, CME, LCH and European 

Commission comment letters. 270MGEX at 1–2; CME at 1, LCH at 2, and 

European Commission at 1. 271MGEX at 2. 272 Id. at 3. 273LCH at 3. 274 Id. 275MGEX at 3. 

estimates associated with the proposed 

regulations but commenters, other than 

CME, did not provide this information. 

Commenters did address the costs and 

benefits of the proposed rule in 

qualitative terms, as described below.265

As noted in the cost-benefit 

discussion in the Proposal,266 the 

Commission recognizes that the 

regulations in this final rulemaking are 

comprehensive and that, compared 

against the status quo (the DCO 

regulatory framework set forth in 

Subpart A and B of part 39 of the 

Commission’s regulations), these 

regulations may impose important costs 

on SIDCOs and Subpart C DCOs 

depending, in particular, on the 

SIDCO’s or Subpart C DCO’s current 

financial and liquid resources, and risk 

management framework. In particular, 

these regulations may require SIDCOs 

and Subpart C DCOs to undertake a 

comprehensive review and analysis of 

their current policies, procedures, and 

systems in order to determine where it 

may be necessary to design and 

implement additional or alternative 

policies, procedures, and systems. Such 

costs are likely to increase operational, 

administrative, and compliance costs for 

SIDCOs or Subpart C DCOs. 

In addition to the costs for SIDCOs 

and Subpart C DCOs, the Commission 

has considered the costs these 

regulations may impose upon market 

participants and the public. To the 

extent costs increase, the Commission 

notes that higher trading prices for 

market participants (i.e., increased 

clearing fees, guaranty fund 

contributions, margin fees, etc.) may 

discourage market participation and 

result in decreased liquidity and 

reduced price discovery. However, the 

Commission has also considered the 

costs to market participants and the 

public if the regulations in this final 

rulemaking are not adopted. 

Significantly, without these regulations 

to ensure that SIDCOs operate under 

certain enhanced risk management 

standards, in a manner consistent with 

internationally accepted standards, the 

security of the U.S. financial markets 

would be at a greater risk relative to 

international markets. This could affect 

the attractiveness of the U.S. financial 

markets subject to the Commission’s 

jurisdiction as compared to foreign 

competitors. Moreover, SIDCOS and 

DCOs that wish to opt-into the 

enhanced regulatory framework would 

not have the opportunity to gain QCCP 

status, thereby putting them at a 

significant competitive disadvantage in 

the global financial markets which, 

again, would be to the detriment of their 

clearing members and their customers. 

i. Regulation 39.31 (Election to become 

subject to the provisions of subpart C) 

Regulation 39.31 sets forth the 

procedures a DCO will be required to 

follow to elect to become subject to the 

provisions of Subpart C.267 Specifically, 

paragraph (b) requires a registered DCO 

to file a completed Subpart C Election 

Form with the Commission. The form 

appears in Appendix B to Subpart C and 

is modeled after Form DCO, which the 

Commission promulgated in 2011 as 

part of the DCO General Provisions and 

Core Principles final rule.268 Paragraph 

(c) requires the same of a DCO that 

applies for registration with the 

Commission and that wants to be 

subject to the provisions of Subpart C as 

of the date the DCO is registered with 

the Commission. The Subpart C Election 

Form includes disclosures and exhibits 

wherein the DCO is required to provide 

the following: a regulatory compliance 

chart; citations to the relevant rules, 

policies, and procedures of the DCO that 

addresses each Subpart C regulation; 

and a summary of the manner in which 

the DCO will comply with each 

regulation. In addition, the DCO is 

required to provide, in separate exhibits, 

all documents that demonstrate the 

DCO’s compliance with regulations 

39.32 through 39.36 and regulation 

39.39, as finalized herein. A DCO is also 

required to complete responses to the 

Disclosure Framework and publish a 

copy of its responses on its Web site. 

The Commission notes that regulation 

39.31 only applies to a DCO that the 

Council has not designated to be 

systemically important and that elects to 

become subject to the provisions of 

Subpart C. By providing an opt-in 

procedure and a procedure to rescind 

such election, regulation 39.31, as 

adopted, offers the benefit of permitting 

a DCO that is not systemically important 

to compare the benefit of attaining 

QCCP status with the costs of preparing 

a comprehensive and complete Subpart 

C Election Form (in accordance with the 

requirements set forth in regulation 

39.31) and complying with the 

requirements set forth in Subpart C and, 

thus, to decide for itself whether to 

become subject to Subpart C. 

As discussed above in more detail, the 

Commission received 4 comment letters 

addressing the costs associated with 

specific regulations in the proposed 

rule.269 All of the commenters 

expressed support for the Commission’s 

efforts to provide DCOs with the 

opportunity to become eligible for QCCP 

status by adhering to an enhanced 

regulatory scheme.270 However, MGEX 

referred to the application process set 

forth in proposed regulation 39.31 as 

‘‘burdensome’’ and ‘‘discriminatory’’ 

towards DCOs that have not been 

designated as systemically important.271

In addition, MGEX suggested to the 

Commission two alternatives methods 

to more efficiently implement 

regulations that are consistent with the 

PFMIs: (1) require all DCOs to be subject 

to the enhanced regulatory requirements 

in Subpart C and grant an extended 

compliance schedule beyond December 

31, 2013 or (2) provide an ‘‘opt-out’’ 

process for those DCOs that do not wish 

to be held to the higher regulatory 

standards and grant compliance 

extensions for those regulations that 

would be difficult for DCOs to 

implement by December 31, 2013.272

LCH suggested that the Commission 

consider requiring the enhanced 

regulatory standards to apply to all 

DCOs and allow DCOs to petition the 

Commission for extended compliance 

with ‘‘more complex rules.’’273 LCH also 

suggested an opt-out process for those 

DCOs that believe QCCP status is not 

important for their business.274 As 

MGEX itself pointed out in its comment 

letter, requiring all DCOs to adhere to 

the enhanced requirements in Subpart C 

would impose considerable costs on 

DCOs that may not seek QCCP status.275

The Commission believes a DCO should 

have the flexibility to determine what 

level of regulatory standard is 

appropriate for its particular business 

model. Regarding the suggested 

alternative opt-out provision, as stated 

previously, the Commission does not 

have quantitative data on the costs 

associated with implementing the 

regulations in this final rule but it is 

aware that costs may be significant. 

Further, the Commission is aware that 

imposing an enhanced regulatory 

framework on all DCOs even with an 

opt-out provision, without the necessary 

quantitative analysis, would be 

inappropriate and could result in 

financial harm to certain DCOs. 

Moreover, without a detailed 

quantitative analysis comparing the 


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276LCH at 3. 

277MGEX at 3. 

278See supra Section I.F. (discussing the 

treatment for non-QCCP clearing members under 

the Basel CCP Capital Requirements). 

279See supra Section II.D. (discussing regulation 

39.32). 

280 Id. 

costs for each DCO that elects to opt-in 

(under the proposed rule) with the costs 

of each DCO that elects to opt-out of 

Subpart C compliance (under MGEX’s 

alternative), the Commission cannot 

determine whether establishing an optout regime would be a more efficient 

means of implementing the PFMIs than 

the Commission’s proposed opt-in 

regime. Hence, at this time, the 

Commission cannot justify the cost 

burden that would result for DCOs if 

every DCO were required to comply 

with the Subpart C regulations. 

MGEX and LCH also both suggested 

that to alleviate the compressed timeline 

for compliance, the Commission should 

allow compliance extensions. 

Specifically, LCH requested that ‘‘more 

complex rules, such as those governing 

financial resources, system safeguards, 

risk management, and recovery and 

wind-down plans’’ be given additional 

time for compliance.276 Similarly, 

MGEX suggested ‘‘granting compliance 

extensions for those regulations that 

may be particularly difficult to 

implement by the December 31, 2013 

deadline.’’ 277 As highlighted by both 

MGEX and LCH, the Commission has 

already proposed an extended deadline 

for regulation 39.34 regarding system 

safeguards. The Commission is also 

extending the deadline for compliance 

with regulation 39.35 regarding default 

rules and procedures and regulation 

39.39 regarding recovery and winddown by permitting a SIDCO or Subpart 

C DCO to request that the Commission 

grant the SIDCO or Subpart C DCO up 

to a one year extension to comply with 

these regulations. However, because the 

very purpose of this final rule is to align 

the Commission’s regulations with the 

PFMIs and to provide DCOs the 

opportunity to become QCCPs, 

inherently a DCO must comply with all 

of the regulations. An extended 

compliance date for all the regulations 

or a large subset of the regulations, 

would call into the question whether 

the Commission has rules and 

regulations in place consistent with the 

PFMIs and is applying these rules to the 

DCO on an ongoing basis as of 

December 31, 2013. Extending the 

compliance date could delay the ability 

of a Subpart C DCO or SIDCO to gain 

QCCP status and thus, increase costs for 

the DCO’s clearing member banks and 

the customers of these banks. While the 

Commission recognizes the concerns 

expressed by the commenters regarding 

the compliance deadline for purposes of 

achieving QCCP status, the Commission 

notes that for DCOs that are not SIDCOs, 

it is ultimately the decision of the DCO 

as to whether to elect to become a 

Subpart C DCO and if so, when to make 

such an election. Thus, the compliance 

dates proposed in this regulation are 

permissive and not mandatory for such 

DCOs. 

The Commission requested comments 

regarding the costs associated with the 

actual opt-in process. However, 

although MGEX stated that the Subpart 

C Election Form would be overly 

burdensome, neither MGEX nor any 

other commenter provided comments 

quantifying the cost of opting-in, the 

costs associated with rescinding an optin (including the notices required), or 

the costs associated with the completion 

and publication of responses to the 

Disclosure Framework. 

The Commission notes that pursuant 

to paragraph (e), a Subpart C DCO is 

permitted, subject to a 180 day notice 

period, to rescind its election to become 

subject to the provisions of Subpart C. 

As a result of the rescission, the DCO 

would no longer be considered a QCCP, 

which would likely create important 

costs for bank clearing members and the 

bank customers of the DCO’s clearing 

members due to the higher capital costs 

that they would incur as a result of 

clearing transactions through the DCO 

that is no longer a QCCP.278

Alternatively, clearing members and 

their customers may choose to end their 

clearing activities and transact through 

another DCO that is a QCCP. Either 

choice would impose costs on those 

clearing members and their customers. 

As the Commission has previously 

noted, a Subpart C DCO’s compliance 

with the provisions of Subpart C will 

cause the Subpart C DCO to incur 

certain costs. Some of these costs may 

then be incurred, indirectly, by the 

Subpart C DCO’s clearing members and 

their customers. The Commission 

requested but did not receive any 

comments concerning how these costs 

may be mitigated. Nor did the 

Commission receive any comments 

about the extent to which a DCO’s 

analysis of the costs and benefits of 

being a Subpart C DCO could be affected 

by the possibility that some of the costs 

may be incurred indirectly by clearing 

members and their customers. 

In the absence of input from market 

participants, the Commission lacks 

critical information necessary to make a 

reasonable assessment or quantify dollar 

costs associated with regulation 39.31. 

Each DCO has its own internal cost 

structure, management system, and 

existing regulatory compliance 

framework. Thus, the way in which 

regulation 39.31 impacts each Subpart C 

DCO with respect to costs likely will 

vary. Accordingly, the Commission is 

unable to provide a reliable 

quantification of the costs associated 

with regulation 39.31, because, among 

other things, such a determination 

would require information concerning 

the business model and strategies of 

individual DCOs, about which the 

Commission did not receive information 

during the comment period. The 

Commission has no reason to believe, 

however, that the costs associated with 

the regulation would be unreasonable or 

inappropriate to achieve the regulatory 

objective of providing an opportunity 

for DCOs to opt-in to Subpart C. In 

addition, the Commission believes that 

the costs the regulation imposes would 

not, to any unnecessary extent, impede 

a DCO from electing to be subject to 

Subpart C. 

ii. Regulation 39.32 (Governance for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

Regulation 39.32 establishes 

governance requirements for SIDCOs 

and Subpart C DCOs that are consistent 

with the PFMIs and establish rules and 

procedures concerning conflicts of 

interest, compensation policies, 

organizational structure, and fitness 

standards for directors and officers.279

Specifically, SIDCOs and Subpart C 

DCOs are required to have written 

governance arrangements that are clear 

and transparent, that place a high 

priority on the safety and efficiency of 

SIDCOs or Subpart C DCOs, and that 

explicitly support the stability of the 

broader financial system and other 

relevant public interest considerations 

of clearing members, customers of 

clearing members, and other relevant 

stakeholders. In addition, these 

governance arrangements are required to 

reflect the legitimate interests of 

clearing members, customers of clearing 

members, and other relevant 

stakeholders. To an extent consistent 

with other statutory and regulatory 

requirements on confidentiality and 

disclosure, SIDCOs and Subpart C DCOs 

are also required to disclose major 

decisions of the board.280 Regulation 

39.32 requires the rules and procedures 

of SIDCOs and Subpart C DCOs to: (1) 

Describe the SIDCO’s or Subpart C 

DCO’s management structure; (2) clearly 

specify the roles and responsibilities of 


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281 78 FR 50287. 

282 Id. at 50288. 

283See supra Section II.E. (discussing revised 

regulation 39.33). 

284All Subpart C DCOs would bear the 

administrative cost of determining whether they 

meet either of the criteria. 

285For Subpart C DCOs that are not deemed 

systemically important in multiple jurisdictions or 

that do not clear products with a more complex risk 

profile, the Cover One financial resources 

requirement would continue to apply, and 

therefore, these Subpart C DCOs would not face 

increased opportunity costs associated with the 

regulation. 

286 In the event that these additional resources 

would need to be raised by the Subpart C DCO, as 

opposed to reallocated, this cost would be the 

funding cost for raising these additional resources. 

287See supra Section II.E. (discussing revised 

regulation 39.33). 

the board of directors and its 

committees, including the establishment 

of a clear and documented risk 

management framework; (3) clearly 

specify the roles and responsibilities of 

management; (4) establish appropriate 

compensation policies; (5) establish 

procedures for managing conflicts of 

interest among board members; and (6) 

assign responsibility and accountability 

for risk decisions and for implementing 

rules concerning default, recovery, and 

wind-down. Finally, regulation 39.32 

requires that the board members and 

managers of SIDCOs and Subpart C 

DCOs have the appropriate experience, 

skills, incentives and integrity; risk 

management and internal control 

personnel have sufficient independence, 

authority, resources and access to the 

board of directors; and that the board of 

directors include members who are not 

executives, officers or employees of the 

SIDCO or Subpart C DCO or of their 

affiliates. 

As noted in the cost benefit section of 

the Proposal,281 to the extent these 

requirements affect the behavior of a 

DCO, costs could arise from additional 

hours a DCO’s employees might need to 

spend analyzing the compliance of the 

DCO’s rules and procedures with these 

requirements, designing and drafting 

new or amended rules and procedures 

where the analysis indicates that these 

are necessary, and implementing these 

new or amended rules and procedures. 

The Commission continues to believe 

that these categories accurately 

summarize the sources of material costs 

that may be incurred in complying with 

regulation 39.32. 

In the Proposal, the Commission 

requested comment on the potential 

costs to a SIDCO or Subpart C DCO to 

comply with all aspects of proposed 

regulation 39.32, and any costs that 

would be imposed on other market 

participants or the financial system 

more broadly. The Commission 

specifically requested comment on any 

alternative means to satisfy the 

requirements of regulation 39.32 in a 

manner consistent with the PFMIs and 

for costs or cost savings associated with 

such alternatives.282 The Commission 

did not receive any comments in 

response to these requests. 

In the absence of input from market 

participants, the Commission lacks 

critical information necessary to make a 

reasonable assessment or quantify dollar 

costs associated with regulation 39.32. 

The Commission notes that regulation 

39.32 grants a DCO a certain amount of 

discretion in determining the specifics 

of the rules and procedures that should 

be adopted to comply with the 

regulation. Moreover, each DCO has its 

own internal cost structure, 

management system, and existing 

regulatory compliance framework. Thus, 

the way in which regulation 39.32 

impacts each DCO with respect to initial 

and ongoing costs likely will vary. For 

example, some DCOs may already have 

rules and processes that comply with 

the regulation, in whole or in part, 

while other DCOs may not. 

Accordingly, the Commission is 

unable to provide a reliable 

quantification of the costs associated 

with regulation 39.32, because, among 

other things, such a determination 

would require information concerning 

the business model and strategies of 

individual DCOs, about which the 

Commission did not receive information 

during the comment period. The 

Commission has no reason to believe, 

however, that the costs associated with 

the regulation would be unreasonable or 

inappropriate to achieve the regulatory 

objective of implementing the PFMI 

standards for SIDCOs and Subpart C 

DCOs. In addition, the Commission 

believes that the costs the regulation 

imposes would not, to any unnecessary 

extent, impede a DCO from electing to 

be subject to Subpart C. 

iii. Regulation 39.33 (Financial 

resources for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

a.) Regulation 39.33(a): Cover Two 

As discussed above, regulation 

39.33(a), as revised, requires a Subpart 

C DCO to comply with the Cover Two 

minimum financial resource standard 

for all of its activities if the Subpart C 

DCO: (1) is involved in activities with 

a more complex risk profile or (2) is 

systemically important in multiple 

jurisdictions. This regulation currently 

applies to SIDCOs.283

The cost of the Cover Two 

requirement for a Subpart C DCO that 

meets either or both of the two criteria 

described above 284 includes the 

opportunity cost 285 of the additional 

financial resources needed to satisfy the 

guaranty fund requirements for the risk 

of loss resulting from the default of the 

clearing member creating the second 

largest financial exposure.286 In 

addition, the possibility exists that some 

market participants will transfer their 

positions from a Subpart C DCO that 

either (1) is deemed systemically 

important in multiple jurisdictions or 

(2) clears products of a more complex 

risk profile to another DCO for which 

neither (1) nor (2) applies, because the 

value of the Cover Two protection to 

these market participants is less than 

the price at which that protection is 

being offered. These market participants 

will transact with SIDCOs or Subpart C 

DCOs that operate under Cover One, 

which is a lower financial resources 

requirement, and thus, get the benefit of 

lower transactional fees and forego the 

enhanced protections associated with 

the SIDCOs and Subpart C DCOs that 

operate under Cover Two. However, the 

potential cost to a SIDCO or a Subpart 

C DCO subject to the Cover Two 

requirement and to the goal of systemic 

risk reduction would likely be mitigated 

because: (a) not every product offered by 

a SIDCO or Subpart C DCO would be 

available at other DCOs and (b) a SIDCO 

or Subpart C DCO may offer benefits not 

available to a DCO that operates under 

Cover One because it does not elect to 

become subject to the provisions of 

Subpart C, and is not designated as 

systemically important, and/or does not 

clear products with a more complex risk 

profile. This would therefore reduce the 

likelihood that market participants 

would transfer their positions to other 

DCOs. 

b.) Regulation 39.33(b): Valuation of 

Financial Resources 

As discussed above, regulation 

39.33(b) prohibits SIDCOs and Subpart 

C DCOs from including assessments as 

part of their calculation of the financial 

resources available to cover the default 

of the clearing member creating the 

largest financial exposure and, where 

applicable, the default of the two 

clearing members creating the largest 

aggregate financial exposure, in extreme 

but plausible circumstances, i.e., Cover 

One or Cover Two.287 This prohibition 

currently applies to SIDCOs and would 

be expanded to include Subpart C 

DCOs. The costs associated with the 

prohibition on the use of assessments by 

a Subpart C DCO in calculating its 

obligations under regulation 39.33(a) 


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288 Id. 

289 Id. 

290CME at 13. 

291 Id. Current and historic returns available on 

high quality sovereign bonds suggest that the actual 

costs of liquidity service may be less than the 30 

basis points that CME estimates and therefore, 

CME’s total liquidity costs would be lower than 

$120 to $160 million. 

292CME at 13. 

would include the opportunity cost of 

the additional pre-funded financial 

resources needed to replace the value of 

such assessments, which may require an 

infusion of additional capital. In 

addition, as with the Cover Two 

requirement, market participant demand 

may shift from a SIDCO or a Subpart C 

DCO subject to the Cover Two 

requirement to a DCO with a lower 

capitalization requirement. 

c.) Regulation 39.33(c), (d) and (e): 

Liquidity 

As discussed above, regulation 

39.33(c) requires a SIDCO and a Subpart 

C DCO to maintain eligible liquidity 

resources that will enable it to meet its 

intraday, same-day and multiday 

settlement obligations, in all relevant 

currencies, with a high degree of 

confidence under a wide range of stress 

scenarios notwithstanding a default by 

the clearing member creating the largest 

aggregate liquidity obligation. Eligible 

resources are limited to cash in the 

currency of the requisite obligation, 

held at the central bank of issue or a 

creditworthy commercial bank, certain 

highly marketable collateral, including 

high quality, liquid, general obligations 

of a sovereign nation (subject to certain 

prearranged and highly reliable funding 

arrangements), and various committed 

liquidity arrangements. These 

arrangements must be reliable and 

enforceable in extreme but plausible 

market conditions, and must not contain 

material adverse change clauses. 

In addition, a SIDCO or Subpart C 

DCO that is systemically important in 

multiple jurisdictions or that is involved 

in activities with a more complex risk 

profile is required to consider 

maintaining liquidity resources that 

would enable it to meet the default of 

the two clearing members creating the 

largest aggregate payment obligation. If 

a SIDCO or Subpart C DCO maintains 

liquid financial resources in addition to 

those required to satisfy the minimum 

financial resources requirement set forth 

in regulation 39.11(a)(1) and proposed 

regulation 39.33(a), then those resources 

should be in the form of assets that are 

likely to be saleable or acceptable as 

collateral for lines of credit, swaps, or 

repurchase agreements on an ad hoc 

basis.288

Regulation 39.33(d) imposes a duty on 

SIDCOs and Subpart C DCOs to perform 

due diligence on their liquidity 

providers in order to determine their 

ability to perform reliably their 

commitments to provide liquidity. 

Finally, regulation 39.33(e) requires 

SIDCOs and Subpart C DCOs to 

document their supporting rationale for 

the amount of financial resources they 

maintain pursuant to regulation 39.33(a) 

and the amount of liquidity resources 

they maintain pursuant to regulation 

39.33(c).289

Regulations 39.33(c)–(e) may result in 

additional costs for a SIDCO or Subpart 

C DCO with respect to analyzing and 

measuring intra-day, same-day, and 

multiday liquidity requirements in all 

relevant currencies, developing plans to 

meet those requirements, obtaining 

eligible liquidity resources and making 

eligible liquidity arrangements, 

reviewing and monitoring each liquidity 

provider’s risks and reliability 

(including through periodic testing of 

access to liquidity), and documenting 

the DCO’s basis for conclusions with 

respect to its financial resources and 

liquidity resources requirements. These 

regulations also will require stress 

testing and other analysis of such 

resources as compared with the DCO’s 

liquidity needs. Specifically, with 

regards to regulation 39.33(c), there may 

be costs involved in obtaining cash in 

the relevant currencies or arranging for 

qualifying liquidity commitments, such 

as a committed line of credit, to satisfy 

the minimum financial resources 

requirement set forth in regulation 

39.11(a)(1) (i.e. Cover One). Obtaining 

these committed financial resources 

may involve administrative expenses 

such as the negotiation and drafting of 

committed arrangements, as well as 

costs arising from the payment of fees to 

liquidity providers. In addition, there 

may be operational costs involved in 

calculating the liquidity resources 

requirements at the Cover One level on 

an intraday, same-day, and multiday 

basis over the course of a default. This 

calculation may require undertaking a 

complex analysis of the SIDCO’s or 

Subpart C DCO’s exposures and 

processes, including various models. 

Where appropriate, this calculation may 

also require designing and 

implementing changes to either create 

or modify existing internal processes. 

The Commission notes that while this 

analysis may involve costs, it will 

improve the SIDCO’s or Subpart C 

DCO’s financial condition, as described 

below in section 2.b.iii. of the benefits 

section. 

CME estimated that if it had to obtain 

committed funding arrangements to 

comply with regulation 39.33(c), its 

liquidity costs would approximately 

double.290 This increase is based on 

their ‘‘assumption that the cost of 

committed liquidity or committed 

repurchase facilities is approximately $3 

million for every $1 billion of required 

committed facilities’’ or 30 basis 

points.291 Additionally, CME 

commented that given the global 

clearing mandate slated to take effect 

over the next two years, liquidity 

requirements will significantly increase, 

which could potentially result in CME’s 

liquidity costs increasing to $120 to 

$160 million per year.292

Based on CME’s 30 basis point 

estimate, their increase in liquidity costs 

would translate into a liquidity 

exposure from the default of a single 

participant, including affiliates, (i.e., 

Cover One) of $40 billion to $53 billion. 

The size of this potential exposure 

highlights the systemic importance of 

SIDCOs, such as CME, and how critical 

it is for a SIDCO to meet all of its 

obligations promptly even in extreme 

but plausible conditions. Consequently, 

while there may be costs associated 

with obtaining prearranged, highly 

reliable funding, these costs must be 

weighed against the potential 

disruptions and damage to the U.S. 

financial system if, during extreme but 

plausible market conditions, a SIDCO 

does not maintain sufficient liquidity to 

meet its financial obligations to its nondefaulting members promptly. 

Moreover, as discussed above in more 

detail, the standard SIDCOs and Subpart 

C DCOs must meet under regulation 

39.33(c) is to demonstrate the reliability 

of the requisite liquidity arrangements, 

even in extreme but plausible 

conditions. To the extent that a DCO is 

able to meet this burden through tools 

other than the use of a committed 

funding arrangement, and chooses to so, 

then the DCO would bear the cost of 

such an alternative arrangement, which 

may be lower than the costs of a 

committed funding arrangement. 

Regulation 39.33(d) may increase 

administrative costs to the extent that a 

SIDCO or a Subpart C DCO is required 

to review and monitor its liquidity 

provider’s capacity and reliability to 

perform its liquidity obligations to the 

DCO. In addition, regulation 39.33(e) 

may impose an administrative cost to 

document the SIDCO or Subpart C 

DCO’s rationale for the financial 

resources it maintains. 


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293See supra Section II.F. (discussing regulation 

39.34). 

294 78 FR 50290. 

295 Id. 

296See supra Section II.G. (discussing regulation 

39.35). 

297 78 FR 50290. 

298 Id. 

iv. Regulation 39.34 (System safeguards 

for systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

As discussed above regulation 39.34, 

as revised, expands the enhanced 

system safeguards requirements already 

applicable to SIDCOs to include Subpart 

C DCOs.293 As noted in the cost benefit 

section of the Proposal,294 the regulation 

may increase operational costs for 

Subpart C DCOs by requiring additional 

resources, including, technology (e.g., 

hardware and software) and the 

purchase or rental of premises in order 

to achieve geographic dispersal of 

resources. Moreover, business 

continuity planning inherently requires 

that personnel be trained in their roles 

and responsibilities under the plan, and 

this training consumes time and related 

resources. 

The costs of moving from a next-day 

RTO, the minimum standard established 

by the DCO core principles and current 

regulation 39.18, to a two-hour RTO as 

required by proposed regulation 39.34, 

may be significant. Additionally, the 

implementation of a two-hour RTO may 

impose one-time costs to establish the 

enhanced resources and recurring costs 

to operate the additional resources. The 

Commission continues to believe that 

these categories accurately summarize 

the sources of material costs that may be 

incurred in complying with regulation 

39.34. 

In the Proposal, the Commission 

requested comment on the potential 

costs to a Subpart C DCO to comply 

with all aspects of proposed regulation 

39.34 and any costs that would be 

imposed on other market participants or 

the financial system more broadly. The 

Commission specifically requested 

comment on any alternative means to 

satisfy the requirements of regulation 

39.34 in a manner consistent with the 

PFMIs and for costs or cost savings 

associated with such alternatives.295

The Commission received one comment 

in response. MGEX stated that it would 

require three or four additional 

employees to comply with the 

geographic diversity requirements of 

this rule, unless MGEX were to engage 

outsourced personnel. 

The Commission notes that MGEX 

could, alternatively, relocate existing 

positions (rather than increase its 

headcount). This would require MGEX 

to incur either relocation or hiring costs, 

as well as office space for the 

geographically diverse employees. 

MGEX provided no estimates of the 

costs it might incur. 

In the absence of input from market 

participants, the Commission lacks 

critical information necessary to make a 

reasonable assessment or quantify dollar 

costs associated with regulation 39.34. 

The Commission notes that regulation 

39.34 grants a DCO a significant amount 

of discretion in determining how to 

comply with the regulation. Moreover, it 

is possible that each DCO has its own 

internal cost structure, management 

system, and existing regulatory 

compliance framework. Thus, the way 

in which regulation 39.34 impacts each 

DCO with respect to initial and ongoing 

costs likely will vary. For example, 

some DCOs may already have resources 

in place that comply with the 

regulation, in whole or in part, while 

other DCOs may not. 

Accordingly, the Commission is 

unable to provide a reliable 

quantification of the costs associated 

with regulation 39.34, because, among 

other things, such a determination 

would require information concerning 

the business model and strategies of 

individual DCOs, about which the 

Commission did not receive information 

during the comment period. The 

Commission has no reason to believe, 

however, that the costs associated with 

the regulation would be unreasonable or 

inappropriate to achieve the regulatory 

objective of implementing the PFMI 

standards for Subpart C DCOs. In 

addition, the Commission believes that 

the costs the regulation imposes would 

not, to any unnecessary extent, impede 

a DCO from electing to be subject to 

Subpart C. 

v. Regulation 39.35 (Default rules and 

procedures for uncovered losses or 

shortfalls (recovery) for systemically 

important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations) 

As discussed above, regulation 39.35 

requires SIDCOs and Subpart C DCOs to 

adopt rules and procedures to address 

certain issues arising from extraordinary 

stress events, including the default of 

one or more clearing members.296 Such 

default rules and procedures must 

sufficiently (1) allocate uncovered credit 

losses and (2) enable a SIDCO or 

Subpart C DCO promptly to meet all of 

its obligations in the event of a default 

by one or more clearing members or an 

unforeseen liquidity shortfall exceeding 

the financial resources of the SIDCO or 

Subpart C DCO. As noted in the cost 

benefit section of the Proposal,297 the 

costs associated with these default rules 

and procedures may include 

administrative costs to: review and 

analyze current policies and procedures; 

design and draft new or amended 

policies and procedures; and implement 

the new or amended policies and 

procedures. The tools that a SIDCO or 

Subpart C DCO chooses to include in its 

default rules and procedures may 

involve capital costs. The Commission 

continues to believe that these 

categories accurately summarize the 

sources of material costs that may be 

incurred in complying with regulation 

39.35. 

In the Proposal, the Commission 

requested comment on the potential 

costs to a SIDCO or Subpart C DCO to 

comply with all aspects of proposed 

regulation 39.35, and any costs that 

would be imposed on other market 

participants or the financial system 

more broadly. The Commission 

specifically requested comment on any 

alternative means to satisfy the 

requirements of regulation 39.35 in a 

manner consistent with the PFMIs and 

for costs or cost savings associated with 

such alternatives.298 The Commission 

did not receive any comments in 

response to these requests. 

In the absence of input from market 

participants, the Commission lacks 

critical information necessary to make a 

reasonable assessment or quantify dollar 

costs associated with regulation 39.35. 

The Commission notes that regulation 

39.35 grants a DCO a certain amount of 

discretion in determining the specifics 

of the rules and procedures that should 

be adopted to comply with the 

regulation. Moreover, each DCO has its 

own internal cost structure, 

management system, and existing 

regulatory compliance framework. Thus, 

the way in which regulation 39.35 

impacts each DCO with respect to initial 

and ongoing costs likely will vary. For 

example, some DCOs may already have 

rules and procedures that comply with 

the regulation, in whole or in part, 

while other DCOs may not. 

Accordingly, the Commission is 

unable to provide a reliable 

quantification of the costs associated 

with regulation 39.35, because, among 

other things, such a determination 

would require information concerning 

the business model and strategies of 

individual DCOs, about which the 

Commission did not receive information 

during the comment period. The 

Commission has no reason to believe, 

however, that the costs associated with 


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299See supra Section II.H. (discussing regulation 

39.36). 

300 78 FR 50290. 301 Id. 

302See supra Section II.I. (discussing regulation 

39.37). 

303 78 FR 50290–50291. 

304 Id. 

the regulation would be unreasonable or 

inappropriate to achieve the regulatory 

objective of implementing the PFMI 

standards for SIDCOs and Subpart C 

DCOs. In addition, the Commission 

believes that the costs the regulation 

imposes would not, to any unnecessary 

extent, impede a DCO from electing to 

be subject to Subpart C. 

vi. Regulation 39.36 (Risk management 

for systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

Regulation 39.36 sets forth enhanced 

risk management requirements for a 

SIDCO or Subpart C DCO, including, but 

not limited to, specific criteria for stress 

tests of financial resources, specific 

criteria for sensitivity analysis of margin 

models, specific criteria for stress tests 

of liquidity resources, requirements 

surrounding the monitoring and 

management of credit and liquidity risks 

arising out of settlement banks, and 

requirements surrounding the custody 

and investment of a SIDCO’s or Subpart 

C DCO’s own funds and assets.299 As 

noted in the Proposal,300 complying 

with this regulation may involve 

operational costs to perform the 

required testing, monitoring and 

analyses, which may include: a 

comprehensive analysis of existing 

stress testing scenarios; the design of 

new and/or alternative stress testing 

scenarios; and the design of a sensitivity 

analysis; the creation of a system for 

comprehensively monitoring, managing 

and limiting credit and liquidity risks 

arising out of settlement banks; and the 

implementation of controls surrounding 

the custody and investment of a 

SIDCO’s or Subpart C DCO’s own funds 

and assets. In addition, there may be 

costs associated with the modification 

and/or creation of processes necessary 

to support the enhanced risk 

management requirements in the 

proposed regulation. There will also be 

ongoing costs to conduct such risk 

management, analyze the results, and 

take action based on such results. In 

particular, to the extent that the 

analyses and monitoring reveal the need 

for additional financial or liquidity 

resources, there would be costs 

associated with obtaining such 

resources. In addition, there may be 

administrative and other costs 

associated with the management of a 

SIDCO’s or Subpart C DCO’s settlement 

bank exposure. The Commission 

continues to believe that these 

categories accurately summarize the 

sources of material costs that may be 

incurred in complying with regulation 

39.36. 

In the Proposal, the Commission 

requested comment on the potential 

costs to a SIDCO or Subpart C DCO to 

comply with all aspects of proposed 

regulation 39.36, and any costs that 

would be imposed on other market 

participants or the financial system 

more broadly. The Commission 

specifically requested comment on any 

alternative means to satisfy the 

requirements of regulation 39.36 in a 

manner consistent with the PFMIs and 

for costs or cost savings associated with 

such alternatives.301 The Commission 

did not receive any comments in 

response to these requests. 

In the absence of input from market 

participants, the Commission lacks 

critical information necessary to make a 

reasonable assessment or quantify dollar 

costs associated with regulation 39.36. 

The Commission notes that regulation 

39.36 grants a DCO a certain amount of 

discretion in determining the specifics 

of the processes that should be adopted 

to comply with the regulation. 

Moreover, each DCO has its own 

internal cost structure, management 

system, and existing regulatory 

compliance framework. Thus, the way 

in which regulation 39.36 impacts each 

DCO with respect to initial and ongoing 

costs likely will vary. For example, 

some DCOs may already have processes 

that comply with regulation 39.36, in 

whole or in part, while other DCOs may 

not. 

Accordingly, the Commission is 

unable to provide a reliable 

quantification of the costs associated 

with regulation 39.36, because, among 

other things, such a determination 

would require information concerning 

the operations of individual DCOs, 

about which the Commission did not 

receive information during the comment 

period. The Commission has no reason 

to believe, however, that the costs 

associated with the regulation would be 

unreasonable or inappropriate to 

achieve the regulatory objective of 

implementing the PFMI standards for 

SIDCOs and Subpart C DCOs. In 

addition, the Commission believes that 

the costs the regulation imposes would 

not, to any unnecessary extent, impede 

a DCO from electing to be subject to 

Subpart C. 

vii. Regulation 39.37 (Additional 

disclosure for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

As discussed above, regulation 39.37 

sets forth additional public disclosure 

requirements for a SIDCO and Subpart 

C DCO, including the disclosure of, and 

updates to, the DCO’s responses to the 

Disclosure Framework for FMIs.302 As 

noted in the Proposal,303 complying 

with this regulation may impose 

administrative costs to conduct a 

comprehensive analysis of the SIDCO or 

Subpart C DCO’s policies, procedures 

and systems as well as the costs 

associated with the design, drafting and 

implementation of any new or modified 

policies, procedures and systems that 

would be necessary to comply with the 

proposed regulation. The Commission 

continues to believe that these 

categories accurately summarize the 

sources of material costs that may be 

incurred in complying with regulation 

39.37. 

In the Proposal, the Commission 

requested comment on the potential 

costs to a SIDCO or Subpart C to comply 

with all aspects of proposed regulation 

39.37, and any costs that would be 

imposed on other market participants or 

the financial system more broadly. The 

Commission specifically requested 

comment on any alternative means to 

satisfy the requirements of regulation 

39.37 in a manner consistent with the 

PFMIs and for costs or cost savings 

associated with such alternatives.304

The Commission did not receive any 

comments in response to these requests. 

In the absence of input from market 

participants, the Commission lacks 

critical information necessary to make a 

reasonable assessment or quantify dollar 

costs associated with regulation 39.37. 

The Commission notes that regulation 

39.37 grants a DCO a certain amount of 

discretion in determining the specifics 

of the procedures that should be 

adopted to comply with the regulation. 

Moreover, each DCO has its own 

internal cost structure, management 

system, and existing regulatory 

compliance framework. Thus, the way 

in which regulation 39.37 impacts each 

DCO with respect to initial and ongoing 

costs likely will vary. For example, 

some DCOs may already have rules and 

processes that comply with the 

regulation, in whole or in part, while 

other DCOs may not. 


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305See supra Section II.J. (discussing regulation 

39.38). 

306 78 FR 50291. 307 Id. 308 78 FR 50291. 

Accordingly, the Commission is 

unable to provide a reliable 

quantification of the costs associated 

with regulation 39.37, because, among 

other things, such a determination 

would require information concerning 

the business model and strategies of 

individual DCOs, about which the 

Commission did not receive information 

during the comment period. The 

Commission has no reason to believe, 

however, that the costs associated with 

the regulation would be unreasonable or 

inappropriate to achieve the regulatory 

objective of implementing the PFMI 

standards for SIDCOs and Subpart C 

DCOs. In addition, the Commission 

believes that the costs the regulation 

imposes would not, to any unnecessary 

extent, impede a DCO from electing to 

be subject to Subpart C. 

viii. Regulation 39.38 (Efficiency for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

As discussed above, regulation 39.38 

requires a SIDCO or a Subpart C DCO 

to comply with certain efficiency 

standards regarding its clearing and 

settlement arrangements, operating 

structure and procedures, product 

scope, and use of technology. In 

addition, a SIDCO or Subpart C DCO is 

required to establish clearly defined 

goals and objectives that are 

measureable and achievable, including 

minimum service levels, risk 

management expectations, and business 

priorities.305 SIDCOs and Subpart C 

DCOs are also required to facilitate 

efficient payment, clearing and 

settlement by accommodating 

internationally accepted communication 

procedures and standards. As outlined 

in the cost benefit section of the 

Proposal,306 the costs associated with 

the regulation may include the 

administrative costs of conducting a 

comprehensive review and analysis of 

the SIDCO’s or Subpart C DCO’s 

policies, procedures and systems, and 

where appropriate, the design, drafting 

and implementation of new or modified 

policies, procedures and systems to 

establish the goals and objectives 

necessary to comply with this 

regulation. There may also be 

administrative costs associated with 

establishing a mechanism to review the 

DCO’s compliance with the regulation, 

as well as operational costs associated 

with designing and implementing 

processes to accommodate 

internationally accepted 

communications standards. The 

Commission continues to believe that 

these categories accurately summarize 

the sources of material costs that may be 

incurred in complying with regulation 

39.38. 

In the Proposal, the Commission 

requested comment on the potential 

costs to a SIDCO or Subpart C DCO to 

comply with all aspects of proposed 

regulation 39.38, and any costs that 

would be imposed on other market 

participants or the financial system 

more broadly. The Commission 

specifically requested comment on any 

alternative means to satisfy the 

requirements of regulation 39.38 in a 

manner consistent with the PFMIs and 

for costs or cost savings associated with 

such alternatives.307 The Commission 

did not receive any comments in 

response to those requests. 

In the absence of input from market 

participants, the Commission lacks 

critical information necessary to make a 

reasonable assessment or quantify dollar 

costs associated with regulation 39.38. 

The Commission notes that efficiency is 

inherently difficult to measure. 

The Commission also notes that 

regulation 39.38 grants a DCO a certain 

amount of discretion in determining the 

specifics of the processes that should be 

adopted to comply with the regulation. 

Moreover, each DCO has its own 

internal cost structure and management 

system. Thus, the way in which 

regulation 39.38 impacts each DCO with 

respect to initial and ongoing costs 

likely will vary. 

Accordingly, the Commission is 

unable to provide a reliable 

quantification of the costs associated 

with regulation 39.38, because, among 

other things, such a determination 

would require information concerning 

the business model and strategies of 

individual DCOs, about which the 

Commission did not receive information 

during the comment period. The 

Commission has no reason to believe, 

however, that the costs associated with 

the regulation would be unreasonable or 

inappropriate to achieve the regulatory 

objective of implementing the PFMI 

standards for SIDCOs and Subpart C 

DCOs. In addition, the Commission 

believes that the costs the regulation 

imposes would not, to any unnecessary 

extent, impede a DCO from electing to 

be subject to Subpart C. 

ix. Regulation 39.39 (Recovery and 

wind-down for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

As discussed above, regulation 39.39 

requires a SIDCO or Subpart C DCO to 

maintain viable plans for recovery and 

orderly wind-down, in cases 

necessitated by (1) credit losses or 

liquidity shortfalls and (2) general 

business risk, operational risk, or any 

other risk that threatens the DCO’s 

viability as a going concern. This 

requires the DCO to identify scenarios 

that may prevent a SIDCO or Subpart C 

DCO from being able to provide its 

critical operations and services as a 

going concern and to assess the 

effectiveness of a full range of options 

for recovery or orderly wind-down. The 

regulation also requires a SIDCO or 

Subpart C DCO to evaluate the resources 

available to meet the plan to cover 

credit losses and liquidity shortfalls, 

and to maintain sufficient 

unencumbered liquid financial assets to 

implement the plan to cover other risks. 

The latter point requires a SIDCO or 

Subpart C DCO to analyze whether its 

particular circumstances and risks 

require it to maintain liquid net assets 

to fund the plan that are in addition to 

those resources currently required by 

regulation 39.11(a)(2). 

As noted in the Proposal,308

regulation 39.39 may impose costs on a 

SIDCO or Subpart C DCO to the extent 

it will be necessary to undertake a 

comprehensive qualitative and 

quantitative analysis of the credit, 

liquidity, general business, operational 

and other risks that may threaten the 

DCO’s ability to provide its critical 

operations and services as a going 

concern, to design and draft plans to 

mitigate and address those risks, to 

analyze whether the DCO’s resources 

allocated to recovery and/or wind-down 

are sufficient to implement those plans. 

This analysis may lead to the design of 

alternative and/or additional scenarios 

to be included in stress testing, the 

drafting of new or revised policies for a 

recovery and/or wind-down plan, and 

potentially the necessity of maintaining 

additional resources or procedures to 

obtain such resources in the event they 

are needed. Moreover, the regulation 

prohibits the double counting of 

available resources—that is, resources 

considered as available to meet the 

recovery and orderly wind-down plan 

for credit losses and liquidity shortfalls 

cannot be considered as available to 

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309 Id. 

310PFMIs, E.N. 1.1. 

311See http://www.treasury.gov/initiatives/fsoc/

designations/Pages/default.aspx (describing the 

designations of CME and ICE Clear Credit to be 

systemically important financial market utilities) 

and see supra Section I.C. 

312See supra Section I.F. 

313See 78 FR 50269. 

314See supra Section I.F. (discussing QCCP status 

and the Basel CCP Capital Requirements); see also 

supra Section II.C. (discussing regulation 39.31). 

down plan for general business risk, 

operational risk, and other risks (or viceversa). This may result in the need to 

maintain a larger quantum of total 

resources to meet both plans which, 

depending on the resources maintained, 

may involve costs arising from factors 

such as greater use of capital by the 

DCO, or greater capital charges for 

clearing members arising out of their 

commitments to contribute default 

resources. The Commission continues to 

believe that these categories accurately 

summarize the sources of material costs 

that may be incurred in complying with 

regulation 39.39. 

In the Proposal, the Commission 

requested comment on the potential 

costs to a SIDCO or Subpart C DCO to 

comply with all aspects of proposed 

regulation 39.39, and any costs that 

would be imposed on other market 

participants or the financial system 

more broadly. The Commission 

specifically requested comment on any 

alternative means to satisfy the 

requirements of regulation 39.39 in a 

manner consistent with the PFMIs and 

for costs or cost savings associated with 

such alternatives.309 The Commission 

did not receive any comments in 

response to these requests. 

In the absence of input from market 

participants, the Commission lacks 

critical information necessary to make a 

reasonable assessment or quantify dollar 

costs associated with regulation 39.39. 

The Commission notes that regulation 

39.39 grants a DCO a certain amount of 

discretion in determining the specifics 

of the rules, procedures, and 

arrangements that should be adopted to 

comply with the regulation. Moreover, 

each DCO has its own internal cost 

structure, management system, and 

existing regulatory compliance 

framework. Thus, the way in which 

regulation 39.39 impacts each DCO with 

respect to initial and ongoing costs 

likely will vary. For example, some 

DCOs may already have rules, 

processes, and arrangements that 

comply with the regulation, in whole or 

in part, while other DCOs may not. 

Accordingly, the Commission is 

unable to provide a reliable 

quantification of the costs associated 

with regulation 39.39, because, among 

other things, such a determination 

would require information concerning 

the business model and strategies of 

individual DCOs, about which the 

Commission did not receive information 

during the comment period. The 

Commission has no reason to believe, 

however, that the costs associated with 

the regulation would be unreasonable or 

inappropriate to achieve the regulatory 

objective of implementing the PFMI 

standards for SIDCOs and Subpart C 

DCOs. In addition, the Commission 

believes that the costs the regulation 

imposes would not, to any unnecessary 

extent, impede a DCO from electing to 

be subject to Subpart C. 

b. Benefits 

As explained in the subsections that 

follow, this final rule holds SIDCOs and 

Subpart C DCOs to enhanced regulatory 

standards, which are designed to 

promote the financial strength, 

operational integrity, security, and 

reliability of these organizations and to 

reduce the likelihood of their disruption 

or failure. This, in turn, increases the 

overall stability of the U.S. financial 

markets. As the PFMIs note, FMIs, 

including CCPs (i.e. DCOs), play a 

critical role in fostering financial 

stability.310 This is particularly the case 

with respect to SIDCOs. The Council 

has determined that the failure of or a 

disruption to the functioning of a SIDCO 

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 U.S. financial system.311

Thus, the final rule offers a substantial 

benefit vis-a`-vis the status quo. 

In addition, the regulations adopted 

in this final rulemaking are consistent 

with the international standards set 

forth in the PFMIs and address the 

remaining divergences between part 39 

of the Commission’s regulations and the 

PFMIs. These regulations will help 

ensure that SIDCOs and Subpart C DCOs 

are held to international standards in 

order to provide them with the 

opportunity to gain QCCP status. As 

discussed above, attaining QCCP status 

will provide clearing members that are 

banks, as well as banks that are 

customers of clearing members, with the 

benefit of complying with less onerous 

capital requirements, pursuant to the 

Basel CCP Capital Requirements, than if 

the SIDCO or Subpart C DCO were not 

a QCCP.312 In turn, this may increase a 

SIDCO or Subpart C DCO’s 

competitiveness vis-a`-vis non-US 

clearing organizations that demonstrate 

compliance with international standards 

and are QCCPs. 

i. Regulation 39.31 (Election To Become 

Subject to the Provisions of Subpart C) 

The procedures set forth in regulation 

39.31, together with the Subpart C 

Election Form, are intended to promote 

the protection of market participants 

and the public. These procedures 

require the Commission’s staff to 

conduct a review of a DCO that elects 

to become subject to the provisions of 

Subpart C. The Subpart C Election Form 

provides the Commission, clearing 

members, and customers (and, 

significantly, the regulators of such 

clearing members and customers) with 

assurance that the electing DCO will be 

held to and will be required to meet the 

standards set forth in Subpart C.313

Without regulation 39.31, a DCO that is 

not designated by the Council as being 

systemically important will not have the 

opportunity to gain QCCP status, 

thereby potentially putting such a DCO 

at a significant competitive 

disadvantage compared to SIDCOs and 

non-U.S. clearing organizations. This 

would ultimately be to the detriment of 

such a DCO’s clearing members and 

their customers.314 The Commission 

also notes that by clearing through a 

Subpart C DCO, a clearing member and 

its customers will be afforded the 

benefits of clearing through a DCO 

subject to enhanced risk management, 

operational, and other standards. 

Regulation 39.31, as adopted herein, 

provides a benefit to a Subpart C DCO 

by allowing the Subpart C DCO the 

opportunity to weigh for itself the costs 

and benefits and to determine whether 

to maintain QCCP status. The notice 

requirements set forth in the regulation 

provide important benefits to clearing 

members of the rescinding Subpart C 

DCO (and their customers), particularly 

those that are banks or bank affiliates, 

by providing them with advance notice 

to permit them to assess their options 

and take any actions they deem 

appropriate with respect to clearing at a 

DCO that has acted to rescind its 

election to be held to the standards of 

Subpart C (and thus to renounce status 

as a QCCP). 

ii. Regulation 39.32 (Governance for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

The requirements set forth in 

regulation 39.32 are beneficial to the 

extent that they cause a SIDCO or 

Subpart C DCO to internalize and/or 

more appropriately allocate certain costs 


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315See supra Section II.D. (discussing regulation 

39.32). 

316See supra Section II.E. (discussing revised 

regulation 39.33). 

317See supra Section I.B. 

that would otherwise be borne by 

clearing members, customers of clearing 

members, and other relevant 

stakeholders. Such requirements also 

promote market stability because the 

governance arrangements of SIDCOs and 

Subpart C DCOs are required to 

explicitly support the stability of the 

financial system and other relevant 

public interest considerations of 

clearing members, customers of clearing 

members, and other relevant 

stakeholders,315 and reflect the 

legitimate interests of clearing members, 

customers of clearing members, and 

other relevant stakeholders. Finally, the 

governance arrangements required by 

regulation 39.32 promote a more 

efficient, effective, and reliable DCO risk 

management and operating structure. 

As noted above, the Commission did 

not receive any comments focused 

specifically on the cost and benefit 

considerations relevant to regulation 

39.32. 

iii. Regulation 39.33 (Financial 

resources for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

As described above, regulation 

39.33(a), as revised, expands the Cover 

Two minimum financial resources 

requirement to include Subpart C DCOs 

that engage in an activity with a more 

complex risk profile (e.g., clearing credit 

default swaps or credit default futures), 

or that are systemically important in 

multiple jurisdictions.316 This proposed 

regulation currently applies to SIDCOs. 

Regulation 39.33(a), as finalized herein, 

increases the financial stability of 

Subpart C DCOs subject to this 

regulation by requiring compliance with 

enhanced minimum financial resource 

requirements. Compliance with such 

standards, in turn, increases the overall 

stability of the U.S. financial markets 

because enhancing a Subpart C DCO’s 

financial resources requirements from 

the minimum of Cover One to a more 

stringent Cover Two standard helps to 

ensure the affected Subpart C DCO will 

have greater financial resources to meet 

its obligations to market participants, 

including in the case of defaults by 

multiple clearing members. These 

added financial resources lessen the 

likelihood of the Subpart C DCO’s 

failure which, in times of market 

turmoil, could increase the risk to the 

stability of the U.S. financial system.317

By bolstering certain Subpart C DCO’s 

resources, regulation 39.33(a) 

contributes to the financial integrity of 

the financial markets and reduces the 

likelihood of systemic risk from 

spreading through the financial markets 

due to the Subpart C DCO’s failure or 

disruption. In addition, the approach of 

obtaining resources in such low-stress 

periods avoids the need to call for 

additional resources from clearing 

members during less stable, more 

volatile times, which would have procyclical effects on the U.S. financial 

markets. 

As discussed above, regulation 

39.33(a)(2) provides the Commission 

with the ability to determine whether a 

SIDCO or a Subpart C DCO is 

systemically important in multiple 

jurisdictions. In making such a 

determination, the Commission will 

consider whether the DCO is a SIDCO 

and whether the DCO has been 

determined to be systemically important 

by one or more foreign jurisdictions 

pursuant to a designation process that 

considers whether the foreseeable 

effects of a failure or disruption of the 

SIDCO or Subpart C DCO could threaten 

the stability of each relevant 

jurisdiction’s financial system. 

Moreover, regulation 39.33(a)(3) also 

provides the Commission with the 

ability to expand the definition of 

‘‘activity with a more complex risk 

profile’’ beyond clearing credit default 

swaps or credit default futures. These 

provisions give the Commission the 

flexibility to determine, under 

appropriate circumstances, what 

particular SIDCOs or Subpart C DCOs 

(or DCOs that engage in certain 

activities) would need to maintain 

Cover Two default resources. Such a 

decision would help to ensure that the 

affected SIDCO or Subpart C DCO 

would have greater financial resources 

to meet its obligations to market 

participants, including in the case of 

defaults by multiple clearing members. 

These added financial resources would 

decrease the likelihood that the SIDCO 

or Subpart C DCO would fail, thus 

contributing to the integrity and 

stability of the financial markets. 

Regulation 39.33(b) prohibits a 

Subpart C DCO from using assessments 

to meets its default resource obligations, 

i.e., those under regulations 39.11(a)(1) 

and 39.33(a). This prohibition currently 

applies to SIDCOs. Prohibiting the use 

of assessments by a Subpart C DCO in 

meeting its default resource requirement 

increases the financial stability of the 

Subpart C DCO, which in turn, will 

increase the overall stability of the U.S. 

financial markets. 

Assessment powers are more likely to 

be exercised during periods of financial 

market stress. If, during such a period, 

a clearing member defaults and the loss 

to the Subpart C DCO is sufficiently 

large to deplete (1) the collateral posted 

by the defaulting clearing member, (2) 

the defaulting clearing member’s 

guaranty fund contribution, and (3) the 

remaining pre-funded default fund 

contributions, a Subpart C DCO’s 

exercise of assessment powers over the 

non-defaulting clearing members may 

exacerbate a presumably already 

weakened financial market. The 

demand by a Subpart C DCO for more 

capital from its clearing members could 

force one or more additional clearing 

members into default because they 

cannot meet the assessment. The 

inability to meet the assessment could 

lead clearing members and/or their 

customers to de-leverage (i.e., sell off 

their positions) in falling asset markets, 

which further drives down asset prices 

and may result in clearing members 

and/or their customers defaulting on 

their obligations to each other and/or to 

the Subpart C DCO. In such extreme 

circumstances, assessments could 

trigger a downward spiral and lead to 

the destabilization of the financial 

markets. Prohibiting the use of 

assessments by a Subpart C DCO in 

meeting default resources requirements 

is intended to require the Subpart C 

DCO to retain more financial resources 

upfront, i.e., to prefund its financial 

resources requirement to cover its 

potential exposure. 

The increase in prefunding of 

financial resources by a Subpart C DCO 

may increase costs to clearing members 

of that Subpart C DCO (e.g., requiring 

clearing members to post additional 

funds with the Subpart C DCO), but it 

also reduces the likelihood that the 

Subpart C DCO will require additional 

capital infusions during a time of 

financial stress when raising such 

additional capital is expensive relative 

to market norms. By increasing 

prefunded financial resources, a Subpart 

C DCO becomes less reliant on the 

ability of its clearing members to pay an 

assessment, more secure in its ability to 

meets its obligations, and more viable in 

any given situation, even in the case of 

multiple defaults of clearing members. 

Accordingly, regulation 39.33(b) 

increases the financial security and 

reliability of the Subpart C DCO, which 

will, therefore, further increase the 

overall stability of the U.S. financial 

markets. 

As described above, regulations 

39.33(c), (d) and (e) increase the 

likelihood that a SIDCO or Subpart C 

DCO will promptly meet its settlement 


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318See supra Section II.F. (discussing regulation 

39.34). 

319See supra Section II.G. (discussing regulation 

39.35). 

320See supra Section II.H. (discussing regulation 

39.36). 

obligations in a variety of market 

conditions. Liquidity arrangements that 

are highly reliable in stressed market 

conditions are important to enable the 

SIDCO or Subpart C DCO to promptly 

meet its cash obligations to its members. 

Ensuring that the SIDCO or Subpart C 

DCO can meet those obligations 

promptly, particularly in stressed 

market conditions, is an important 

firebreak to avoid loss of market 

confidence and cascading defaults. 

Specifically, regulation 39.33(c) 

requires a SIDCO or Subpart C DCO to 

maintain a minimum level of eligible 

liquidity resources that would permit 

the DCO to satisfy its intraday, sameday, and multi-day settlement 

obligations in all relevant currencies. 

Regulation 39.33(d) requires a SIDCO or 

Subpart C DCO to undertake due 

diligence to confirm that each liquidity 

provider upon which the DCO relies has 

the capacity to perform its commitments 

to provide liquidity (and to regularly 

test its own procedures for accessing its 

liquidity resources). Proposed 

regulation 39.33(e) requires a SIDCO or 

Subpart C DCO to document its 

supporting rationale for, and to have 

adequate governance arrangements 

relating to, the amount of total financial 

resources it maintains and the amount 

of total liquidity resources it maintains. 

In determining the resources that 

would be necessary to meet the 

qualifying liquid resources 

requirements, a SIDCO or Subpart C 

DCO may need to undertake a complex 

analysis of the SIDCO’s or Subpart C 

DCO’s exposures and processes, 

including various models, and, where 

appropriate, designing and 

implementing changes to either create 

or modify existing internal processes 

and documenting the rationale for the 

amount of total financial and total 

liquidity resources the SIDCO or 

Subpart C DCO maintains. These efforts 

are likely to contribute to a better ex 

ante understanding by the SIDCO’s or 

Subpart C DCO’s management of the 

liquidity risks the DCO is likely to face 

in a stress scenario, resources that are 

calculated to enable the DCO to 

completely meets its settlement 

obligations on a prompt basis despite 

the default of a clearing member, and 

better assurance of its ability to rely on 

the commitments of its liquidity 

providers. The result of this analysis 

and these enhanced resources is likely 

to be better preparation to meet liquidity 

challenges promptly, and a greater 

likelihood that the DCO would 

efficiently and effectively meet its 

obligations promptly in a default 

scenario. This improved preparation 

and enhanced likelihood of the SIDCO 

or Subpart C DCO’s prompt meeting of 

its own obligations will benefit the 

DCO’s clearing members and their 

customers by avoiding an inability to 

meet settlement obligations that might 

cause cascading liquidity problems to 

such clearing members and their 

customers. The harm to clearing 

members and customers from a failure 

of a SIDCO or Subpart C DCO to meet 

its obligations promptly would be 

especially serious in a time of general 

financial stress. The assurance of the 

DCO meeting its settlement obligations 

promptly would also redound to the 

benefit of the larger financial system by 

mitigating systemic risk. 

iv. Regulation 39.34 (System safeguards 

for systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

As discussed above, regulation 39.34, 

as revised, requires SIDCOs and Subpart 

C DCOs to comply with enhanced 

system safeguards requirements, 

including a two-hour RTO.318 While 

SIDCOs are already subject to these 

requirements, the Commission 

expanded this regulation to include 

Subpart C DCOs. A two-hour RTO in a 

Subpart C DCO’s BC–DR plan will 

increase the soundness and operating 

resiliency of the Subpart C DCO. The 

two-hour RTO ensures that even in the 

event of a wide-scale disruption, the 

potential negative effects upon U.S. 

financial markets would be minimized 

because the affected Subpart C DCO 

would recover rapidly and resume its 

critical market functions. This would 

allow other market participants to 

process their transactions, including 

those participants in locations not 

directly affected by the disruption. The 

two-hour RTO would increase a Subpart 

C DCO’s resiliency by requiring the 

Subpart C DCO to have the resources 

and technology necessary to resume 

operations promptly. This resiliency, in 

turn, will increase the overall stability 

of the U.S. financial markets. 

v. Regulation 39.35 (Default rules and 

procedures for uncovered losses or 

shortfalls (recovery) for systemically 

important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations) 

Regulation 39.35, as detailed above, 

requires SIDCOs and Subpart C DCOs to 

adopt explicit rules and procedures for: 

i) allocating uncovered credit losses and 

ii) meeting all settlement obligations in 

a variety of market conditions. 319 The 

analysis SIDCOs and Subpart C DCOs 

will need to perform to create these 

rules and procedures are likely to 

contribute to a better ex ante 

understanding by the SIDCO or Subpart 

C DCO of the scenarios that would lead 

to uncovered credit losses or liquidity 

shortfalls. This analysis will also enable 

the SIDCO or Subpart C DCO to more 

effectively and efficiently meet its 

obligations promptly, thereby avoiding 

harm to clearing members and their 

customers from a default. In addition, 

requiring SIDCOs and Subpart C DCOs 

to have clear rules and procedures 

addressing such scenarios will be 

beneficial for clearing members and 

their customers in that these rules and 

procedures will provide clearing 

members with a better understanding of 

the members’ own obligations, and the 

extent to which the SIDCO or Subpart 

C DCO would perform its obligations to 

its clearing members during periods of 

market stress. This understanding will, 

in turn, contribute to the ability of 

clearing members and their customers to 

tailor their own contingency plans to 

address those circumstances. Improved 

preparation by SIDCOs, Subpart C 

DCOs, and their clearing members will 

also redound to the benefit of the larger 

financial system by mitigating systemic 

risk. 

vi. Regulation 39.36 (Risk management 

for systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

As discussed above, Regulation 39.36 

establishes enhanced risk management 

requirements designed to help SIDCOs 

and Subpart C DCOs manage their risk 

exposure.320 These requirements 

include the stress testing of their 

financial resources, the stress testing of 

their liquidity resources, and 

conducting regular sensitivity analyses 

of their margin methodologies. The 

analyses performed to comply with this 

regulation will increase the DCO’s 

ability to mitigate and address credit 

risks, and to create proper incentives for 

members with respect to the exposures 

they create to the SIDCO or Subpart C 

DCO by enabling the DCO to tie risk 

exposures to margin requirements. In 

addition, regulation 39.36 requires a 

SIDCO or Subpart C DCO to monitor, 

manage and limit its credit and liquidity 

risks arising from its settlement banks, 

as well invest its own funds and assets 


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321See supra Section II.I. (discussing regulation 

39.37). 

322See supra Section II.K. (discussing regulation 

39.39). 

in instruments with minimal credit, 

market, and liquidity risks. 

Regulation 39.36, as adopted herein, 

increases the SIDCO’s or Subpart C 

DCO’s ability to mitigate and address 

the probability of being exposed to a 

settlement bank’s failure and the 

potential losses and liquidity pressures 

to which the SIDCO or Subpart C DCO 

would be exposed in the event of such 

a failure. This, in turn, will benefit 

members of such DCOs and their 

customers, as discussed above. By 

enhancing the reliability and stability of 

SIDCOs and Subpart C DCOs, regulation 

39.36 strengthens the overall stability of 

the U.S. financial markets. 

vii. Regulation 39.37 (Additional 

disclosure for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

The disclosure requirements set forth 

in regulation 39.37 321 benefit clearing 

members of SIDCOs and Subpart C 

DCOs, as well as customers of clearing 

members, because they provide 

transparency and certainty concerning 

the processes, operations and exposures 

of these DCOs. In particular, paragraph 

(d) requires a SIDCO or Subpart C DCO 

to publicly disclose its policies and 

procedures concerning the segregation 

and portability of customers’ positions 

and funds. These disclosures will 

enable clearing members and their 

customers to better understand their 

respective exposures to the SIDCO or 

Subpart C DCO, to better choose a DCO 

that fits their needs, and, in turn, to 

create incentives for safe and effective 

operations of SIDCOs and Subpart C 

DCOs. 

viii. Regulation 39.38 (Efficiency for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations) 

The efficiency requirements set forth 

in regulation 39.38 will be beneficial to 

clearing members of SIDCOs and 

Subpart C DCOs, as well as to customers 

of clearing members, because they will 

require these DCOs to regularly 

endeavor to improve their clearing and 

settlement arrangements, operating 

structures and procedures, product 

offerings, and use of technology. In 

addition, under this regulation, SIDCOs 

and Subpart C DCOs are required to 

facilitate efficient payment, clearing and 

settlement by accommodating 

internationally accepted communication 

procedures and standards, which may 

result in operational efficiency for 

market participants. Accordingly, 

members of such DCOs and their 

customers, as well as the marketplace 

more broadly, may be offered more 

efficient clearing services that may be 

easier to access at an operational level. 

ix. Regulation 39.39 (Recovery and 

wind-down for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations) 

Regulation 39.39, as described in 

detail above, requires a SIDCO and 

Subpart C DCO to maintain viable plans 

for recovery and orderly wind-down, in 

cases necessitated by (1) credit losses or 

liquidity shortfalls and (2) general 

business risk, operational risk, or any 

other risk that threatens the derivatives 

clearing organization’s viability as a 

going concern. This requires the DCO to 

identify scenarios that may prevent a 

SIDCO or Subpart C DCO from being 

able to provide its critical operations 

and services as a going concern and to 

assess the effectiveness of a full range of 

options for recovery or orderly winddown. 

Regulation 39.39 also requires a 

SIDCO or Subpart C DCO to evaluate the 

resources available to meet the plan to 

cover credit losses and liquidity 

shortfalls, and to maintain sufficient 

unencumbered liquid financial assets to 

implement the plan to cover other risks. 

The latter point requires a SIDCO or 

Subpart C DCO to analyze whether its 

particular circumstances and risks 

require it to maintain liquid net assets 

to fund the plan that are in addition to 

those resources currently required by 

regulation 39.11(a)(2).322

The complex analysis and plan 

preparation that a SIDCO or Subpart C 

DCO will undertake to comply with this 

regulation, including designing and 

implementing changes to existing plans, 

are likely to contribute to a better ex 

ante understanding by the SIDCO’s or 

Subpart C DCO’s management of the 

challenges the DCO would face in a 

recovery or wind-down scenario, and 

thus better preparation to meet those 

challenges. This improved preparation 

will help reduce the possibility of 

market disruptions and financial losses 

to clearing members and their 

customers. By maintaining and regularly 

updating recovery and wind-down 

plans, and maintaining resources and 

arrangements designed to meet the 

requirements of such plans, the DCO 

will better be able to mitigate the impact 

that a threat to, or a disruption of, a 

SIDCO’s or Subpart C DCO’s operations 

would have on customers, clearing 

members, and, more broadly, the 

stability of the U.S. financial markets. 

By reducing the possibility that a DCO 

would default in a disorganized fashion, 

regulation 39.39, as adopted herein, also 

helps to reduce the likelihood of a 

failure by the DCO to meet its 

obligations to its members, thereby 

enhancing protection for members of 

such a DCO and their customers, as well 

as helping to avoid the systemic effects 

of DCO failure. 

4. Section 15(a) Factors 

a. Protection of Market Participants and 

the Public 

The regulations finalized herein 

create additional standards for 

compliance with the CEA, which 

include governance standards, 

enhanced financial resources and 

liquidity resource requirements, system 

safeguard requirements, special default 

rules and procedures for uncovered 

losses or shortfalls, enhanced risk 

management requirements, additional 

disclosure requirements, efficiency 

standards, and standards for recovery 

and wind-down procedures. They also 

include procedures for Subpart C DCOs 

to elect to be held to such additional 

standards, and procedures to rescind 

such election. These standards and 

procedures will further the protection of 

members of SIDCOs and Subpart C 

DCOs, customers of such members, as 

well as other market participants and 

the public by increasing the financial 

stability and operational security of 

SIDCOs and Subpart C DCOs. 

Additionally, these regulations may, 

more broadly, increase the stability of 

the U.S. financial markets. A 

designation of systemic importance 

under Title VIII means the failure of a 

SIDCO or the disruption of its clearing 

and settlement activities could create or 

increase the risk of significant liquidity 

or credit problems spreading among 

financial institutions or markets, 

thereby threatening the stability of the 

U.S. financial markets. The regulations 

contained in this final rule are designed 

to help ensure that SIDCOs continue to 

function even in extreme circumstances, 

including multiple defaults by clearing 

members and wide-scale disruptions. 

While there may be increased costs 

associated with the implementation of 

these regulations, the increased costs 

associated with the implementation of 

the final rule for Subpart C DCOs would 

be borne only by those DCOs that have 

not been designated systemically 

important under Title VIII and that elect 

to become subject to the provisions of 

Subpart C. Some of those costs would 

ultimately be borne by clearing 


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323As mentioned above, this rulemaking would 

extend to Subpart C DCOs the system safeguards 

requirements currently applicable to SIDCOs. See 

supra Section II.F. (discussing revised regulation 

39.34 (system safeguards)). 

324See supra Section II.H. (discussing regulation 

39.36). 

325See supra Section II.G. (discussing regulation 

39.35); see also supra Section II.K. (discussing 

regulation 39.39). 

members of such Subpart C DCOs, and 

by customers of such clearing members. 

The costs of this final rulemaking will 

likely be mitigated by the countervailing 

benefits of stronger resources, improved 

design, more efficient and effective 

processes, and enhanced planning that 

would lead to increased safety and 

soundness of SIDCOs and the reduction 

of systemic risk, which protect market 

participants and the public from the 

adverse consequences, including loss of 

market confidence or potentially 

cascading defaults, that would result 

from a SIDCO’s failure to promptly meet 

its obligations to its members, or a 

disruption in its functioning. Similarly, 

the regulations will increase the safety 

and soundness of Subpart C DCOs so 

that they may continue to operate even 

in extreme circumstances, which would, 

in turn, better protect members of such 

DCOs, their customers, and also market 

participants and the public, particularly 

during time of severe market stress. 

b. Efficiency, Competitiveness, and 

Financial Integrity 

The regulations set forth in this final 

rulemaking promote the financial 

strength and stability of SIDCOs and 

Subpart C DCOs, as well as, more 

broadly, efficiency and greater 

competition in the global markets. 

Regulation 39.38, as finalized herein, 

expressly promotes efficiency in the 

design of a SIDCO’s or Subpart C DCO’s 

settlement and clearing arrangements, 

operating structure and procedures, 

scope of products cleared, and use of 

technology. The regulation also requires 

SIDCOs and Subpart C DCOs to 

accommodate internationally accepted 

communication procedures and 

standards to facilitate efficient payment, 

clearing, and settlement. In addition, the 

regulations finalized herein promote 

efficiency insofar as SIDCOs and 

Subpart C DCOs that operate with 

enhanced financial and liquidity 

resources, enhanced risk management 

requirements, increased system 

safeguards, and wind-down or recovery 

plans are more secure and are less likely 

to fail. 

These regulations also promote 

competition because they are consistent 

with the international standards set 

forth in the PFMIs and will help to 

ensure that SIDCOs are held to 

international standards and thus are 

enabled to gain QCCP status and 

accordingly avoid an important 

competitive disadvantage relative to 

similarly situated foreign CCPs that 

meet international standards and are 

QCCPs. Moreover, by allowing other 

DCOs to elect to become subject to the 

provisions of Subpart C and thus the 

opportunity to meet international 

standards and to gain QCCP status, 

these regulations promote competition 

among registered DCOs, and between 

registered DCOs and foreign CCPs that 

meet international standards and are 

QCCPs. Conversely, the Commission 

notes that these enhanced financial 

resources and risk management 

standards are also associated with 

additional costs and to the extent that 

SIDCOs and Subpart C DCOs pass along 

the additional costs to their clearing 

members and, indirectly, those clearing 

members’ customers, participation in 

the affected markets may decrease and 

have a negative impact on price 

discovery. However, it would appear 

that such higher transactional costs 

should (at least in the case of clearing 

members and customers that are banks 

or bank affiliates) be offset by the lower 

capital charges granted to bank or bank 

affiliated clearing members and 

customers for exposures resulting from 

transactions that are cleared through 

SIDCOs and Subpart C DCOs that are 

also QCCPs. 

Additionally, enhanced risk 

management and operational standards 

promote financial integrity by leading to 

SIDCOs and Subpart C DCOs to be more 

secure and less likely to fail. By 

increasing the stability and strength of 

the SIDCOs and Subpart C DCOs, the 

regulations in this final rulemaking will 

would help SIDCOs and Subpart C 

DCOs to meet their obligations in 

extreme circumstances and be able to 

resume operations even in the face of 

wide-scale disruption, which 

contributes to the financial integrity of 

the financial markets. Moreover, in 

requiring (1) more financial resources to 

be pre-funded by expanding the 

potential losses those resources are 

intended to cover and restricting the 

means for satisfying those resource 

requirements, and (2) requiring greater 

liquidity resources, the requirements of 

these regulations seek to lessen the 

incidence of pro-cyclical demands for 

additional resources and, in so doing, 

promote both financial integrity and 

market stability. By promoting the 

ability of SIDCOs and Subpart C DCOs 

to promptly meet their obligations to 

members, including in times of extreme 

market stress, they will mitigate the 

potential loss of market confidence, and 

the potential for cascading defaults. 

These efforts will redound to the benefit 

of clearing members and their 

customers, as well as the financial 

system more broadly. 

c. Price Discovery 

The regulations in this final 

rulemaking will enhance financial 

resources, liquidity resources, risk 

management standards, disclosure 

standards, and recovery planning for 

SIDCOs and Subpart C DCOs which may 

result in increased public confidence, 

which, in turn, might lead to expanded 

participation in the affected markets 

(including markets with products with a 

more complex risk profile). The 

expanded participation in these markets 

(i.e., greater transactional volume) may 

have a positive impact on price 

discovery. Conversely, the Commission 

notes that these regulations are also 

associated with additional costs and to 

the extent that SIDCOs and Subpart C 

DCOs pass along the additional costs to 

their clearing members and, indirectly, 

to their clearing members’ customers, 

participation in the affected markets 

may decrease and have a negative 

impact on price discovery. However, it 

is the Commission’s belief that such 

higher transactional costs should be 

offset by the lower capital charges 

granted to clearing members and 

customers with exposures resulting 

from transactions cleared through 

SIDCOs and Subpart C DCOs that are 

deemed QCCPs. 

d. Sound Risk Management Practices 

The regulations in this final 

rulemaking contribute to the sound risk 

management practices of SIDCOs and 

Subpart C DCOs because the 

requirements promote the safety and 

soundness of SIDCOs and Subpart C 

DCOs by: (1) Enhancing the financial 

resources requirements and liquidity 

resource requirements; (2) enhancing 

understanding of credit and liquidity 

risks and related governance 

arrangements; (3) enhancing system 

safeguards to facilitate the continuous 

operation and rapid recovery of 

activities; 323 (4) enhancing risk 

management standards by creating new 

stress testing and sensitivity analysis 

requirements; (5) promoting the active 

management of credit and liquidity risks 

arising from settlement banks; 324 and 

(6) enhancing risk management by 

establishing rules and procedures 

addressing uncovered credit losses or 

liquidity shortfalls, and recovery and 

wind-down planning for credit risks and 

for business continuity and operational 

risks.325 In addition, by strengthening 


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326See Section 802(a)(4) of the Dodd-Frank Act 

(Congressional findings). 

financial and liquidity resource 

requirements, enhancing risk 

management standards, and enhancing 

disclosure and recovery planning 

requirements, the regulations in this 

final rule provide greater certainty for 

clearing members of such DCOs, their 

customers, and other market 

participants that obligations of the 

SIDCOs and Subpart C DCOs will be 

honored promptly (thereby facilitating 

market participants own management of 

risks, including mitigating the risk that 

participants will be faced, at a time of 

market stress, with a failure by the 

SIDCO or Subpart C DCO to promptly 

meet its obligations to them), and 

provide certainty and security to market 

participants that potential disruptions 

will be reduced and, by extension, the 

risk of loss of capital and liquidity will 

be reduced. 

e. Other Public Interest Considerations 

The Commission notes the strong 

public interest for jurisdictions to either 

adopt the PFMIs or establish standards 

consistent with the PFMIs in order to 

allow CCPs licensed in the relevant 

jurisdiction to gain QCCP status. As 

emphasized throughout this final 

rulemaking, SIDCOs and Subpart C 

DCOs that are held to international 

standards and that gain QCCP status 

might hold a competitive advantage in 

the financial markets by, inter alia, 

helping bank clearing members and 

bank customers avoid the much higher 

capital charges imposed by the Basel 

CCP Capital Requirements on exposures 

to non-QCCPs. Moreover, because 

‘‘enhancements to the regulation and 

supervision of systemically important 

financial market utilities * * * are 

necessary * * * to support the stability 

of the broader financial system,’’ 326

adopting the regulations in this final 

rule will promote the public interest in 

a more stable broader financial system. 

List of Subjects 

17 CFR Part 39 

Commodity futures, Consumer 

protection, Default rules and 

procedures, Reporting and 

recordkeeping requirements, Risk 

management, Settlement procedures, 

System safeguards. 

17 CFR Part 140 

Authority delegations (Government 

agencies), Conflict of interests, 

Organization and functions 

(Government agencies). 

17 CFR Part 190 

Bankruptcy, Brokers, Commodity 

futures, Reporting and recordkeeping 

requirements. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission amends 17 CFR 

parts 39, 140, and 190 as follows: 

PART 39—DERIVATIVES CLEARING 

ORGANIZATIONS 

■ 1. The authority citation for part 39 is 

revised to read as follows: 

Authority: 7 U.S.C. 2, 7a–1, and 12a; 12 

U.S.C. 5464; 15 U.S.C. 8325. 

■ 2. Revise § 39.2 to read as follows: 

§ 39.2 Definitions. 

For the purposes of this part: 

Activity with a more complex risk 

profile includes: 

(1) Clearing credit default swaps, 

credit default futures, or derivatives that 

reference either credit default swaps or 

credit default futures and 

(2) Any other activity designated as 

such by the Commission pursuant to 

§ 39.33(a)(3). 

Back test means a test that compares 

a derivatives clearing organization’s 

initial margin requirements with 

historical price changes to determine 

the extent of actual margin coverage. 

Customer means a person trading in 

any commodity named in the definition 

of commodity in section 1a(9) of the Act 

or in § 1.3 of this chapter, or in any 

swap as defined in section 1a(47) of the 

Act or in § 1.3 of this chapter; Provided, 

however, an owner or holder of a house 

account as defined in this section shall 

not be deemed to be a customer within 

the meaning of section 4d of the Act, the 

regulations that implement sections 4d 

and 4f of the Act and § 1.35 of this 

chapter, and such an owner or holder of 

such a house account shall otherwise be 

deemed to be a customer within the 

meaning of the Act and §§ 1.37 and 1.46 

of this chapter and all other sections of 

these rules, regulations, and orders 

which do not implement sections 4d 

and 4f of the Act. 

Customer account or customer origin 

means a clearing member account held 

on behalf of customers, as that term is 

defined in this section, and which is 

subject to section 4d(a) or section 4d(f) 

of the Act. 

Depository institution has the 

meaning set forth in section 19(b)(1)(A) 

of the Federal Reserve Act (12 U.S.C. 

461(b)(1)(A)). 

House account or house origin means 

a clearing member account which is not 

subject to section 4d(a) or 4d(f) of the 

Act. 

Key personnel means derivatives 

clearing organization personnel who 

play a significant role in the operations 

of the derivatives clearing organization, 

the provision of clearing and settlement 

services, risk management, or oversight 

of compliance with the Act and 

Commission regulations and orders. Key 

personnel include, but are not limited 

to, those persons who are or perform the 

functions of any of the following: chief 

executive officer; president; chief 

compliance officer; chief operating 

officer; chief risk officer; chief financial 

officer; chief technology officer; and 

emergency contacts or persons who are 

responsible for business continuity or 

disaster recovery planning or program 

execution. 

Stress test means a test that compares 

the impact of potential extreme price 

moves, changes in option volatility, 

and/or changes in other inputs that 

affect the value of a position, to the 

financial resources of a derivatives 

clearing organization, clearing member, 

or large trader, to determine the 

adequacy of the financial resources of 

such entities. 

Subpart C derivatives clearing 

organization means any derivatives 

clearing organization, as defined in 

section 1a(15) of the Act and § 1.3(d) of 

this chapter, which: 

(1) Is registered as a derivatives 

clearing organization under section 5b 

of the Act; 

(2) Is not a systemically important 

derivatives clearing organization; and 

(3) Has become subject to the 

provisions of subpart C of this part, 

pursuant to § 39.31. 

Systemically important derivatives 

clearing organization means a financial 

market utility that is a derivatives 

clearing organization registered under 

section 5b of the Act, which is currently 

designated by the Financial Stability 

Oversight Council to be systemically 

important and for which the 

Commission acts as the Supervisory 

Agency pursuant to 12 U.S.C. 5462(8). 

U.S. branch or agency of a foreign 

banking organization means the U.S. 

branch or agency of a foreign banking 

organization as defined in section 1(b) 

of the International Banking Act of 1978 

(12 U.S.C. 3101). 

Trust company means a trust 

company that is a member of the 

Federal Reserve System, under section 1 

of the Federal Reserve Act (12 U.S.C. 

221), but that does not meet the 

definition of depository institution. 

■ 3. Revise subpart C to read as follows: 


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Subpart C—Provisions Applicable to 

Systemically Important Derivatives 

Clearing Organizations and Derivatives 

Clearing Organizations That Elect To 

Be Subject to the Provisions of This 

Subpart 

Sec. 

39.30 Scope. 

39.31 Election to become subject to the 

provisions of this subpart. 

39.32 Governance for systemically 

important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations. 

39.33 Financial resources for systemically 

important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations. 

39.34 System safeguards for systemically 

important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations. 

39.35 Default rules and procedures for 

uncovered credit losses or liquidity 

shortfalls (recovery) for systemically 

important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations. 

39.36 Risk management for systemically 

important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations. 

39.37 Additional disclosure for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations. 

39.38 Efficiency for systemically important 

derivatives clearing organizations and 

subpart C derivatives clearing 

organizations. 

39.39 Recovery and wind-down for 

systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations. 

39.40 Consistency with the Principles for 

Financial Market Infrastructures. 

39.41 Special enforcement authority for 

systemically important derivatives 

clearing organizations. 

39.42 Advance notice of material riskrelated rule changes by systemically 

important derivatives clearing 

organizations. 

Appendix A to Part 39—Form DCO 

Derivatives Clearing Organization 

Application for Registration 

Appendix B to Part 39—Subpart C Election 

Form 

§ 39.30 Scope. 

(a) The provisions of this subpart 

apply to each of the following: a subpart 

C derivatives clearing organization, a 

systemically important derivatives 

clearing organization, and any 

derivatives clearing organization, as 

defined under section 1a(15) of the Act 

and § 1.3(d) of this chapter, seeking to 

become a subpart C derivatives clearing 

organization pursuant to § 39.31. 

(b) A systemically important 

derivatives clearing organization is 

subject to the provisions of subparts A 

and B of this part in addition to the 

provisions of this subpart. 

(c) A subpart C derivatives clearing 

organization is subject to the provisions 

of subparts A and B of this part in 

addition to the provisions of this 

subpart except for §§ 39.41 and 39.42. 

§ 39.31 Election to become subject to the 

provisions of this subpart. 

(a) Election eligibility. (1) A 

derivatives clearing organization that is 

registered with the Commission and that 

is not a systemically important 

derivatives clearing organization may 

elect to become a subpart C derivatives 

clearing organization subject to the 

provisions of this subpart, using the 

procedures set forth in paragraph (b) of 

this section. 

(2) An applicant for registration as a 

derivatives clearing organization 

pursuant to § 39.3 may elect to become 

a subpart C derivatives clearing 

organization subject to the provisions of 

this subpart as part of its application for 

registration using the procedures set 

forth in paragraph (c) of this section. 

(b) Election and withdrawal 

procedures applicable to registered 

derivatives clearing organizations—(1) 

Election. A derivatives clearing 

organization that is registered with the 

Commission and that is not a 

systemically important derivatives 

clearing organization may request that 

the Commission accept its election to 

become a subpart C derivatives clearing 

organization by filing with the 

Commission a completed Subpart C 

Election Form. The Subpart C Election 

Form shall include the election and all 

certifications, disclosures and exhibits, 

as provided in appendix B to this part 

and any amendments or supplements 

thereto filed with the Commission 

pursuant to paragraphs (b)(2) and (3) of 

this section. 

(2) Submission of supplemental 

information. The filing of a Subpart C 

Election Form does not create a 

presumption that the Subpart C Election 

Form is materially complete or that 

supplemental information will not be 

required. The Commission, at any time 

prior to the effective date, as provided 

in paragraph (b)(4) of this section, may 

request that the derivatives clearing 

organization submit supplemental 

information in order for the Commission 

to process the Subpart C Election Form, 

and the derivatives clearing 

organization shall file such 

supplemental information with the 

Commission. 

(3) Amendments. A derivatives 

clearing organization shall promptly 

amend its Subpart C Election Form if it 

discovers a material omission or error 

in, or if there is a material change in, the 

information provided to the 

Commission in the Subpart C Election 

Form or other information provided in 

connection with the Subpart C Election 

Form. 

(4) Effective date. A derivatives 

clearing organization’s election to 

become a subpart C derivatives clearing 

organization shall become effective: 

(i) Upon the later of the following, 

provided the Commission has neither 

stayed nor denied such election as set 

forth in paragraph (b)(5) of this section. 

(A) The effective date specified by the 

derivatives clearing organization in its 

Subpart C Election Form; or 

(B) Ten business days after the 

derivatives clearing organization files its 

Subpart C Election Form with the 

Commission; 

(ii) Or upon the effective date set forth 

in written notification from the 

Commission that it shall permit the 

election to take effect after a stay issued 

pursuant to paragraph (b)(5) of this 

section. 

(5) Stay or denial of election. Prior to 

the effective date set forth in paragraph 

(b)(4)(i) of this section, the Commission 

may stay or deny a derivatives clearing 

organization’s election to become a 

subpart C derivatives clearing 

organization by issuing a written 

notification thereof to the derivatives 

clearing organization. 

(6) Commission acknowledgement. 

The Commission may acknowledge, in 

writing, that it has received a Subpart C 

Election Form filed by a derivatives 

clearing organization and that it has 

permitted the derivatives clearing 

organization’s election to become 

subject to the provisions of this subpart 

to take effect, and the effective date of 

such election. 

(7) Withdrawal of election. A 

derivatives clearing organization that 

has filed a Subpart C Election Form may 

withdraw an election to become subject 

to the provisions of this subpart at any 

time prior to the date that the election 

is permitted to take effect by filing with 

the Commission a notice of the 

withdrawal of election. 

(c) Election and withdrawal 

procedures applicable to applicants for 

registration as derivatives clearing 

organization—(1) Election. An applicant 

for registration as a derivatives clearing 

organization that requests an election to 

become subject to the provisions of this 

subpart may make that request by 

attaching a completed Subpart C 

Election Form to the Form DCO that it 

files pursuant to § 39.3. The Subpart C 

Election Form shall include the election 

and all certifications, disclosures and 

exhibits, as provided in appendix B of 


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this part, and any amendments or 

supplements thereto filed with the 

Commission pursuant to paragraphs 

(c)(3) or (4) of this section. 

(2) Election review and effective date. 

The Commission shall review the 

applicant’s Subpart C Election Form as 

part of the Commission’s review of its 

application for registration pursuant to 

§ 39.3(a). The Commission may permit 

the applicant’s election to take effect at 

the time it approves the applicant’s 

application for registration by providing 

written notice thereof to the applicant. 

The Commission shall not approve any 

application for registration filed 

pursuant to § 39.3(a) for which a 

Subpart C Election Form is pending, if 

the Commission determines that the 

applicant’s election to become subject to 

this subpart should not become effective 

because the applicant has not 

demonstrated its ability to comply with 

the applicable provisions of this 

subpart. 

(3) Submission of supplemental 

information. The filing of a Subpart C 

Election Form does not create a 

presumption that the Subpart C Election 

Form is materially complete or that 

supplemental information will not be 

required. At any time during the 

Commission’s review of the Subpart C 

Election Form, the Commission may 

request that the applicant submit 

supplemental information in order for 

the Commission to process the Subpart 

C Election Form and the applicant shall 

file such supplemental information with 

the Commission. 

(4) Amendments. An applicant for 

registration as a derivatives clearing 

organization shall promptly amend its 

Subpart C Election Form if it discovers 

a material omission or error in, or if 

there is a material change in, the 

information provided to the 

Commission in the Subpart C Election 

Form or other information provided in 

connection with the Subpart C Election 

Form. 

(5) Withdrawal of election. An 

applicant for registration as a 

derivatives clearing organization may 

withdraw an election to become subject 

to the provisions of this subpart by 

filing with the Commission a notice of 

the withdrawal of its Subpart C Election 

Form at any time prior to the date that 

the Commission approves its 

application for registration as a 

derivatives clearing organization. The 

applicant may withdraw its Subpart C 

Election Form without withdrawing its 

Form DCO. 

(d) Public information. The following 

portions of the Subpart C Election Form 

will be public: The Elections and 

Certifications and Disclosures in the 

Subpart C Election Form, the rules of 

the derivatives clearing organization, 

the regulatory compliance chart, and 

any other portion of the Subpart C 

Election Form not covered by a request 

for confidential treatment complying 

with the requirements of § 145.9 of this 

chapter. 

(e) Rescission of election. (1) Notice of 

intent to rescind. A subpart C 

derivatives clearing organization may 

rescind its election to be subject to the 

provisions of this subpart and terminate 

its status as a subpart C derivatives 

clearing organization by filing with the 

Commission a notice of its intent to 

rescind such election. The notice of 

intent to rescind the election shall 

include: 

(i) The effective date of the rescission; 

and 

(ii) A certification signed by the 

relevant duly authorized representative 

of the subpart C derivatives clearing 

organization, as specified in paragraph 

three of the General Instructions to the 

Subpart C Election Form, stating that 

the subpart C derivatives clearing 

organization: 

(A) Has provided the notice to its 

clearing members required by paragraph 

(e)(3)(i)(A) of this section; 

(B) Will provide the notice to its 

clearing members required by paragraph 

(e)(3)(i)(B) of this section; 

(C) Has provided the notice to the 

general public required by paragraph 

(e)(3)(ii)(A) of this section; 

(D) Will provide notice to the general 

public required by paragraph 

(e)(3)(ii)(B) of this section; and 

(E) Has removed all references to the 

organization as a subpart C derivatives 

clearing organization and a qualifying 

central counterparty on its Web site and 

in all other material that it provides to 

its clearing members and customers, 

other market participants or members of 

the public, as required by paragraph 

(e)(3)(ii)(C) of this section. 

(2) Effective date. The rescission of 

the election to be subject to the 

provisions of this subpart shall become 

effective on the date set forth in the 

notice of intent to rescind the election 

filed by the subpart C derivatives 

clearing organization pursuant to 

paragraph (e)(1) of this section, 

provided that the rescission may 

become effective no earlier than 180 

days after the notice of intent to rescind 

the election is filed with the 

Commission. The subpart C derivatives 

clearing organization shall continue to 

comply with all of the provisions of this 

subpart until such effective date. 

(3) Additional notice requirements. (i) 

A subpart C derivatives clearing 

organization shall provide the following 

notices, at the following times, to each 

of its clearing members and shall have 

rules in place requiring each of its 

clearing members to provide the 

following notices to each of the clearing 

member’s customers: 

(A) No later than the filing of a notice 

of its intent to rescind its election to be 

subject to the provisions of this subpart, 

written notice that it intends to file such 

notice with the Commission and the 

effective date thereof; and 

(B) On the effective date of the 

rescission of its election to be subject to 

the provisions of this subpart, written 

notice that the rescission has become 

effective. 

(ii) A subpart C derivatives clearing 

organization shall: 

(A) No later than the filing of a notice 

of its intent to rescind its election to be 

subject to the provisions of this subpart, 

provide notice to the general public, 

displayed prominently on its Web site, 

of its intent to rescind its election to be 

subject to the provisions of this subpart; 

(B) On and after the effective date of 

the rescission of its election to be 

subject to the provisions of this subpart, 

provide notice to the general public, 

displayed prominently on its Web site, 

that the rescission has become effective; 

and 

(C) Prior to the filing of a notice of its 

intent to rescind its election to become 

subject to the provisions of this subpart, 

remove all references to the derivatives 

clearing organization’s status as a 

subpart C derivatives clearing 

organization and a qualifying central 

counterparty on its Web site and in all 

other materials that it provides to its 

clearing members and customers, other 

market participants, or the general 

public. 

(iii) The employees and 

representatives of a derivatives clearing 

organization that has filed a notice of its 

intent to rescind its election to be 

subject to the provisions of this subpart 

shall refrain from referring to the 

organization as a subpart C derivatives 

clearing organization and a qualifying 

central counterparty on and after the 

date that the notice of intent to rescind 

the election is filed. 

(4) Effect of rescission. The rescission 

of a subpart C derivatives clearing 

organization’s election to be subject to 

the provisions of this subpart shall not 

affect the authority of the Commission 

concerning any activities or events 

occurring during the time that the 

derivatives clearing organization 

maintained its status as a subpart C 

derivatives clearing organization. 

(f) Loss of designation as a 

systemically important derivatives 

clearing organization. A systemically 


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important derivatives clearing 

organization whose designation of 

systemic importance is rescinded by the 

Financial Stability Oversight Council, 

shall immediately be deemed to be a 

subpart C derivatives clearing 

organization and shall continue to 

comply with the provisions of this 

subpart unless such derivatives clearing 

organization elects to rescind its status 

as a subpart C derivatives clearing 

organization in accordance with the 

requirements of paragraph (e) of this 

section. 

(g) All forms and notices required by 

this section shall be filed electronically 

with the Secretary of the Commission in 

the format and manner specified by the 

Commission. 

§ 39.32 Governance for systemically 

important derivatives clearing organizations 

and subpart C derivatives clearing 

organizations. 

(a) General rules. (1) Each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization shall 

have governance arrangements that: 

(i) Are written; 

(ii) Are clear and transparent; 

(iii) Place a high priority on the safety 

and efficiency of the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization; and 

(iv) Explicitly support the stability of 

the broader financial system and other 

relevant public interest considerations 

of clearing members, customers of 

clearing members, and other relevant 

stakeholders. 

(2) The board of directors shall make 

certain that the systemically important 

derivatives clearing organization’s or 

subpart C derivatives clearing 

organization’s design, rules, overall 

strategy, and major decisions 

appropriately reflect the legitimate 

interests of clearing members, customers 

of clearing members, and other relevant 

stakeholders. 

(3) To an extent consistent with other 

statutory and regulatory requirements 

on confidentiality and disclosure: 

(i) Major decisions of the board of 

directors should be clearly disclosed to 

clearing members, other relevant 

stakeholders, and to the Commission; 

and 

(ii) Major decisions of the board of 

directors having a broad market impact 

should be clearly disclosed to the 

public; 

(b) Governance arrangements. Each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization shall 

have governance arrangements that: 

(1) Are clear and documented; 

(2) To an extent consistent with other 

statutory and regulatory requirements 

on confidentiality and disclosure, are 

disclosed, as appropriate, to the 

Commission and to other relevant 

authorities, to clearing members and to 

customers of clearing members, to the 

owners of the systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization, and to the public; 

(3) Describe the structure pursuant to 

which the board of directors, 

committees, and management operate; 

(4) Include clear and direct lines of 

responsibility and accountability; 

(5) Clearly specify the roles and 

responsibilities of the board of directors 

and its committees, including the 

establishment of a clear and 

documented risk management 

framework; 

(6) Clearly specify the roles and 

responsibilities of management; 

(7) Describe procedures for 

identifying, addressing, and managing 

conflicts of interest involving members 

of the board of directors; 

(8) Describe procedures pursuant to 

which the board of directors oversees 

the chief risk officer, risk management 

committee, and material risk decisions; 

(9) Assign responsibility and 

accountability for risk decisions, 

including in crises and emergencies; 

and 

(10) Assign responsibility for 

implementing the: 

(i) Default rules and procedures 

required by §§ 39.16 and 39.35; 

(ii) System safeguard rules and 

procedures required by §§ 39.18 and 

39.34; and 

(iii) Recovery and wind-down plans 

required by § 39.39. 

(c) Fitness standards for board of 

directors and management. Each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization shall 

maintain policies to make certain that: 

(1) The board of directors consists of 

suitable individuals having appropriate 

skills and incentives; 

(2) The board of directors includes 

individuals who are not executives, 

officers or employees of the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization or an affiliate 

thereof; 

(3) The performance of the board of 

directors and the performance of 

individual directors are reviewed on a 

regular basis; 

(4) Managers have the appropriate 

experience, skills, and integrity 

necessary to discharge operational and 

risk management responsibilities; and 

(5) Risk management and internal 

control personnel have sufficient 

independence, authority, resources, and 

access to the board of directors so that 

the operations of the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization are consistent with 

the risk management framework 

established by the board of directors. 

§ 39.33 Financial resources requirements 

for systemically important derivatives 

clearing organizations and subpart C 

derivatives clearing organizations. 

(a) General rule. (1) Notwithstanding 

the requirements of § 39.11(a)(1), each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization that, in 

either case, is systemically important in 

multiple jurisdictions or is involved in 

activities with a more complex risk 

profile shall maintain financial 

resources sufficient to enable it to meet 

its financial obligations to its clearing 

members notwithstanding a default by 

the two clearing members creating the 

largest combined loss to the derivatives 

clearing organization in extreme but 

plausible market conditions. 

(2) The Commission shall, if it deems 

appropriate, determine whether a 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization is 

systemically important in multiple 

jurisdictions. In determining whether a 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization is 

systemically important in multiple 

jurisdictions, the Commission shall 

consider whether the derivatives 

clearing organization: 

(i) Is a systemically important 

derivatives clearing organization, as 

defined by § 39.2; or 

(ii) Has been determined to be 

systemically important by one or more 

jurisdictions other than the United 

States pursuant to a designation process 

that considers whether the foreseeable 

effects of a failure or disruption of the 

derivatives clearing organization could 

threaten the stability of each relevant 

jurisdiction’s financial system. 

(3) The Commission shall, if it deems 

appropriate, determine whether any of 

the activities of a systemically important 

derivatives clearing organization or a 

subpart C derivatives clearing 

organization, in addition to clearing 

credit default swaps, credit default 

futures, and any derivatives that 

reference either credit default swaps or 

credit default futures, has a more 

complex risk profile. In determining 

whether an activity has a more complex 


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risk profile, the Commission will 

consider characteristics such as discrete 

jump-to-default price changes or high 

correlations with potential participant 

defaults as factors supporting (though 

not necessary for) a finding of a more 

complex risk profile. 

(4) For purposes of this section, if a 

clearing member controls another 

clearing member or is under common 

control with another clearing member, 

such affiliated clearing members shall 

be deemed to be a single clearing 

member. 

(b) Valuation of financial resources. 

Notwithstanding the provisions of 

§ 39.11(d)(2), assessments for additional 

guaranty fund contributions (i.e., 

guaranty fund contributions that are not 

pre-funded) shall not be included in 

calculating the financial resources 

available to meet a systemically 

important derivatives clearing 

organization’s or subpart C derivatives 

clearing organization’s obligations 

under paragraph (a) of this section or 

§ 39.11(a)(1). 

(c) Liquidity resources. (1) Minimum 

amount of liquidity resources. (i) 

Notwithstanding the provisions of 

§ 39.11(e)(1)(ii), each systemically 

important derivatives clearing 

organization and subpart C derivatives 

clearing organization shall maintain 

eligible liquidity resources that, at a 

minimum, will enable it to meet its 

intraday, same-day, and multiday 

obligations to perform settlements, as 

defined in § 39.14(a)(1), with a high 

degree of confidence under a wide range 

of stress scenarios that should include, 

but not be limited to, a default by the 

clearing member creating the largest 

aggregate liquidity obligation for the 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization in 

extreme but plausible market 

conditions. 

(ii) A systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization that is subject to 

§ 39.33(a)(1) shall consider maintaining 

eligible liquidity resources that, at a 

minimum, will enable it to meet its 

intraday, same-day, and multiday 

obligations to perform settlements, as 

defined in § 39.14(a)(1), with a high 

degree of confidence under a wide range 

of stress scenarios that should include, 

but not be limited to, a default of the 

two clearing members creating the 

largest aggregate liquidity obligation for 

the systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization in 

extreme but plausible market 

conditions. 

(2) Satisfaction of settlement in all 

relevant currencies. Each systemically 

important derivatives clearing 

organization and subpart C derivatives 

clearing organization shall maintain 

liquidity resources that are sufficient to 

satisfy the obligations required by 

paragraph (c)(1) of this section in all 

relevant currencies for which the 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization has 

obligations to perform settlements, as 

defined in § 39.14(a)(1), to its clearing 

members. 

(3) Qualifying liquidity resources. (i) 

Only the following liquidity resources 

are eligible for the purpose of meeting 

the requirement of paragraph (c)(1) of 

this section: 

(A) Cash in the currency of the 

requisite obligations, held either at the 

central bank of issue or at a 

creditworthy commercial bank; 

(B) Committed lines of credit; 

(C) Committed foreign exchange 

swaps; 

(D) Committed repurchase 

agreements; or 

(E) (1) Highly marketable collateral, 

including high quality, liquid, general 

obligations of a sovereign nation. 

(2) The assets described in paragraph 

(c)(3)(i)(E)(1) of this section must be 

readily available and convertible into 

cash pursuant to prearranged and highly 

reliable funding arrangements, even in 

extreme but plausible market 

conditions. 

(ii) With respect to the arrangements 

described in paragraph (c)(3)(i) of this 

section, the systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization must take appropriate steps 

to verify that such arrangements do not 

include material adverse change 

conditions and are enforceable, and will 

be highly reliable, in extreme but 

plausible market conditions. 

(4) Additional liquidity resources. If a 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization 

maintains financial resources in 

addition to those required to satisfy 

paragraph (c)(1) of this section, then 

those resources should be in the form of 

assets that are likely to be saleable with 

proceeds available promptly or 

acceptable as collateral for lines of 

credit, swaps, or repurchase agreements 

on an ad hoc basis. A systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization should consider 

maintaining collateral with low credit, 

liquidity, and market risks that is 

typically accepted by a central bank of 

issue for any currency in which it may 

have settlement obligations, but shall 

not assume the availability of 

emergency central bank credit as a part 

of its liquidity plan. 

(d) Liquidity providers. (1) For the 

purposes of this paragraph, a liquidity 

provider means: 

(i) A depository institution, a U.S. 

branch or agency of a foreign banking 

organization, a trust company, or a 

syndicate of depository institutions, 

U.S. branches or agencies of foreign 

banking organizations, or trust 

companies providing a line of credit, 

foreign exchange swap facility or 

repurchase facility to a systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization; 

(ii) Any other counterparty relied 

upon by a systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization to meet its minimum 

liquidity resources requirement under 

paragraph (c) of this section. 

(2) In fulfilling its obligations under 

paragraph (c) of this section, each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization shall 

undertake due diligence to confirm that 

each of its liquidity providers, whether 

or not such liquidity provider is a 

clearing member, has: 

(i) Sufficient information to 

understand and manage the liquidity 

provider’s liquidity risks; and 

(ii) The capacity to perform as 

required under its commitments to 

provide liquidity to the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization. 

(3) Where relevant to a liquidity 

provider’s ability reliably to perform its 

commitments with respect to a 

particular currency, the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization may take into 

account the liquidity provider’s access 

to the central bank of issue of that 

currency. 

(4) Each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall regularly test its 

procedures for accessing its liquidity 

resources under paragraph (c)(3)(i) of 

this section, including testing its 

arrangements under paragraph (c)(3)(ii) 

and its relevant liquidity provider(s) 

under paragraph (d)(1) of this section. 

(e) Documentation of financial 

resources and liquidity resources. Each 

systemically important derivatives 

clearing organization and subpart C 


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derivatives clearing organization shall 

document its supporting rationale for, 

and have appropriate governance 

arrangements relating to, the amount of 

total financial resources it maintains 

pursuant to paragraph (a) of this section 

and the amount of total liquidity 

resources it maintains pursuant to 

paragraph (c) of this section. 

§ 39.34 System safeguards for 

systemically important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations. 

(a) Notwithstanding § 39.18(e)(3), the 

business continuity and disaster 

recovery plan described in § 39.18(e)(1) 

for each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall have the objective of 

enabling, and the physical, 

technological, and personnel resources 

described in § 39.18(e)(1) shall be 

sufficient to enable, the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization to recover its 

operations and resume daily processing, 

clearing, and settlement no later than 

two hours following the disruption, for 

any disruption including a wide-scale 

disruption. 

(b) To facilitate its ability to achieve 

the recovery time objective specified in 

paragraph (a) of this section in the event 

of a wide-scale disruption, each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization must 

maintain a degree of geographic 

dispersal of physical, technological and 

personnel resources consistent with the 

following for each activity necessary for 

the daily processing, clearing, and 

settlement of existing and new 

contracts: 

(1) Physical and technological 

resources (including a secondary site), 

sufficient to enable the entity to meet 

the recovery time objective after 

interruption of normal clearing by a 

wide-scale disruption, must be located 

outside the relevant area of the physical 

and technological resources the 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization 

normally relies upon to conduct that 

activity, and must not rely on the same 

critical transportation, 

telecommunications, power, water, or 

other critical infrastructure components 

the entity normally relies upon for such 

activities; 

(2) Personnel, who live and work 

outside that relevant area, sufficient to 

enable the entity to meet the recovery 

time objective after interruption of 

normal clearing by a wide-scale 

disruption affecting the relevant area in 

which the personnel the entity normally 

relies upon to engage in such activities 

are located; 

(3) The provisions of § 39.18(f) shall 

apply to these resource requirements. 

(c) Each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization must conduct regular, 

periodic tests of its business continuity 

and disaster recovery plans and 

resources and its capacity to achieve the 

required recovery time objective in the 

event of a wide-scale disruption. The 

provisions of § 39.18(j) apply to such 

testing. 

(d) The Commission may, upon 

request, grant an entity, which has been 

designated as a systemically important 

derivatives clearing organization or that 

has elected to become subject to subpart 

C, up to one year to comply with any 

provision of this section. 

§ 39.35 Default rules and procedures for 

uncovered credit losses or liquidity 

shortfalls (recovery) for systemically 

important derivatives clearing organizations 

and subpart C derivatives clearing 

organizations. 

(a) Allocation of uncovered credit 

losses. Each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall adopt explicit rules 

and procedures that address fully any 

loss arising from any individual or 

combined default relating to any 

clearing members’ obligations to the 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization. Such 

rules and procedures shall address how 

the systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization would: 

(1) Allocate losses exceeding the 

financial resources available to the 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization; 

(2) Repay any funds it may borrow; 

and 

(3) Replenish any financial resources 

it may employ during such a stress 

event, so that the systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization can continue to operate in 

a safe and sound manner. 

(b) Allocation of uncovered liquidity 

shortfalls. (1) Each systemically 

important derivatives clearing 

organization and subpart C derivatives 

clearing organization shall establish 

rules and/or procedures that enable it 

promptly to meet all of its settlement 

obligations, on a same day and, as 

appropriate, intraday and multiday 

basis, in the context of the occurrence 

of either or both of the following 

scenarios: 

(i) An individual or combined default 

involving one or more clearing 

members’ obligations to the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization; or 

(ii) A liquidity shortfall exceeding the 

financial resources of the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization. 

(2) The rules and procedures 

described in paragraph (b)(1) of this 

section shall: 

(i) Enable the systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization promptly to meet its 

payment obligations in all relevant 

currencies; 

(ii) Be designed to enable the 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization to 

avoid unwinding, revoking, or delaying 

the same-day settlement of payment 

obligations; and 

(iii) Address the systemically 

important derivatives clearing 

organization’s or subpart C derivatives 

clearing organization’s process to 

replenish any liquidity resources it may 

employ during a stress event so that it 

can continue to operate in a safe and 

sound manner. 

§ 39.36 Risk management for systemically 

important derivatives clearing organizations 

and subpart C derivatives clearing 

organizations. 

(a) Stress tests of financial resources. 

In addition to conducting stress tests 

pursuant to § 39.13(h)(3), each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization shall 

conduct stress tests of its financial 

resources in accordance with the 

following standards and practices: 

(1) Perform, on a daily basis, stress 

testing of its financial resources using 

predetermined parameters and 

assumptions; 

(2) Perform comprehensive analyses 

of stress testing scenarios and 

underlying parameters to ascertain their 

appropriateness for determining the 

systemically important derivatives 

clearing organization’s or subpart C 

derivatives clearing organization’s 

required level of financial resources in 

current and evolving market conditions; 

(3) Perform the analyses required by 

paragraph (a)(2) of this section at least 


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monthly and when products cleared or 

markets served display high volatility or 

become less liquid, when the size or 

concentration of positions held by 

clearing members increases 

significantly, or as otherwise 

appropriate, evaluate the stress testing 

scenarios, models, and underlying 

parameters more frequently than once a 

month; 

(4) For the analyses required by 

paragraphs (a)(1) and (2) of this section, 

include a range of relevant stress 

scenarios, in terms of both defaulting 

clearing members’ positions and 

possible price changes in liquidation 

periods. The scenarios considered shall 

include, but are not limited to, the 

following: 

(i) Relevant peak historic price 

volatilities; 

(ii) Shifts in other market factors 

including, as appropriate, price 

determinants and yield curves; 

(iii) Multiple defaults over various 

time horizons; 

(iv) Simultaneous pressures in 

funding and asset markets; and 

(v) A range of forward-looking stress 

scenarios in a variety of extreme but 

plausible market conditions. 

(5) Establish procedures for: 

(i) Reporting stress test results to its 

risk management committee or board of 

directors, as applicable; and 

(ii) Using the results to assess the 

adequacy of, and to adjust, its total 

amount of financial resources; and 

(6) Use the results of stress tests to 

support compliance with the minimum 

financial resources requirement set forth 

in § 39.33(a). 

(b) Sensitivity analysis of margin 

model. (1) Each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall, at least monthly and 

more frequently as appropriate, conduct 

a sensitivity analysis of its margin 

models to analyze and monitor model 

performance and overall margin 

coverage. Sensitivity analysis shall be 

conducted on both actual and 

hypothetical positions. 

(2) For the purposes of this paragraph 

(b), a sensitivity analysis of a margin 

model includes: 

(i) Reviewing a wide range of 

parameter settings and assumptions that 

reflect possible market conditions in 

order to understand how the level of 

margin coverage might be affected by 

highly stressed market conditions. The 

range of parameters and assumptions 

should capture a variety of historical 

and hypothetical conditions, including 

the most volatile periods that have been 

experienced by the markets served by 

the systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization and 

extreme changes in the correlations 

between prices. The parameters and 

assumptions should be appropriate in 

light of the specific characteristics, 

considered on a current basis, of 

particular products and portfolios 

cleared. 

(ii) Testing of the ability of the models 

or model components to produce 

accurate results using actual or 

hypothetical datasets and assessing the 

impact of different model parameter 

settings. 

(iii) Evaluating potential losses in 

clearing members’ proprietary positions 

and, where appropriate, customer 

positions. 

(3) A systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization involved in activities with 

a more complex risk profile shall take 

into consideration parameter settings 

that reflect the potential impact of the 

simultaneous default of clearing 

members and, where applicable, the 

underlying credit instruments. 

(c) Stress tests of liquidity resources. 

Each systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization shall 

conduct stress tests of its liquidity 

resources in accordance with the 

following standards and practices: 

(1) Perform, on a daily basis, stress 

testing of its liquidity resources using 

predetermined parameters and 

assumptions; 

(2) Perform comprehensive analyses 

of stress testing scenarios and 

underlying parameters to ascertain their 

appropriateness for determining the 

systemically important derivatives 

clearing organization’s or subpart C 

derivatives clearing organization’s 

required level of liquidity resources in 

current and evolving market conditions; 

(3) Perform the analyses required by 

paragraph (c)(2) of this section at least 

monthly and when products cleared or 

markets served display high volatility or 

become less liquid, when the size or 

concentration of positions held by 

clearing members increases 

significantly, or as otherwise 

appropriate, evaluate its stress testing 

scenarios, models, and underlying 

parameters more frequently than once a 

month; 

(4) For the analyses required by 

paragraphs (c)(1) and (2) of this section, 

include a range of relevant stress 

scenarios, in terms of both defaulting 

clearing members’ positions and 

possible price changes in liquidation 

periods. The scenarios considered shall 

include, but are not limited to, the 

following: 

(i) Relevant peak historic price 

volatilities; 

(ii) Shifts in other market factors 

including, as appropriate, price 

determinants and yield curves; 

(iii) Multiple defaults over various 

time horizons; 

(iv) Simultaneous pressures in 

funding and asset markets; and 

(v) A range of forward-looking stress 

scenarios in a variety of extreme but 

plausible market conditions. 

(5) For the scenarios enumerated in 

paragraph (c)(4) of this section, consider 

the following: 

(i) All entities that might pose 

material liquidity risks to the 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization, 

including settlement banks, permitted 

depositories, liquidity providers, and 

other entities, 

(ii) Multiday scenarios as appropriate, 

(iii) Inter-linkages between its clearing 

members and the multiple roles that 

they may play in the systemically 

important derivatives clearing 

organization’s or subpart C derivatives 

clearing organization’s risk 

management; and 

(iv) The probability of multiple 

failures and contagion effect among 

clearing members. 

(6) Establish procedures for: 

(i) Reporting stress test results to its 

risk management committee or board of 

directors, as applicable; and 

(ii) Using the results to assess the 

adequacy of, and to adjust its total 

amount of liquidity resources. 

(7) Use the results of stress tests to 

support compliance with the liquidity 

resources requirement set forth in 

§ 39.33(c). 

(d) Each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall regularly conduct an 

assessment of the theoretical and 

empirical properties of its margin model 

for all products it clears. 

(e) Each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall perform, on an 

annual basis, a full validation of its 

financial risk management model and 

its liquidity risk management model. 

(f) Custody and investment risk. 

Custody and investment arrangements 

of a systemically important derivatives 

clearing organization’s and subpart C 

derivatives clearing organization’s own 

funds and assets shall be subject to the 

same requirements as those specified in 

§ 39.15 for the funds and assets of 


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clearing members, and shall apply to the 

derivatives clearing organization’s own 

funds and assets to the same extent as 

if such funds and assets belonged to 

clearing members. 

(g) Settlement banks. Each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization shall: 

(1) Monitor, manage, and limit its 

credit and liquidity risks arising from its 

settlement banks; 

(2) Establish, and monitor adherence 

to, strict criteria for its settlement banks 

that take account of, among other things, 

their regulation and supervision, 

creditworthiness, capitalization, access 

to liquidity, and operational reliability; 

and 

(3) Monitor and manage the 

concentration of credit and liquidity 

exposures to its settlement banks. 

§ 39.37 Additional disclosure for 

systemically important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations. 

In addition to the requirements of 

§ 39.21, each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall: 

(a) Complete and publicly disclose its 

responses to the Disclosure Framework 

for Financial Market Infrastructures 

published by the Committee on 

Payment and Settlement Systems and 

the Board of the International 

Organization of Securities Commissions; 

(b) Review and update its responses 

disclosed as required by paragraph (a) of 

this section at least every two years and 

following material changes to the 

systemically important derivatives 

clearing organization’s or subpart C 

derivatives clearing organization’s 

system or the environment in which it 

operates. A material change to the 

systemically important derivatives 

clearing organization’s or subpart C 

derivatives clearing organization’s 

system or the environment in which it 

operates is a change that would 

significantly change the accuracy and 

usefulness of the existing responses; 

(c) Disclose, publicly and to the 

Commission, relevant basic data on 

transaction volume and values; and 

(d) Disclose, publicly and to the 

Commission, rules, policies, and 

procedures concerning segregation and 

portability of customers’ positions and 

funds, including whether each of: 

(1) Futures customer funds, as defined 

in § 1.3(jjjj) of this chapter; 

(2) Cleared Swaps Customer 

Collateral, as defined in § 22.1 of this 

chapter; or 

(3) Foreign futures or foreign options 

secured amount, as defined in § 1.3(rr) 

of this chapter is: 

(i) Protected on an individual or 

omnibus basis or 

(ii) Subject to any constraints, 

including any legal or operational 

constraints that may impair the ability 

of the systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization to segregate or transfer the 

positions and related collateral of a 

clearing member’s customers. 

§ 39.38 Efficiency for systemically 

important derivatives clearing organizations 

and subpart C derivatives clearing 

organizations. 

(a) General rule. In order to meet the 

needs of clearing members and markets, 

each systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization should 

efficiently and effectively design its: 

(1) Clearing and settlement 

arrangements; 

(2) Operating structure and 

procedures; 

(3) Scope of products cleared; and 

(4) Use of technology. 

(b) Review of efficiency. Each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization should 

establish a mechanism to review, on a 

regular basis, its compliance with 

paragraph (a) of this section. 

(c) Clear goals and objectives. Each 

systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization should 

have clearly defined goals and 

objectives that are measurable and 

achievable, including in the areas of 

minimum service levels, risk 

management expectations, and business 

priorities. 

(d) Each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall facilitate efficient 

payment, clearing and settlement by 

accommodating internationally 

accepted communication procedures 

and standards. 

§ 39.39 Recovery and wind-down for 

systemically important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations. 

(a) Definitions. For purposes of this 

section: 

(1) General business risk means any 

potential impairment of a systemically 

important derivatives clearing 

organization’s or subpart C derivatives 

clearing organization’s financial 

position, as a business concern, as a 

consequence of a decline in its revenues 

or an increase in its expenses, such that 

expenses exceed revenues and result in 

a loss that the derivatives clearing 

organization must charge against 

capital. 

(2) Wind-down means the actions of a 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization to 

effect the permanent cessation or sale or 

transfer or one or more services. 

(3) Recovery means the actions of a 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization, 

consistent with its rules, procedures, 

and other ex-ante contractual 

arrangements, to address any uncovered 

credit loss, liquidity shortfall, capital 

inadequacy, or business, operational or 

other structural weakness, including the 

replenishment of any depleted prefunded financial resources and liquidity 

arrangements, as necessary to maintain 

the systemically important derivatives 

clearing organization’s or subpart C 

derivatives clearing organization’s 

viability as a going concern. 

(4) Operational risk means the risk 

that deficiencies in information systems 

or internal processes, human errors, 

management failures or disruptions 

from external events will result in the 

reduction, deterioration, or breakdown 

of services provided by a systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization. 

(5) Unencumbered liquid financial 

assets include cash and highly liquid 

securities. 

(b) Recovery and wind-down plan. 

Each systemically important derivatives 

clearing organization and subpart C 

derivatives clearing organization shall 

maintain viable plans for: 

(1) Recovery or orderly wind-down, 

necessitated by uncovered credit losses 

or liquidity shortfalls; and, separately, 

(2) Recovery or orderly wind-down 

necessitated by general business risk, 

operational risk, or any other risk that 

threatens the derivatives clearing 

organization’s viability as a going 

concern. 

(c)(1) In developing the plans 

specified in paragraph (b) of this 

section, the systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization shall identify scenarios 

that may potentially prevent it from 

being able to meet its obligations, 

provide its critical operations and 

services as a going concern and assess 

the effectiveness of a full range of 

options for recovery or orderly winddown. The plans shall include 

procedures for informing the 


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Commission, as soon as practicable, 

when the recovery plan is initiated or 

wind-down is pending. 

(2) A systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization shall have procedures for 

providing the Commission and the 

Federal Deposit Insurance Corporation 

with information needed for purposes of 

resolution planning. 

(d) Financial resources to support the 

recovery and wind-down plan. 

(1) In evaluating the resources 

available to cover an uncovered credit 

loss or liquidity shortfall as part of its 

recovery plans pursuant to paragraph 

(b)(1) of this section, a systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization may consider, 

among other things, assessments of 

additional resources provided for under 

its rules that it reasonably expects to 

collect from non-defaulting clearing 

members. 

(2) Each systemically important 

derivatives clearing organization and 

subpart C derivatives clearing 

organization shall maintain sufficient 

unencumbered liquid financial assets, 

funded by the equity of its owners, to 

implement its recovery or wind-down 

plans pursuant to paragraph (b)(2) of 

this section. In general, the financial 

resources required by § 39.11(a)(2) may 

be sufficient, but the systemically 

important derivatives clearing 

organization or subpart C derivatives 

clearing organization shall analyze its 

particular circumstances and risks and 

maintain any additional resources that 

may be necessary to implement the 

plans. In allocating sufficient financial 

resources to implement the plans, the 

systemically important derivatives 

clearing organization or subpart C 

derivatives clearing organization shall 

comply with § 39.11(e)(2). The plan 

shall include evidence and analysis to 

support the conclusion that the amount 

considered necessary is, in fact, 

sufficient to implement the plans. 

(3) Resources counted in meeting the 

requirements of §§ 39.11(a)(1) and 39.33 

may not be allocated, in whole or in 

part, to the recovery plans required by 

paragraph (b)(2) of this section. Other 

resources may be allocated, in whole or 

in part, to the recovery plans required 

by either paragraphs (b)(1) or (2) of this 

section, but not both paragraphs, and 

only to the extent the use of such 

resources is not otherwise limited by the 

Act, Commission regulations, the 

systemically important derivatives 

clearing organization’s or subpart C 

derivatives clearing organization’s rules, 

or any contractual arrangements to 

which the systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization is a party. 

(e) Plan for raising additional 

financial resources. All systemically 

important derivatives clearing 

organizations and subpart C derivatives 

clearing organizations shall maintain 

viable plans for raising additional 

financial resources, including, where 

appropriate, capital, in a scenario in 

which the systemically important 

derivatives clearing organization or 

subpart C derivatives clearing 

organization is unable, or virtually 

unable, to comply with any financial 

resources requirements set forth in this 

part. This plan shall be approved by the 

board of directors and be updated 

regularly. 

(f) The Commission may, upon 

request, grant an entity, which has been 

designated as a systemically important 

derivatives clearing organization or that 

has elected to become subject to subpart 

C, up to one year to comply with any 

provision of this section or of § 39.35. 

§ 39.40 Consistency with the Principles for 

Financial Market Infrastructures. 

This subpart C is intended to establish 

standards which, together with subparts 

A and B of this part, are consistent with 

section 5b(c) of the Act and the 

Principles for Financial Market 

Infrastructures published by the 

Committee on Payment and Settlement 

Systems and the Board of the 

International Organization of Securities 

Commissions and should be interpreted 

in that context. 

§ 39.41 Special enforcement authority for 

systemically important derivatives clearing 

organizations. 

For purposes of enforcing the 

provisions of Title VIII of the DoddFrank Act, a systemically important 

derivatives clearing organization shall 

be subject to, and the Commission has 

authority under the provisions of 

subsections (b) through (n) of section 8 

of the Federal Deposit Insurance Act (12 

U.S.C. 1818) in the same manner and to 

the same extent as if the systemically 

important derivatives clearing 

organization were an insured depository 

institution and the Commission were 

the appropriate Federal banking agency 

for such insured depository institution. 

§ 39.42 Advance notice of material riskrelated rule changes by systemically 

important derivatives clearing 

organizations. 

A systemically important derivatives 

clearing organization shall provide 

notice to the Commission in advance of 

any proposed change to its rules, 

procedures, or operations that could 

materially affect the nature or level of 

risks presented by the systemically 

important derivatives clearing 

organization, in accordance with the 

requirements of § 40.10 of this chapter. 

§§ 39.28 and 39.29 [Added and Reserved] 

■ 4. In subpart B, add reserved §§ 39.28 

and 39.29. 

Appendix to Part 39 [Redesignated as 

Appendix A to Part 39] 

■ 5. Redesignate the Appendix to Part 

39—Form DCO Derivatives Clearing 

Organization Application for 

Registrations as Appendix A to Part 

39—Form DCO Derivatives Clearing 

Organization Application for 

Registrations. 

■ 6. Add appendix B to part 39 to read 

as follows: 

Appendix B to Part 39—Subpart C 

Election Form 

COMMODITY FUTURES TRADING 

COMMISSION 

SUBPART C ELECTION FORM 

GENERAL INSTRUCTIONS 

GENERAL INSTRUCTIONS: Intentional 

misstatements or omissions of fact may 

constitute federal criminal violations (7 

U.S.C. 13 and 18 U.S.C. 1001). 

DEFINITIONS 

Unless the context requires otherwise, all 

terms used in this Subpart C Election Form 

have the same meaning as in the Commodity 

Exchange Act (‘‘Act’’), and in the General 

Rules and Regulations of the Commodity 

Futures Trading Commission 

(‘‘Commission’’) thereunder. All references to 

Commission regulations are found at 17 CFR 

Ch. 1. 

For purposes of this Subpart C Election 

Form, the term ‘‘Applicant’’ shall mean a 

derivatives clearing organization that is filing 

this Subpart C Election Form with a Form 

DCO as part of an application for registration 

as a derivatives clearing organization 

pursuant to Section 5b of the Act and 17 CFR 

39.3(a). 

GENERAL INSTRUCTIONS 

1. Any derivatives clearing organization 

requesting an election to become subject to 

subpart C of part 39 of the Commission’s 

regulations must file this Subpart C Election 

Form. The Subpart C Election Form includes 

the election to be subject to the provisions of 

subpart C of part 39 of the Commission’s 

regulations, certain required certifications, 

disclosures, and exhibits, and any 

supplements or amendments thereto filed 

pursuant to 17 CFR 39.31(b) or (c) 

(collectively, the ‘‘Subpart C Election Form’’). 

2. Any derivatives clearing organization 

wishing to request an extension of up to one 

year to comply with any of the provisions of 

17 CFR 39.34, 17 CFR 39.35 or 17 CFR 39.39, 

pursuant to 17 CFR 39.34(d) or 17 CFR 

39.39(f) must do so prior to filing this 


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Subpart C Election Form. Such requests shall 

become part of this Subpart C Election Form. 

3. Individuals’ names, except the executing 

signature, shall be given in full (Last Name, 

First Name, Middle Name). 

4. The signatures required in this Subpart 

C Election Form shall be the manual 

signatures of: a duly authorized 

representative of the derivatives clearing 

organization as follows: If the Subpart C 

Election Form is filed by a corporation, it 

must be signed in the name of the 

corporation by a principal officer duly 

authorized; if filed by a limited liability 

company, it must be signed in the name of 

the limited liability company by a manager 

or member duly authorized to sign on the 

limited liability company’s behalf; if filed by 

a partnership, it must be signed in the name 

of the partnership by a general partner duly 

authorized; if filed by an unincorporated 

organization or association which is not a 

partnership, it must be signed in the name of 

such organization or association by the 

managing agent, i.e., a duly authorized 

person who directs or manages or who 

participates in the directing or managing of 

its affairs. 

5. All applicable items must be answered 

in full. 

6. Under Section 5b of the Act and the 

Commission’s regulations thereunder, the 

Commission is authorized to solicit the 

information required to be supplied by this 

Subpart C Election Form from any Applicant 

seeking registration as a derivatives clearing 

organization and from any registered 

derivatives clearing organization. 

7. Disclosure of the information specified 

in this Subpart C Election Form is mandatory 

prior to the processing of the election to 

become a derivatives clearing organization 

subject to the provisions of subpart C of part 

39 of the Commission’s regulations. The 

Commission may determine that additional 

information is required in order to process 

such election. 

8. A Subpart C Election Form that is not 

prepared and executed in compliance with 

applicable requirements and instructions 

may be returned as not acceptable for filing. 

Acceptance of this Subpart C Election Form, 

however, shall not constitute a finding that 

the Subpart C Election Form is acceptable as 

filed or that the information is true, current 

or complete. 

9. Except as provided in 17 CFR 39.31(d), 

in cases where a derivatives clearing 

organization submits a request for 

confidential treatment with the Secretary of 

the Commission pursuant to the Freedom of 

Information Act and 17 CFR 145.9, 

information supplied in this Subpart C 

Election Form will be included routinely in 

the public files of the Commission and will 

be made available for inspection by any 

interested person. 

APPLICATION AMENDMENTS 

17 CFR 39.31(b)(3) and (c)(4) require a 

derivatives clearing organization that has 

submitted a Subpart C Election Form to 

promptly amend its Subpart C Election Form 

if it discovers a material omission or error in, 

or if there is a material change in, the 

information provided to the Commission in 

the Subpart C Election Form or other 

information provided in connection with the 

Subpart C Election Form. When amending a 

Subpart C Election Form, a derivatives 

clearing organization must re-file the Election 

and Certifications page, amended if 

necessary, and including all required 

executing signatures, and attach thereto 

revised exhibits or other materials marked to 

show changes, as applicable. 

WHERE TO FILE 

This Subpart C Election Form must be filed 

electronically with the Secretary of the 

Commission in the format and manner 

specified by the Commission. 

COMMODITY FUTURES TRADING 

COMMISSION 

SUBPART C ELECTION FORM 

ELECTION AND CERTIFICATIONS 

lllllllllllllllllllll

Exact Name of the Derivatives Clearing 

Organization (as set forth in its charter, if an 

Applicant, or as set forth in its most recent 

order of registration, if registered with the 

Commission) 

b Check here and complete sections 

1 and 3 below, if the organization is an 

Applicant. 

b Check here and complete sections 

2 and 3 below, if the organization 

currently is registered with the 

Commission as a derivatives clearing 

organization. 

1. The derivatives clearing 

organization named above hereby elects 

to become subject to the provisions of 

subpart C of part 39 of the Commission’s 

regulations in the event that the 

Commission approves its application for 

registration as a derivatives clearing 

organization. 

The derivatives clearing organization 

and the undersigned each certify that, in 

the event that the Commission approves 

the derivatives clearing organization’s 

application for registration and permits 

its election to become subject to subpart 

C of part 39 of the Commission’s 

regulations: 

a. The derivatives clearing 

organization will be in compliance with 

such regulations as of the date set forth 

in the notice thereof provided by the 

Commission pursuant to 17 CFR 

39.31(c)(2), except to the limited extent 

that the Commission has granted the 

derivatives clearing organization an 

extension of time to comply with: (1) 

specified provisions of 17 CFR 39.34, 

pursuant to 17 CFR 39.34(d) and/or (2) 

specified provisions of 17 CFR 39.35 

and/or 17 CFR 39.39, pursuant to 17 

CFR 39.39(f); 

b. The derivatives clearing 

organization will be in compliance with 

all provisions of 17 CFR 39.34, 39.35 

and/or 39.39 for which the Commission, 

pursuant to 17 CFR 39.34(d) and/or 17 

CFR 39.39(f), has granted an extension 

of time to comply in accordance with 

the terms of such extensions; and 

c. The derivatives clearing 

organization will remain in compliance 

with the provisions contained in 

subpart C of part 39 of the Commission’s 

regulations until this election is 

rescinded pursuant to 17 CFR 39.31(e). 

lllllllllllllllllllll

Name of Derivatives Clearing Organization 

lllllllllllllllllllll

Manual Signature of Duly Authorized Person 

lllllllllllllllllllll

Print Name and Title of Signatory 

2. The derivatives clearing 

organization named above hereby elects 

to become subject to the provisions of 

subpart C of part 39 of the Commission’s 

regulations as of: 

llllllllll (‘‘Effective 

Date’’) [insert date, which must be at 

least 10 business days after the date this 

Subpart C Election Form is filed with 

the Commission]. 

The derivatives clearing organization 

and the undersigned each certify that: 

a. As of the Effective Date set forth 

above, the derivatives clearing 

organization shall be in compliance 

with subpart C of part 39 of the 

Commission’s regulations, except to the 

limited extent that the Commission has 

granted the derivatives clearing 

organization an extension of time to 

comply with: (1) specified provisions of 

17 CFR 39.34, pursuant to 17 CFR 

39.34(d) and/or (2) specified provisions 

of 17 CFR 39.35 and/or 17 CFR 39.39, 

pursuant to 17 CFR 39.39(f); 

b. The derivatives clearing 

organization will be in compliance with 

all provisions of 17 CFR 39.34, 39.35 

and/or 39.39 for which the Commission, 

pursuant to 17 CFR 39.34(d) and/or 17 

CFR 39.39(f), has granted an extension 

of time to comply in accordance with 

the terms of such extensions; and 

c. The derivatives clearing 

organization will remain in compliance 

with provisions contained in subpart C 

of part 39 of the Commission’s 

regulations until this election is 

rescinded pursuant to 17 CFR 39.31(e). 

lllllllllllllllllllll

Name of Derivatives Clearing Organization 

lllllllllllllllllllll

Manual Signature of Duly Authorized Person 

lllllllllllllllllllll

Print Name and Title of Signatory 

3. The derivatives clearing 

organization named above has duly 

caused this Subpart C Election Form 

(which includes, as an integral part 

thereof, the Election and Certifications 

and all Disclosures and Exhibits) to be 

signed on its behalf by its duly 

authorized representative as of the ll

l day of lllll, 20ll. The 


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72524 Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Rules and Regulations 

derivatives clearing organization and 

the undersigned each represent hereby 

that, to the best of their knowledge, all 

information contained in this Subpart C 

Election Form is true, current and 

complete in all material respects. It is 

understood that all required items 

including, without limitation, the 

Election and Certifications and 

Disclosures and Exhibits, are considered 

integral parts of this Subpart C Election 

Form. 

lllllllllllllllllllll

Name of Derivatives Clearing Organization 

lllllllllllllllllllll

Manual Signature of Duly Authorized Person 

lllllllllllllllllllll

Print Name and Title of Signatory 

COMMODITY FUTURES TRADING 

COMMISSION 

PART 39, SUBPART C ELECTION FORM 

DISCLOSURES AND EXHIBITS 

Each derivatives clearing organization that 

requests an election to become subject to the 

provisions set forth in subpart C of part 39 

of the Commission’s regulations shall 

provide the Disclosures and Exhibits set forth 

below: 

DISCLOSURES: 

The derivatives clearing organization shall: 

1. Publish on its Web site in a readily 

identifiable location the derivatives clearing 

organization’s responses to the Disclosure 

Framework for Financial Market 

Infrastructures (‘‘Disclosure Framework’’), 

published by the Committee on Payment and 

Settlement Systems (‘‘CPSS’’) and the Board 

of International Organization of Securities 

Commissions (‘‘IOSCO’’) that are required to 

be completed pursuant to 17 CFR 39.37. The 

derivatives clearing organization’s responses 

must be completed in accordance with 

section 2.0 and Annex A of the Disclosure 

Framework and must fully explain how the 

derivatives clearing organization observes the 

Principles for Financial Market 

Infrastructures (‘‘PFMIs’’) published by CPSS 

and IOSCO. 

Provide the URL to the specific page on the 

derivatives clearing organization’s Web site 

where its responses to the Disclosure 

Framework may be found: 

llllllllll 

2. In the event that CPSS and IOSCO 

publish final criteria for the disclosure by a 

Financial Market Infrastructure (‘‘FMI’’) of 

quantitative information to enable 

stakeholders to evaluate FMIs and to make 

cross comparisons referenced in section 2.5 

of the Disclosure Framework (‘‘Quantitative 

Information Disclosure’’), publish such 

Quantitative Information Disclosure in a 

readily identifiable location on the 

derivatives clearing organization’s Web site. 

If applicable, provide the URL to the 

specific page on the derivatives clearing 

organization’s Web site where its 

Quantitative Information Disclosure may be 

found: 

EXHIBITS: 

EXHIBIT INSTRUCTIONS: 

1. The derivatives clearing organization 

must include a Table of Contents listing each 

Exhibit required by this Subpart C Election 

Form. 

2. If the derivatives clearing organization is 

an Applicant, in its Form DCO, the 

derivatives clearing organization may 

summarize such information and provide a 

cross-reference to the Exhibit in this Subpart 

C Election Form that contains the required 

information. 

The derivatives clearing organization shall 

provide the following Exhibits to this 

Subpart C Election Form: 

EXHIBIT A—COMPLIANCE WITH 

SUBPART C 

Attach, as Exhibit A, a regulatory 

compliance chart that separately sets forth for 

§§ 39.32–39.39 of the Commission’s 

regulations, citations to the relevant rules, 

policies, and procedures of the derivatives 

clearing organization that address each such 

regulation and a summary of the manner in 

which the derivatives clearing organization 

will comply with each regulation. All 

citations and compliance summaries shall be 

separated by individual regulation and shall 

be clearly labeled with the corresponding 

regulation. 

EXHBIT B—GOVERNANCE 

Attach, as Exhibit B, documents that 

demonstrate compliance with the governance 

requirements set forth in § 39.32 of the 

Commission’s regulations. 

EXHIBIT C—FINANCIAL RESOURCES 

Attach, as Exhibit C, documents that 

demonstrate compliance with the financial 

resource requirements set forth in § 39.33 of 

the Commission’s regulations. 

EXHIBIT D—SYSTEM SAFEGUARDS 

Attach, as Exhibit D, documents that 

demonstrate compliance with the system 

safeguard requirements set forth in § 39.34 of 

the Commission’s regulations. 

EXHIBIT E—DEFAULT RULES AND 

PROCEDURES FOR UNCOVERED LOSSES 

OR SHORTFALLS 

Attach, as Exhibit E, documents that 

demonstrate compliance with the 

requirements for default rules and 

procedures for uncovered losses or shortfalls 

set forth in § 39.35 of the Commission’s 

regulations. 

EXHIBIT F—RISK MANAGEMENT 

Attach, as Exhibit F, documents that 

demonstrate compliance with the risk 

management requirements set forth in § 39.36 

of the Commission’s regulations. 

EXHIBIT G—RECOVERY AND WINDDOWN 

Attach, as Exhibit G, documents that 

demonstrate compliance with the recovery 

and wind-down requirements set forth in 

§ 39.39 of the Commission’s regulations. 

PART 140—ORGANIZATION, 

FUNCTIONS AND PROCEDURES OF 

THE COMMISSION 

■ 7. The authority citation for part 140 

continues to read as follows: 

Authority: 7 U.S.C. 2(a)(12), 12a, 13(c), 

13(d), 13(e), and 16(b). 

■ 8. Amend § 140.94 to add new 

paragraphs (c)(12) and (c)(13) to read as 

follows: 

§ 140.94 Delegation of authority to the 

Director of the Division of Swap Dealer and 

Intermediary Oversight and the Director of 

the Division of Clearing and Risk. 

* * * * * 

(c) * * * 

(12) All functions reserved to the 

Commission in § 39.31 of this chapter; 

and 

(13) The authority to approve the 

requests described in §§ 39.34(d) and 

39.39(f) of this chapter. 

* * * * * 

PART 190—BANKRUPTCY 

■ 9. The authority citation for part 190 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7a, 

12, 19, and 24, and 11 U.S.C. 362, 546, 548, 

556, and 761–766, unless otherwise noted. 

■ 10. In § 190.09, revise paragraph (b) to 

read as follows: 

§ 190.09 Member property. 

* * * * * 

(b) Scope of member property. 

Member property shall include all 

money, securities and property 

received, acquired, or held by a clearing 

organization to margin, guarantee or 

secure, on behalf of a clearing member, 

the proprietary account, as defined in 

§ 1.3 of this chapter, any account not 

belonging to a foreign futures or foreign 

options customer pursuant to the 

proviso in § 30.1(c) of this chapter, and 

any Cleared Swaps Proprietary Account, 

as defined in § 22.1 of this chapter: 

Provided, however, that any guaranty 

deposit or similar payment or deposit 

made by such member and any capital 

stock, or membership of such member 

in the clearing organization shall also be 

included in member property after 

payment in full, in each case in 

accordance with the by-laws or rules of 

the clearing organization, of that portion 

of: 

(1) The net equity claim of the 

member based on its customer account; 

and 

(2) Any obligations due to the clearing 

organization which may be paid 

therefrom, including any obligations 

due from the clearing organization to 

the customers of other members. 


sroberts on DSK5SPTVN1PROD with PROPOSALS
Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Rules and Regulations 72525 

Issued in Washington, DC, on November 

15, 2013, by the Commission. 

Melissa D. Jurgens, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Derivatives Clearing 

Organizations and International 

Standards—Commission Voting 

Summary and Statement of Chairman 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Chilton, O’Malia, and Wetjen 

voted in the affirmative; no Commissioner 

voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the final rule to complete the 

process of bringing clearinghouse risk 

management rules in line with international 

standards. 

In the fall of 2011, the Commission 

adopted a comprehensive set of rules for the 

risk management of clearinghouses. These 

final rules were consistent with international 

standards, as evidenced by the Principles for 

Financial Market Infrastructures (PFMIs) 

consultative document that had been 

published by the Committee on Payment and 

Settlement Systems and the International 

Organization of Securities Commissions 

(CPSS–IOSCO). 

In April of 2012, CPSS–IOSCO issued final 

principles. Based upon these final principles, 

it was appropriate to augment our rules in 

certain areas to meet those standards, 

particularly relating to systemically 

important clearinghouses. 

These final rules will implement the 

remaining items from the PFMIs in our 

clearinghouse rules. They will enable 

clearinghouses designated by the Financial 

Stability Oversight Council as systemically 

important (SIDCOs) to be qualifying central 

counterparties for the purposes of 

international bank capital standards. This 

permits banks and bank affiliates that are 

members (or customers of members) of the 

SIDCOs to benefit from favorable capital 

treatment for their exposures to these 

SIDCOs. The final rules also implement an 

opt-in mechanism to permit other 

clearinghouses to elect to be held to these 

additional standards, and thus benefit from 

the same capital treatment. 

[FR Doc. 2013–27849 Filed 11–29–13; 8:45 am] 

BILLING CODE 6351–01–P 


sroberts on DSK5SPTVN1PROD with PROPOSALS