Federal Register / Vol. 76, No. 59 / Monday, March 28, 2011 / Proposed Rules 17047 

enhanced by the disclosure to a 

significant extent. 

(3) To determine whether the 

requester has satisfied the requirements 

of paragraph (f)(1)(ii)(B) of this section, 

the Council shall consider the following 

factors: 

(i) The Council shall consider any 

commercial interest of the requester 

(with reference to the definition of 

‘‘commercial use’’ in § 1301.12(c)(2)(i)), 

or of any person on whose behalf the 

requester may be acting, that would be 

furthered by the requested disclosure. 

Requesters shall be given an 

opportunity in the administrative 

process to provide explanatory 

information regarding this 

consideration. 

(ii) A fee waiver or reduction is 

justified where the public interest 

standard is satisfied and that public 

interest is greater in magnitude than that 

of any identified commercial interest in 

disclosure. The Council ordinarily shall 

presume that where a news media 

requester has satisfied the public 

interest standard, the public interest 

will be the interest primarily served by 

disclosure to that requester. Disclosure 

to data brokers or others who merely 

compile and market government 

information for direct economic return 

shall not be presumed to primarily serve 

the public interest. 

(4) Where only some of the records to 

be released satisfy the requirements for 

a waiver or reduction of fees, a waiver 

or reduction shall be granted for those 

records. 

(5) Determinations of requests to 

reduce or waive fees. The Council shall 

decide whether to grant or deny a 

request to reduce or waive fees prior to 

processing a request and within twenty 

(20) calendar days of its receipt of the 

request. The Council shall notify the 

requester of the determination in 

writing. 

(6) Effect of denying requests to 

reduce or waive fees. If the Council 

denies a request to reduce or waive fees, 

then the Council shall advise the 

requester, in the denial notification 

letter, that the requester may incur fees 

if the Council proceeds to process the 

request. The notification letter shall also 

advise the requester that the Council 

will not proceed to process the request 

further unless the requester, in writing, 

directs the Council to do so and either 

agrees to pay any fees that may apply to 

processing the request or specifies an 

upper limit (of not less than $25) that 

the requester is willing to pay to process 

the request. If the Council does not 

receive this written direction and 

agreement/specification within thirty 

(30) days of the date of the denial 

notification letter, then the Council 

shall deem the request to be withdrawn. 

(7) Appeals of denials of requests to 

reduce or waive fees. If the Council 

denies a request to reduce or waive fees, 

then the requester shall have the right 

to submit an appeal of the denial 

determination in accordance with 

§ 1301.11. The Council shall 

communicate this appeal right as part of 

its written notification to the requester 

denying the fee reduction or waiver 

request. The requester shall clearly mark 

its appeal request and any envelope that 

encloses it with the words ‘‘Appeal for 

Fee Reduction/Waiver.’’ 

(g) Advance notice and prepayment of 

fees. (1) When the Council estimates the 

fees for processing a request will exceed 

the limit set by the requester, and that 

amount is less than $250, the requester 

shall be notified of the estimated costs. 

The requester must provide an 

agreement to pay the estimated costs; 

however, the requester shall also be 

given an opportunity to reformulate the 

request in an attempt to reduce fees. 

(2) If the requester has failed to state 

a limit and the costs are estimated to 

exceed $250.00, the requester shall be 

notified of the estimated costs and must 

pre-pay such amount prior to the 

processing of the request, or provide 

satisfactory assurance of full payment if 

the requester has a history of prompt 

payment of FOIA fees. The requester 

shall also be given an opportunity to 

reformulate the request in such a way as 

to constitute a request for responsive 

records at a reduced fee. 

(3) The Council reserves the right to 

request prepayment after a request is 

processed and before documents are 

released. 

(4) If a requester has previously failed 

to pay a fee within thirty (30) calendar 

days of the date of the billing, the 

requester shall be required to pay the 

full amount owed plus any applicable 

interest, and to make an advance 

payment of the full amount of the 

estimated fee before the Council begins 

to process a new request or the pending 

request. 

(5) When the Council acts under 

paragraphs (g)(1) through (4) of this 

section, the administrative time limits of 

twenty (20) days (excluding Saturdays, 

Sundays, and legal public holidays) 

from receipt of initial requests or 

appeals, plus extensions of these time 

limits, shall begin only after fees have 

been paid, a written agreement to pay 

fees has been provided, or a request has 

been reformulated. 

(h) Form of payment. Payment may be 

made by check or money order payable 

to Financial Research Fund. 

(i) Charging interest. The Council may 

charge interest on any unpaid bill 

starting on the 31st day following the 

date of billing the requester. Interest 

charges will be assessed at the rate 

provided in 31 U.S.C. 3717 and will 

accrue from the date of the billing until 

payment is received by the Council. The 

Council will follow the provisions of the 

Debt Collection Act of 1982 (Pub. L. 

97–365, 96 Stat. 1749), as amended, and 

its administrative procedures, including 

the use of consumer reporting agencies, 

collection agencies, and offset. 

(j) Aggregating requests. Where the 

Council reasonably believes that a 

requester or a group of requesters acting 

together is attempting to divide a 

request into a series of requests for the 

purpose of avoiding fees, the Council 

may aggregate those requests and charge 

accordingly. The Council may presume 

that multiple requests of this type made 

within a thirty (30) calendar day period 

have been made in order to avoid fees. 

Where requests are separated by a 

longer period, the Council will aggregate 

them only where there exists a solid 

basis for determining that aggregation is 

warranted under all the circumstances 

involved. Multiple requests involving 

unrelated matters will not be aggregated. 

Dated: March 18, 2011. 

Alastair Fitzpayne, 

Deputy Chief of Staff and Executive Secretary, 

Department of the Treasury. 

[FR Doc. 2011–7005 Filed 3–25–11; 8:45 am] 

BILLING CODE 4810–25–P 

FINANCIAL STABILITY OVERSIGHT 

COUNCIL 

12 CFR Part 1320 

RIN 4030–AA01 

Authority To Designate Financial 

Market Utilities as Systemically 

Important 

AGENCY: Financial Stability Oversight 

Council. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: Section 804 of the DoddFrank Wall Street Reform and Consumer 

Protection Act (the ‘‘DFA’’) provides the 

Financial Stability Oversight Council 

(the ‘‘Council’’) the authority to 

designate a financial market utility (an 

‘‘FMU’’) the Council determines is or is 

likely to become systemically 

important—that is, the failure of or a 

disruption to the functioning of which 

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 United States financial 

mstockstill on DSKH9S0YB1PROD with PROPOSALS

17048 Federal Register / Vol. 76, No. 59 / Monday, March 28, 2011 / Proposed Rules 

system. This notice of proposed 

rulemaking (NPR) describes the criteria 

that will inform, and the processes and 

procedures established under the DFA 

for, the Council’s designation of FMUs 

as systemically important under the 

DFA. The Council, on December 21, 

2010, published an advance notice of 

proposed rulemaking regarding the 

designation criteria in section 804. 

DATES: Comments must be received on 

or before May 27, 2011. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this notice of proposed rulemaking 

according to the instructions below. All 

submissions must refer to the document 

title. The Council encourages the early 

submission of comments. 

Electronic submission of Comments. 

Interested persons may submit 

comments electronically through the 

Federal eRulemaking Portal at http:// 

www.regulations.gov. Electronic 

submission of comments allows the 

commenter maximum time to prepare 

and submit a comment, ensures timely 

receipt, and enables the Council to make 

them available to the public. Comments 

submitted electronically through the 

http://www.regulations.gov Web site can 

be viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

Mail: Send comments to Financial 

Stability Oversight Council, Attn: Lance 

Auer, 1500 Pennsylvania Avenue, NW., 

Washington, DC 20220. 

Note: To receive consideration as public 

comments, comments must be submitted 

through the method specified. Again, all 

submissions must refer to the title of the 

notice. 

Public Inspection of Public 

Comments. All properly submitted 

comments will be available for 

inspection and downloading at http:// 

www.regulations.gov. 

Additional Instructions. In general 

comments received, including 

attachments and other supporting 

materials, are part of the public record 

and are available to the public. Do not 

submit any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

FOR FURTHER INFORMATION CONTACT: 

Lance Auer, Deputy Assistant Secretary 

(Financial Institutions), Treasury, at 

(202) 622–1262, Kirsten J. Harlow, 

Senior Policy Advisor, Treasury, at 

(202) 622–2612, or Steven D. Laughton, 

Senior Counsel, Office of the General 

Counsel, Treasury, at (202) 622–8413. 

All responses to this Notice should be 

submitted via http:// 

www.regulations.gov to ensure 

consideration. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The DFA generally defines an FMU as 

any person that manages or operates a 

multilateral system for the purposes of 

transferring, clearing, or settling 

payments, securities, or other financial 

transactions among financial 

institutions or between financial 

institutions and that person. Section 

803(6)(B) of the DFA specifically 

excludes a number of entities, such as 

designated contract markets and 

national securities exchanges meeting 

certain criteria, from the definition of an 

FMU. FMUs form a critical part of the 

nation’s financial infrastructure and 

their smooth functioning is integral to 

the soundness of the financial system 

and the overall economy. The 

importance of these utility-like 

arrangements has been highlighted by 

the recent period of market stress. FMUs 

exist in many financial markets to 

support and facilitate the transferring, 

clearing or settlement of financial 

transactions. Their function, however, 

as well as their interconnectedness also 

concentrates a significant amount of risk 

in the market. The payment and 

settlement processes of these systems 

are highly interdependent, either 

directly through operational, contractual 

or affiliation linkages, or indirectly 

through liquidity flows or common 

participants. Problems at one system 

could spill over to other systems or 

financial institutions in the form of 

liquidity and credit disruptions. 

Section 111 of the DFA established 

the Council. Among the purposes of the 

Council under section 112 is to ‘‘(J) 

identify systemically important FMUs 

* * * (as that term is defined in title 

VIII).’’ Section 804 of the DFA gives the 

Council the authority to identify and 

designate an FMU that is, or is likely to 

become, systemically important if the 

Council determines that a failure of or 

disruption to an FMU could create, or 

increase, the risk of significant liquidity 

or credit problems spreading across 

financial institutions and markets and 

thereby threaten the stability of the U.S. 

financial system. Any designation of an 

FMU requires a two-thirds vote of 

serving members (including an 

affirmative vote by the Chairperson), 

after consultation with the Federal 

Reserve Board of Governors (the ‘‘Board 

of Governors’’) and the relevant federal 

agency that has primary jurisdiction 

over a designated FMU under Federal 

banking, securities, or commodity 

futures laws (‘‘Supervisory Agency’’). 

The designation of an FMU as 

systemically important by the Council 

then subjects the designated FMU to the 

requirements of Title VIII. In particular, 

section 805(a) authorizes the Board of 

Governors, the CFTC, and the SEC, in 

consultation with the Council and one 

or more Supervisory Agencies, to 

prescribe risk management standards 

governing the operations related to the 

payment, clearing, and settlement 

activities of systemically important 

FMUs. The objective and principles for 

the risk management standards 

prescribed under section 805(a) shall be 

to promote robust risk management and 

safety and soundness, reduce systemic 

risk, and support the stability of the 

broader financial system. These 

standards may address areas, as 

outlined in section 805(c), such as risk 

management policies and procedures, 

margin and collateral requirements, 

participant or counterparty default 

policies and procedures, the ability to 

complete timely clearing and settlement 

of financial transactions, capital and 

financial resource requirements for 

designated FMUs and other areas that 

are necessary to achieve these objectives 

and principles. In addition, as set forth 

in section 806(a), the Board of 

Governors may authorize a Federal 

Reserve Bank to establish and maintain 

an account for a designated FMU and 

provide the services listed in section 

11A(b) of the Federal Reserve Act to the 

designated FMU. Designation further 

subjects the designated FMU to 

additional examinations, enforcement 

actions and reporting requirements. 

On December 21, 2010, the Council 

published an advance notice of 

proposed rulemaking (an ‘‘ANPR’’) with 

10 questions to invite public comment 

on the statutory criteria, as laid out in 

section 804(a)(2), and the analytical 

framework that should be applied by the 

Council in designating FMUs under the 

DFA. This comment period closed on 

January 20, 2011. This NPR describes 

the criteria that will inform, and the 

processes and procedures established 

under the DFA for, the Council’s 

designation of FMUs under the DFA. 

This NPR does not address the 

designation criteria and analytical 

framework for payment, clearing, or 

settlement activities carried out by 

financial institutions, as defined in 

section 803(7) of the DFA, which the 

Council is considering separately. 

II. Public Responses to ANPR 

The Council received 12 comments in 

response to the ANPR from industry 

groups, advocacy and public interest 

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Federal Register / Vol. 76, No. 59 / Monday, March 28, 2011 / Proposed Rules 17049 

1Comments were received from: American 

Bankers Association, Better Markets, The Clearing 

House, Debevoise & Plimpton, The Depository Trust 

& Clearing Corporation, The Financial Services 

Roundtable, International Swaps and Derivatives 

Association, LCH.Clearnet Group Limited, 

NACHA—The Electronic Payments Association, 

The Pew Charitable Trusts, TIAA–CREF, and Visa. 

Comments are available at http:// 

www.regulations.gov. 

2See, e.g. comment letter from International 

Swaps and Derivatives Association, Inc. (Jan. 20, 

2011) (hereinafter the ‘‘ISDA letter’’), pp. 2–3, and 

comment letter from Depository Trust & Clearing 

Corporation (Jan. 20, 2011) (hereinafter the ‘‘DTCC 

letter’’), pp. 2–4. 

3See the DTCC letter, p. 3. 

4See comment letter from TIAA–CREF (Jan. 20, 

2011) (hereinafter the ‘‘TIAA–CREF letter’’), p. 9. 

5See, e.g. the ISDA letter, p. 4. 

6See the TIAA–CREF letter, p. 8. 

groups, individual FMUs and financial 

institutions.1 These comments 

addressed the Council’s specific 

questions, as well as a range of other 

issues. Commenters generally 

encouraged the development of metrics 

and an analytical framework as laid out 

under section 804(a)(2) emphasizing the 

need for the Council to apply consistent 

standards that incorporate both 

qualitative and quantitative factors 

across all FMUs under consideration for 

designation. Some commenters 

provided specific feedback on particular 

metrics and considerations that should 

be used in the designation process, 

while many also commented more 

broadly on the analytical framework 

that should be applied by the Council. 

In addition, a few commenters asked for 

the Council to apply a transparent and 

clear communication strategy 

surrounding all designation decisions. 

The questions asked by the Council in 

the ANPR are provided below, along 

with an overview of the comments 

received in response to each question. 

1. What quantitative and qualitative 

information should the Council use to 

measure the factors it is required to 

consider in Section 804(a)(2) when 

making determinations under Section 

804 of the DFA? How should 

quantitative and qualitative 

considerations be incorporated into the 

determination process? 

The majority of comments stressed 

the need to apply consistent standards 

that incorporate both qualitative and 

quantitative factors that are not overly 

mechanical across all FMUs.2 Most 

commenters stated that while there 

could be no ‘‘one-size-fits-all’’ approach, 

all criteria should be used to measure 

each FMU under consideration, with the 

relative importance of each criterion 

varying depending upon the FMU under 

consideration. Considerations such as 

the differences in the type of market 

served by the FMU, the nature and size 

of the counterparties, and the 

complexity and liquidity of products 

accepted should be taken into account. 

Furthermore, one commenter in 

particular cautioned the Council to 

ensure that FMUs that serve the same 

market are provided identical treatment, 

so as not to affect competition.3 One 

commenter, however, emphasized the 

need for the flexible application of each 

criterion within the framework due to 

the different types and concentrations of 

risk, different market structures, 

different governance and risk 

management standards across FMUs, 

and differences in the potential impact 

of an FMU’s disruption on markets, 

households, and the financial system.4

In addition, there was widespread 

consensus on the primary factors that 

should be used for consideration by the 

Council to assist in the assessment of 

systemic importance. Notably, these 

factors included: The level of 

interdependence of an FMU and its 

participants, the characteristics of the 

participants in an FMU, the type of 

market served by the FMU, the 

availability of substitute services, 

whether the FMU operates under 

finality of settlement, the risk 

management framework, including 

capital, margin and liquidity practices 

and financial resources available to the 

FMU, governance arrangements, and the 

extent of existing regulatory oversight. 

Some commenters also proposed that 

the Council use a matrix of criteria that 

incorporates actual historic measures as 

a way to interpret metrics based on 

relative thresholds. Please see the 

discussion of public responses to 

question (5b) of the ANPR below for a 

more comprehensive discussion of these 

factors. 

A few commenters also noted that the 

process used for designation should be 

transparent to the public, or at least to 

the FMUs being considered. Many noted 

the importance for the Council to 

consider ongoing work and 

developments in the adoption of 

international standards in the area of 

payments, clearing and settlement 

organizations to ensure that a uniform 

and consistent cross-border approach is 

established that incorporates existing 

best practices and core principles. 

2. Can the considerations listed in 

section 804(a)(2) be broken down into 

easily measured factors that the Council 

should use to determine whether 

financial market utilities are 

systemically important? Are there 

certain levels of quantitative measures 

(e.g., for value and exposure) or 

qualitative characteristics (e.g., 

registered clearing agencies versus 

exempt clearing agencies) that should 

trigger a review for systemic importance 

by the Council? 

There was significant consensus 

among commenters expressing support 

for the statutory considerations listed to 

measure an FMU, with many noting that 

metrics should be relatively easy to 

develop for these considerations.5

However, as mentioned in the 

discussion of public response to 

question (1) of the ANPR above, most 

commenters emphasized the importance 

for the Council to consider these factors 

in conjunction with qualitative 

measures and professional judgments. 

3. Which of the considerations listed 

in section 804(a)(2) are most important 

for the Council to consider? Should the 

application of the considerations differ 

depending on the type of FMU, and if 

so how? 

Most commenters believed that all the 

considerations listed in the statute were 

equally important for the Council to 

consider. Some commenters placed 

particular emphasis on systemic 

importance, size, interconnectedness, 

the availability of substitutes, and 

concentration, as well as the need to 

balance quantitative metrics with 

qualitative judgments for a more 

accurate assessment. 

4. How should the Council measure 

and assess the aggregate monetary value 

of transactions processed by financial 

market utilities? 

One commenter specifically suggested 

that absolute terms of value be 

considered relative to factors such as an 

FMU’s market share, size, importance of 

the market served, and the number of 

households affected. An FMU, for 

example, may process a high absolute 

value of transactions but may not be 

systemically important if there are other 

FMUs that could readily provide an 

alternative in the event of a disruption, 

or if the market it serves were not 

systemically important. The idea that 

readily available substitutes for the 

services of an FMU would reduce its 

systemic importance was a common 

theme among the majority of 

commenters, although the operational 

practicality of switching to a substitute 

would have to be considered. This 

commenter also suggested that the value 

and volume of transactions be 

considered in light of the FMU’s 

potential performance during actual or 

projected times of stress.6

One commenter argued that, while the 

absolute number of contracts and 

aggregate notional value of contracts 

cleared over a period of time are useful 

indicators for the measuring of value, it 

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17050 Federal Register / Vol. 76, No. 59 / Monday, March 28, 2011 / Proposed Rules 

7See comment letter from Better Markets (Jan. 20. 

2011) (hereinafter the ‘‘Better Markets letter’’), p. 7. 

8See comment letter from LCH.Clearnet (Jan. 20, 

2011) (hereinafter the ‘‘LCH.Clearnet letter’’), p. 4. 

9See the TIAA–CREF letter, p. 8. 

10See comment letter from The Pew Charitable 

Trust (Jan. 19, 2011) (hereinafter the ‘‘Pew letter’’), 

p. 8. 

11See the TIAA–CREF letter, pp. 8–9. 

12See the Pew letter, p. 10. 

13See comment letter from The Financial 

Services Roundtable (Jan 20, 2011) (hereinafter the 

‘‘Financial Services Roundtable letter’’), p. 3. 

14See the LCH.Clearnet letter, p. 5. 

15See, e.g. the TIAA–CREF letter, p. 9. 

16See the TIAA–CREF letter, p. 9. 

17See the LCH.Clearnet letter, pp. 5–6. 

is important to consider average and 

peak daily levels of open interest to 

have a more comprehensive analysis. 

Furthermore, the commenter suggested 

the importance of also considering risk 

and liquidity in conjunction with any 

measures of value. To do so, risk should 

be measured using the average and peak 

daily levels of posted margin as well as 

the day-over-day change in margin 

levels using gross margin calls. For 

liquidity, the commenter suggested 

measuring the size and historic 

volatility of bid/ask spreads, the number 

of members that actively trade the 

contracts cleared, and the diversity of 

member trading volumes.7

a. For each type of financial market 

utility (e.g., central counterparty, funds 

transfer system), what is the best 

approach for measuring value (e.g., 

notional values, margin flows, net 

versus gross values)? 

As noted, most commenters stated 

that regardless of the type of FMU, the 

same criteria and metrics should be 

applied to each FMU under 

consideration for designation. 

One commenter indicated that for 

central counterparties (‘‘CCPs’’), daily 

variation margin flow—the changes in 

values of securities and derivatives 

contracts that are cleared—and initial 

margin requirements, should be the 

primary quantitative references used. In 

addition, the commenter suggested that 

the assessment also separately examine 

the value of securities and commodities 

that are delivered between a CCP and its 

members upon maturity of contracts. 

This commenter also noted that there 

are two different conventions used by 

CCPs to process changes in mark-tomarket values. Revaluations of 

derivatives positions tend to result in 

daily payments and collection of cash, 

while mark-to-market changes in cash 

markets affect collateral requirements 

but not cash obligations. To make 

assessments of transactional values, 

both conventions must be covered. The 

commenter also noted that for both 

types of conventions used by CCPs to 

process changes in mark-to-market 

values, it is important to consider how 

netting impacts such values.8

To assess the systemic importance of 

the aggregate monetary value of 

transactions, one commenter suggested 

looking at the size of an FMU at both the 

aggregate and transaction level.9

Another commenter maintained that the 

aggregate monetary value of transactions 

between an FMU and its members is a 

rough measure of the exposure of the 

rest of the financial system to an FMU. 

This commenter lays out a framework, 

as outlined in response to question (9) 

of the ANPR that considers credit, 

liquidity, portfolio and fire-sale 

exposures, as well as the value of 

positions held in a depositary, the value 

of credit lines available to the FMU, and 

the gross flow between an FMU and its 

members.10

b. What time horizon/statistic should 

be used when assessing value (e.g., 

daily, monthly or annual averages; 

daily, monthly, or annual peaks?). 

Should the Council consider historical 

values, projected future values, or both? 

There was some difference in opinion 

expressed by commenters in response to 

this question with regard to the time 

horizons that should be used to assess 

value. One commenter believed that the 

most significant consideration is an 

FMU’s performance during times of 

actual or projected market stress, 

arguing that no single time horizon 

would effectively capture this 

performance in all cases. The number of 

measures should be looked at together 

with one another and in conjunction 

with periodic stress tests that are 

tailored in volume and time horizon to 

be situation specific and contain 

qualitative factors. The commenter 

argued that a measure such as an annual 

peak will only show an FMU’s ability to 

handle that volume at a given moment, 

but not whether it would be adequate to 

handle this same volume under 

different market conditions or whether 

it could absorb additional transactions if 

needed.11

In contrast, a different commenter 

argued that annual peaks, calculated on 

the basis of a rolling 365 days rather 

than on the previous calendar year, 

would be the most appropriate and 

conservative estimates that would 

ensure that periods of stress are 

captured.12 Another commenter also 

argued that annual historical values 

were the most verifiable and readily 

available form of information and 

should be used when assessing value. 

The commenter argued that the time 

horizon need not be shorter to better 

capture the importance of an FMU to 

the financial system, noting that this 

level of importance is unlikely to 

change from month to month or quarter 

to quarter.13

One commenter argued that 

consideration should be given to both 

the maximum daily value of 

transactions processed within a given 

timeframe (at least one year) and, in the 

case of CCPs, this measure should be 

stress-tested using the same scenarios as 

required by supervisors to measure the 

adequacy of the FMU’s default backing 

and liquidity resources. This would 

mean that if a CCP’s financial resource 

requirement is greater than a specified 

value, then it should be designated. The 

commenter also argued that the Council 

should also consider whether the FMU 

processes a significant share of 

transactions of a specific type and the 

extent to which the FMU’s major 

participants are domiciled, or have 

parent companies that are domiciled, in 

the U.S.14

c. Should different measures be 

applied to different types of financial 

market utilities based on their activities, 

products, or markets? 

As already mentioned, the majority of 

commenters argued that the same 

framework of criteria should be applied 

equally to each FMU under 

consideration.15 However, it was also 

widely emphasized that the Council 

must employ flexibility and qualitative 

judgment in its application of the 

criteria to evaluate each FMU under 

consideration in light of differences in 

the activities, products and markets 

served by FMUs. 

d. What is the best approach for 

measuring potential aggregate monetary 

values for start-up financial market 

utilities? 

One commenter argued that in light of 

the lack of data that would be available 

in the case of a start-up and the lack of 

reliable estimates of projected volumes, 

the Council would have to give greater 

weight to other qualitative factors, such 

as the sophistication of risk 

management techniques in the market.16

Another commenter said that credible 

forecasts would be possible and should 

be considered by supervisors in 

addition to factors such as stress 

scenarios and the potential markets to 

be served.17

e. Should certain payment systems 

that transfer relatively low aggregate 

values be considered by the Council for 

designation as systemically important 

given that the system’s failure or 

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Federal Register / Vol. 76, No. 59 / Monday, March 28, 2011 / Proposed Rules 17051 

18See, e.g., comment letter from The Clearing 

House (Jan. 20, 2011) (hereinafter ‘‘Clearing House 

letter’’), pp. 1–2 and comment letter from NACHA— 

The Electronic Payments Association (Jan. 18, 2011) 

(hereinafter the ‘‘NACHA letter’’), pp. 3–4. 

19See, e.g., comment letter from the American 

Bankers Association (Jan. 20, 2010) (hereinafter 

‘‘ABA letter’’), pp. 3–5, comment letter VISA (Jan. 

20, 2011) (hereinafter the ‘‘VISA letter’’), pp. 3–6, 

and the Financial Services Roundtable Letter, p. 4. 

20See the NACHA letter, p. 4. 

21See the TIAA–CREF letter, p. 9 and the Pew 

letter, p. 10. 

22See, e.g. the VISA letter, pp. 8–9. 

23See, e.g. the VISA letter, p. 8. 

24See, e.g., the ISDA letter, p. 3. 

25See, e.g. the ABA letter, p. 2, 5. 

26See, e.g., the comment letter from Debevoise & 

Plimpton (Jan. 20, 2011) (hereinafter ‘‘the Debevoise 

letter’’), pp. 2–5. 

27See, e.g., ISDA letter, p. 5; CPSS–IOSCO, 

‘‘Recommendations for Central Counterparties’’ 

(November 2004); ‘‘Guidance on the Application of 

the 2004 CPSS–IOSCO Recommendations for 

Central Counterparties to OTC Derivatives CCPs— 

Consultative Report’’ (May 2010). 

disruption could still cause widespread 

disruption, especially if there is no 

ready alternative means of making 

payments? For example, the failure or 

disruption of a system used extensively 

to make payments could leave a 

significant portion of the general public 

with unexpected overdrafts and/or lack 

of liquid funds. If so, what factors 

should the Council consider in making 

a determination of systemic importance 

for such systems? 

Many commenters urged the Council 

to consider only the largest interbank 

payment systems for designation, 

arguing that smaller retail systems do 

not fit the definition of ‘‘systemically 

important.’’ 18 There was significant 

consensus among commenters in the 

reasons provided for this argument, 

namely that: (i) Retail systems operate 

relatively low-aggregate monetary value 

systems that do not settle transactions 

for important financial markets or other 

payment systems; (ii) there are reliable 

and timely substitutes for retail 

payments; (iii) retail systems do not 

operate real-time final settlement 

systems, meaning that the liquidity 

would not be guaranteed to be available 

immediately for pending outgoing 

payments; and (iv) retail systems are 

already under strong regulatory 

oversight and designations would result 

in unnecessary costs and regulatory 

burdens.19 Also of note, one commenter 

mentioned that the ability of depository 

institutions to permit overdrafts to cover 

retail payments strongly mitigates the 

potential for a disruption to a low-value 

system to have a systemic impact that 

could threaten the stability of the U.S. 

financial system.20

While largely mentioning similar 

reasoning for why low-value systems 

would likely not qualify for designation, 

two commenters argued that such 

systems should first be evaluated to 

determine if a disruption to them would 

have a significant impact on a 

substantial market or a large number of 

households, or if there were no readilyavailable substitutes.21

5. How should the Council measure 

and assess the aggregate exposure of 

financial market utilities engaged in 

payment, clearing, or settlement 

activities to its counterparties? 

a. How should the Council identify 

the extent to which financial market 

utilities bear and create risk exposures 

for themselves and their participants? 

b. What measures of exposure should 

be considered (e.g., liquidity exposures, 

current and potential future 

counterparty credit exposures, 

operational risk, and the degree of 

concentration of exposures across 

participants)? 

There was significant consensus 

among commenters on the types of 

factors that should be used by the 

Council. These include: (i) The 

liquidity, complexity and volatility of 

the asset classes/market served by the 

FMU; (ii) whether the FMU has the 

potential to create significant liquidity 

disruptions or dislocations in the event 

of a failure; (iii) whether the FMU has 

the potential to create large credit or 

liquidity exposures relative to 

participants’ financial capacity; (iv) 

whether the FMU covers a high 

proportion of large-value transactions; 

(v) if, and, if so, how many, large 

financial institutions and/or other FMUs 

rely on the FMU for its own operations; 

(vi) whether there are reliable and 

timely substitutes with other FMUs; 22

(vii) whether the FMU offers finality in 

settlement, arguing that participants rely 

on real-time finality to settle positions 

elsewhere such that a disruption in such 

a system is more likely to have an effect 

on a participant’s counterparties than in 

a system without immediate settlement 

finality; 23 (viii) how the ownership and 

governance arrangements affect the 

incentives and risk-tolerance of an 

FMU; 24 and (ix) whether the FMU is 

already subject to an existing regulatory 

regime, arguing that an FMU already 

under supervision would be less likely 

to require further designation and that 

therefore a systemically important 

designation under Title VIII would 

result in unnecessary costs and 

regulatory burdens, as well as the 

establishment of duplicate regimes of 

oversight.25 While some commenters 

did not specify which types of existing 

oversight were adequate to avoid 

designation, several commenters 

specifically indicated that institutions 

that are already subject to 

comprehensive Federal Reserve 

oversight, have access to central bank 

liquidity, and/or are already subject to 

designation under Title I of the DFA, 

should not be designated.26

A majority of commenters also 

suggested that if standards and policy in 

risk management, governance, capital, 

margin, and liquidity were strong and 

well-managed, this would reduce the 

need for designation. Several 

commenters emphasized the importance 

of considering the governance and 

ownership arrangements of FMUs, 

noting the importance of aligning the 

interests of an FMU so that it engages in 

prudent behavior. For those FMUs that 

have achieved this balance such that a 

significant portion of equity capital is at 

risk, they argue that the FMU would 

pose a lesser degree of systemic risk. 

These commenters suggest that the 

inherent risk alone that an FMU may 

concentrate or be exposed to should not 

be considered in isolation. Rather, they 

argue that the adoption of strong risk 

mitigating practices could greatly 

reduce systemic risk, and therefore the 

need for designation. 

c. For each type of financial market 

utility (e.g., central counterparty, funds 

transfer system), what is the best 

approach for measuring current credit 

exposure or, where relevant, potential 

future exposures? For liquidity 

(funding), how might the Council assess 

the potential liquidity risks that a 

financial market utility may bear or 

liquidity risks it may impose on the 

broader financial system should it fail to 

settle as expected? 

When assessing credit risk, most 

commenters emphasized the importance 

of looking at both the quality of the 

counterparties and the products served 

by the FMU. When assessing liquidity 

risk, many commenters emphasized the 

importance of considering the 

concentration of the FMU in the market 

and the capacity/substitutability 

available among other FMUs. Several 

commenters also suggested that the 

Council make use of existing risk 

assessment tools such as approaches 

outlined under Basel and in the CPSS/ 

IOSCO Recommendations for CCPs as a 

foundation to build on.27 In addition, 

many emphasized the importance of 

using stress tests as a useful way to 

measure liquidity risk, as well as reverse 

stress tests to help identify issues of 

macro prudential concern. 

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28See the Better Markets letter, pp. 7–8. 

29See the Better Markets letter, p. 8. 

30See, e.g., the LCH.Clearnet letter, p. 7. 

31See the TIAA–CREF letter, p. 11. 

32See the LCH.Clearnet letter, p. 7. 

One commenter argued that the 

sources of liquidity for an FMU, which 

are highly related to the underlying 

credit of members, should be ignored or 

severely discounted in any analysis. The 

commenter argued that during a time of 

stress, sources of liquidity are unreliable 

because members will be unlikely to 

respond to an FMU’s call for additional 

support during a severe market event 

and major default of another member. 

Similarly, the commenter argued that 

lines of credit and liquidity will not 

likely be available in a major default 

scenario.28

6. How should the Council identify, 

measure, and assess the effects of 

relationships, interdependencies, and 

other interactions of financial market 

utilities listed as considerations in 

section 804(a)(2)? 

a. What role should models of 

interdependencies (e.g., correlations; 

stress tests) play in the Council’s 

determinations? 

Many commenters discussed the 

importance of using stress tests and 

correlations in any model to measure 

levels of interdependence, although 

there was some variation in the 

appropriate assumptions and time 

horizons that should be used. One 

commenter, for example, emphasized 

the need for the stress scenarios to use 

both historical worst-case scenarios as 

well as future potential events in order 

to apply more extreme cases of market 

illiquidity.29 In addition, some argued 

that correlations both between 

counterparties and industry sectors and 

between financial markets and 

instruments should be incorporated and 

appropriately stress-tested.30

b. What role should the nature of 

participants or counterparties play in 

the Council’s determinations (e.g. 

common participants across utilities, 

systemic importance of participants)? 

The majority of commenters 

emphasized the importance of 

examining the nature of participants 

and counterparties to an FMU, 

particularly as a means of measuring 

interdependence and concentration. 

This should include considerations 

such as the type and number of 

counterparties, particularly if they are 

significant financial firms or FMUs, as 

well as the nature of relationships these 

counterparties have to each other and 

other FMUs. 

c. Should the Council consider the 

legal, corporate, or contractual 

relationships of financial market 

utilities in assessing relationships, 

interdependencies, and other 

interactions (e.g., common holding 

company, joint ventures, crossmargining agreements, and service 

provider relationships)? 

One commenter emphasized the 

importance for FMUs to operate under 

a well-established and enforceable legal 

framework. In particular, the commenter 

emphasized the importance of assessing 

the legal risks arising from cross-border 

relationships, governance and corporate 

structures and any affiliates or holding 

companies that are under the same 

control as the FMU and thus depend on 

the same creditors. Furthermore, the 

commenter noted that the Council 

should consider any cross-margining 

and/or outsourcing and servicing 

relationships that an FMU may have.31

Please see the discussion of public 

responses provided to question (7) of 

the ANPR for more detailed 

information. 

Another commenter emphasized this 

point as well, noting the importance for 

the Council to consider legal, corporate, 

or contractual relationships of FMUs. 

This commenter emphasized the 

importance of paying attention to cases 

where the same legal entity is acting in 

multiple capacities, for example if a 

legal entity acts both as a market 

operator and a CCP, and also as a 

participant in a money or tri-party 

market. Furthermore, this commenter 

argued that the Council should carefully 

consider cases in which the holding 

company of an FMU has significant 

exposure to foreign markets.32

d. Should the Council consider 

whether there are readily available 

substitutes for the payment, clearing, 

and settlement services of financial 

market utilities? 

The importance of readily available 

substitutes for an FMU was a theme 

common among all commenters, who 

argued that the availability of a readilyavailable alternative would significantly 

reduce the systemic threat an FMU 

posed to the financial system, thereby 

reducing the need for designation by the 

Council. 

7. How should the Council assess 

whether failures or disruptions to a 

financial market utility could 

potentially threaten the financial system 

of the United States? 

a. What measures, information and 

thresholds should be used in assessing 

the effect of a financial market utility 

failure or disruption on critical markets 

and financial institutions? For example, 

how might the Council assess potential 

credit and liquidity effects and 

spillovers from a financial market utility 

disruption? 

The vast majority of commenters 

emphasized the importance of 

considering the level of 

interconnectedness of participants— 

both directly and indirectly—of an FMU 

as well as between FMUs. These 

relationships would help inform the 

Council on the potential effect on all 

relevant market participants in the event 

that an FMU is unable to function. 

While some explicitly believed that this 

should be limited to a more permanent 

long-term loss of function, noting that 

temporary disruptions such as 

operational failures should not be 

considered, one commenter believed 

that any potential disruption should be 

examined to understand the 

dependencies of participants on the 

FMU and the resulting impact on the 

economy as a whole. 

Furthermore, nearly all commenters 

noted the importance of considering the 

type of counterparties to an FMU, and 

whether they themselves are 

systemically important, as well as the 

concentration of the market and the 

availability of substitutes. Other factors 

mentioned widely by commenters, as 

elaborated on in question (5b) were the 

capital and liquidity cushions of an 

FMU, its governance structure, whether 

or not it offered finality of settlement, 

and the nature, in terms of size, depth 

and volatility, of the market that it 

serves. 

As mentioned in question (6a) as well, 

many suggested the importance of using 

stress tests and a variety of extreme but 

plausible assumptions in order to assess 

the effects from any disruption. 

b. What factors should the Council 

consider when determining whether 

markets served by financial market 

utilities are critical? What qualitative or 

quantitative characteristics might lead 

the Council to scope in or out particular 

markets? 

Many commenters emphasized the 

importance of considering the size, 

depth and volatility of a particular 

market in order to determine its 

systemic importance. Furthermore, 

many argue that the Council should also 

consider the type and number of 

participants to the market—for example, 

if they themselves are systemically 

important, this will increase the 

likelihood that the market itself is 

critical—as well as what percentage of 

a market may be used by a large 

percentage of U.S. households. 

One commenter argued that all types 

of disruptions—both temporary and 

permanent—must be examined by the 

Council. In addition, the commenter 

suggested considering whether the 

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33See the LCH.Clearnet letter, p. 8. 

34See, e.g. the Debevoise letter, p. 2. 

35See the LCH.Clearnet letter, p. 8. 

36See the Financial Services Roundtable letter, p. 

5. 

37See the ISDA letter, pp. 5–7. 

38See the Pew letter, pp. 3–7. 39See the Clearing House letter, p. 10. 40See CPSS ‘‘Core Principles for Systemically 

Important Payment Systems’’ (Jan. 2001). 41See, e.g. http://www.financialstabilityboard.org. 42See, e.g., the ISDA letter, pp. 6–7. 43See the LCH.Clearnet letter, p. 9. 

44See the Financial Services Roundtable letter, 

pp. 5–6. 

failure or suspension of a market for a 

significant period of time interrupts the 

supply of vital foodstuffs or energy, 

halts commercial activity, or prevents 

financial institutions from managing 

their own risks.33

8. Title VIII of the DFA contains 

distinct provisions with respect to 

financial market utilities and financial 

institutions engaged in payment, 

clearing and settlement activities. What 

factors should the Council consider in 

distinguishing between a systemically 

important financial market utility and a 

financial institution that is very 

substantially engaged in a systemically 

important payment, clearing, or 

settlement activity? 

Most commenters urged the Council 

to ensure that any designations did not 

lead to duplicative oversight regimes.34

Furthermore, it was noted that if an 

institution were designated under Title 

I, it should not also be subject to 

designation under Title VIII. One 

commenter believes that the same 

qualitative and quantitative criteria and 

metrics should be applied in all cases, 

including if the potential designee is a 

financial institution.35

A different commenter stated that the 

distinction is a critical issue for market 

participants but that it requires 

clarification by the Council in order to 

allow stakeholders the ability to provide 

a substantive answer.36

9. What other types of information 

would be effective in helping the 

Council determine systemic 

importance? What additional factors 

does your organization consider when 

assessing exposure to, or the 

interconnectedness of, financial market 

utilities? 

In addition to the set of common 

factors elaborated on in question (5b), 

one commenter also suggested that the 

Council consider an FMU’s opacity/ 

complexity/disclosure, leverage, rate of 

change of activity, role in monetary and/ 

or fiscal policy, segregation of client 

margin, business conduct rules, 

execution requirements, and 

methodology of margin calculation.37

One commenter developed a 

framework for consideration by the 

Council. This framework attempts to 

measure three broad components in 

order to value systemic significance: 

fragility of the FMU, exposure of its 

financial firm members to its failure, 

and fragility of the members. The 

framework involves seven steps: (1) 

Developing a set of ‘‘heightened 

reporting firms;’’ (2) identifying 

factors—such as leverage, liquidity, 

concentration, risk management, 

complexity, and credit exposure—that 

can affect systemic significance, 

defining measures for each factor and 

dividing them into factors that affect 

fragility of the FMU and factors that 

affect exposure of firms to FMUs; (3) 

estimating the fragility of each 

heightened reporting firm that is a 

member of each FMU; (4) estimating the 

exposure of members to each FMU and 

for each FMU candidate; (5) creating a 

single measure of the system’s 

vulnerability by adding up the measures 

of exposures of all heightened reporting 

member firms to the candidate FMU, 

weighted by their fragility estimates; (6) 

estimating systemic importance of an 

FMU using several statistical factors; 

and (7) applying a universal threshold 

to each FMU to ultimately determine 

designation.38

Lastly, one commenter noted that a 

supervisory gap existed in the oversight 

of internet-based payment systems, 

including P2P payment systems, and 

asked for the Council to consider the 

appropriate actions to take to close this 

loophole.39

10. What role should international 

considerations play in designating 

financial market utilities? 

In response to this question, many 

commenters emphasized the importance 

of adopting international standards and 

best practices, such as the CPSS Core 

Principles 40 and the work of the 

Financial Stability Board 41 to promote 

common standards and cross-border 

cooperation. Particularly in light of the 

interconnectedness of global markets, 

commenters emphasized that adherence 

to internationally agreed upon standards 

would help ensure consistency in 

practice across FMUs globally.42

One commenter argued that the global 

nature of markets serviced by FMUs as 

well as the interconnectedness of the 

global financial system as a whole 

means that there should be no 

differences in criteria employed when 

considering the designation of FMUs 

that may have substantial foreign 

activities. As a result, the commenter 

argued that U.S. supervisors have a 

justification and need for concomitant 

supervisory access to any foreign FMU 

deemed systemically important.43

One commenter urged the Council to 

be conservative when applying Title 

VIII to non-U.S. entities because Title 

VIII does not expressly provide for 

extra-territorial application. To the 

extent that the Council does apply Title 

VIII to non-U.S. entities, this commenter 

urged the Council to ensure that any 

determination maintains a level playing 

field for domestic and foreign FMUs 

with a comparable regulatory regime. 

Furthermore, the commenter noted that 

participation in government support 

programs should not be a factor in 

identifying whether an FMU is 

systemically important.44

III. Overview of Proposed Rule 

Proposed part 1320 of Title 12 (‘‘Rule 

1320’’) lays out the framework that the 

Council proposes to use to determine 

whether an FMU should be designated 

as systemically important. The proposed 

rule incorporates and augments the 

requirements set forth in the DFA with 

respect to the determination of whether 

to designate an FMU as systemically 

important. The Council requests 

comment on all aspects of the proposed 

rule, but in particular, comments in 

response to the specific questions raised 

below. The Council is providing a sixty 

(60) day comment period for this 

proposed rule. 

A. Considerations for Determination 

Section 804 of the DFA provides the 

Council with the authority to designate 

those FMUs the Council determines are 

systemically important—that is, the 

failure of or a disruption to the 

functioning of which 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. Section 803(6)(A) of 

the DFA generally defines an FMU as 

any person that manages or operates a 

multilateral system for the purposes of 

transferring, clearing, or settling 

payments, securities, or other financial 

transactions among financial 

institutions or between financial 

institutions and that person. Under 

section 804(a)(2) of the DFA, in making 

a determination on whether the FMU 

should be designated as systemically 

important, the Council must consider: 

A. The aggregate monetary value of 

transactions processed by the FMU; 

B. The aggregate exposure of the FMU 

to its counterparties; 

C. The relationship, 

interdependencies, or other interactions 

of the FMU with other FMUs or 

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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 that the Council 

deems appropriate. 

As discussed in Part II, there were 

several themes in the ANPR 

commentary regarding how the Council 

should apply the statutory 

considerations to the designation 

process. 

One broad theme from the 

commenters is that the analytical 

framework for evaluating an FMU 

should be applied consistently across all 

FMUs and that the process used for 

designation be transparent to the public, 

or at least to the FMUs under 

consideration. The Council agrees with 

the broad theme raised by commenters 

that it is important to have a consistent 

framework and transparent process for 

all FMUs under consideration. 

However, not all criteria will be relevant 

to each FMU under consideration. The 

Council believes it would be 

appropriate to adopt a flexible approach 

to the analysis of metrics applicable to 

each FMU under consideration. Thus, 

the framework itself should 

accommodate the range of payment, 

clearing, and settlement activities that 

FMUs may engage in and allow the 

application of relevant criteria to each 

FMU under consideration, with the 

relative importance of the criteria 

applied to be informed by the specific 

circumstances of the FMU’s role in the 

financial system and the Title VIII 

definition of ‘‘financial market utility.’’ 

Several commenters also supported the 

need to weigh qualitative considerations 

in addition to quantitative factors. 

The Council shares the concerns of 

commenters and proposes to develop a 

systematic and robust process that is 

consistent with the intent of the DFA. 

Such an analytical framework would be 

based on the four specific 

considerations for systemic importance 

set forth in section 804(a)(2) of the DFA. 

This framework would apply consistent 

criteria to FMUs under consideration, 

recognizing differences across FMUs, 

including differences in risk 

management structures and in the 

potential impact of an FMU’s disruption 

on markets, households, and the 

financial system. In addition, the 

Council shares the view of the 

commenters that both quantitative and 

qualitative judgments be applied to this 

process. The Council provides further 

information with regard to this 

analytical framework and related 

process in sections III.B and III.C below. 

The Council is equally interested in 

maintaining a transparent process, 

which is in keeping with one of the 

broader goals of the DFA. In particular, 

there is a provision in the proposed rule 

for notification of each FMU prior to a 

vote on a proposed designation, 

providing the FMU an opportunity to 

present the Council with arguments and 

information supporting or opposing its 

designation. In providing for an 

appropriately transparent process to the 

public, the Council will need to take 

into account that much of the 

information gathered and decisions 

made will be sensitive and likely 

require confidential handling so as not 

to reveal proprietary information or 

affect competition. Nonetheless, the 

Council will establish as transparent a 

process as is appropriate. 

With respect to the criteria for 

designation, there was broad consensus 

in the comments on the factors that the 

Council should incorporate into the 

analytical framework. The most 

common suggestions included: an 

examination of the type of market 

served by the FMU, the potential for 

large credit or liquidity dislocations in 

the event of a disruption, the proportion 

of large-value transactions that the FMU 

serves, the nature of counterparties to 

the FMU, the availability of substitutes 

for participants in the event of an FMU 

disruption, and whether the FMU offers 

finality in settlement. 

The Council agrees with commenters 

that many of these factors could offer 

considerable insight into the 

designation process and will consider 

incorporating them into the analytical 

framework that is developed. As noted, 

further insight into the types of factors 

that may be incorporated into the 

Council’s analysis is further detailed in 

section III.B. 

Many commenters also urged the 

Council to only consider the largest 

interbank payment systems for 

designation, arguing that smaller retail 

systems do not fit the definition of 

systemically important. Many of the 

commenters argued that retail systems 

settle relatively low-aggregate monetary 

value, that there are reliable and timely 

substitutes for retail payments, and that 

such systems do not operate with 

finality in settlement and are already 

under strong regulatory oversight. 

While the Council recognizes that the 

definition of an FMU covers a wide 

variety of systems, including low-value 

and large-value payment systems, it 

acknowledges that the factors raised by 

several commenters concerning retail 

payment systems are important 

considerations. In considering the 

systemic importance of various FMUs, 

the Council will take these factors into 

consideration as well as other relevant 

characteristics. The Council has decided 

not to include any categorical exclusion 

for retail payment or other systems in 

the proposed regulations because it 

believes that such exclusions would 

impair the Council’s ability to 

effectively respond to changing market 

conditions and industry developments. 

Several commenters specifically 

indicated that institutions that are 

already subject to comprehensive 

Federal Reserve oversight, have access 

to central bank accounts and liquidity, 

or are already subject to designation 

under Title I should not be designated. 

Some also argued that FMUs that are 

already subject to prudential oversight, 

have strong risk management 

frameworks, governance standards, and 

sufficient financial resources in place 

have developed controls that would 

reduce the need for designation since 

the risk of a systemic disruption would 

be considerably lower. 

The Council recognizes the 

importance of oversight and of FMU’s 

maintaining strong controls to mitigate 

the risk of failure. However, the purpose 

of Title VIII is to consider designating 

certain FMUs as systemically important 

because while FMUs that conduct or 

support multilateral payment, clearing, 

or settlement activities may reduce risks 

for their participants, such utilities may 

also concentrate and create new risks. 

Recognizing this, Title VIII instructs the 

Council to designate as systemically 

important any FMU whose failure or 

disruption 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 U.S. Thus, the Council is 

instructed to designate FMUs based on 

the effect that a disruption or failure of 

the FMU would have on the stability of 

the U.S. financial system. The 

likelihood of that precipitating event— 

that is to say, the likelihood, in light of 

any risk mitigating practices that may be 

in place, that an FMU would experience 

a disruption or failure is not one of the 

statutory considerations. 

There were several other suggestions 

raised in the comment letters in which 

there was no consensus. In particular, 

there were a number of different 

suggestions provided in response to 

ANPR question 4 on how the Council 

should measure and assess the aggregate 

monetary value of transactions 

processed by an FMU. Commenters 

suggested a variety of approaches for 

measuring value (notional values, 

margin flows, net versus gross values, 

etc.) and defining time horizons and 

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45See ‘‘Financial Stability Oversight Council 

Committee Structure’’ (Nov. 23, 2010 Council 

Meeting Document), available at http:// 

www.treasury.gov/initiatives/Pages/FSOCindex.aspx. 

46 In the context of derivatives clearing, the term 

‘‘credit exposures’’ refers to potential future 

exposures. 

statistics (annual, peak, etc.). There was 

further divergence in thought with 

regard to ANPR question 6 on the type 

of model that should be used to measure 

interdependencies, (e.g., correlations, 

stress tests). The Council appreciates the 

range of suggestions provided by the 

commenters. The analytical framework 

and associated subcategories and 

metrics reflect the Council’s efforts to 

incorporate commenters’ suggestions, 

which are further outlined in section 

III.B. 

Lastly, in response to ANPR question 

10, many commenters took the 

opportunity to stress the importance of 

applying consistent standards across 

borders, specifically advocating the use 

of international core principles and best 

practices to ensure consistency and a 

level playing field. One commenter 

cautioned the Council to be 

conservative in applying Title VIII to 

non-U.S. entities. The Council requests 

further comment on the role 

international considerations should play 

in this rule making, in particular on the 

application of the proposed analytical 

framework and the subcategories 

contained in the proposed section 

1320.10 given cross-border payment, 

clearing and settlement flows, and 

cross-border participation in FMUs. 

B. Statutory and Analytical Framework 

for Designations 

The proposed rule incorporates each 

of the statutory factors that must be 

considered into the analytical 

framework to determine whether an 

FMU should be designated. In 

developing the proposed rule, the 

Council has also taken into 

consideration the comments received on 

the ANPR. If adopted into a final rule, 

this framework would be used by the 

Council to meet its statutory obligations 

of assessing the threat the failure or 

disruption of an FMU may pose to the 

stability of the U.S. financial system. In 

addition, the Council would consider 

any other risk-related factors that the 

Council deems appropriate, under 

section 804(a)(2)(E). 

The Council would evaluate FMUs 

under each of the four statutory 

considerations as laid out in section 

804(a)(2) of the DFA, in addition to any 

additional factors it deems appropriate, 

using quantitative metrics where 

possible. The Council expects to use its 

judgment, informed by data on the four 

considerations, to determine whether an 

FMU should be designated as 

systemically important and thus subject 

to heightened risk management 

standards prescribed by the Board of 

Governors, the SEC, or the CFTC, in 

consultation with the Council and 

relevant Supervisory Agencies. These 

standards will take into consideration 

relevant international standards and 

existing prudential requirements 

governing the operations related to the 

payment, clearing and settlement 

activities of designated FMUs. 

Any determinations of the Council 

made under the proposed rule using the 

analytical framework would be based on 

whether the failure or disruption of the 

FMU could pose a threat to the financial 

stability of the U.S. financial system as 

described in DFA section 803(9). 

Under the proposal, the Council 

expects to use the four statutory 

considerations as a base for the 

framework for assessing the systemic 

importance of FMUs, regardless of the 

type of payment, clearing and/or 

settlement activities that they are 

engaged in. However, the application of 

this framework would be adapted for 

the risks presented by a particular type 

of FMU and business model. For 

example, the metrics that are best suited 

to measure the four categories of 

systemic importance will likely vary 

across FMUs. The Council will review 

these metrics on a periodic basis and 

revise them as appropriate. 

In addition, the process that the 

Council will use to evaluate potential 

FMUs for designation under an 

analytical framework is outlined in 

more detail under section III.C. Briefly, 

the Council is considering using a two 

stage process for evaluating FMUs prior 

to a vote of proposed designation by the 

Council. The first stage will consist of 

a largely data-driven process for the 

Council, working with its committees 45

to identify a preliminary set of FMUs, 

whose failure or disruption could 

potentially threaten the stability of the 

U.S. financial system. In the second 

stage, the FMUs identified through the 

initial review will be subject to a more 

in-depth review, with a greater focus on 

qualitative factors, in addition to FMU 

and market specific considerations. 

Proposed Analytical Framework 

To provide further transparency into 

the analytical framework that the 

Council is considering, set forth below 

is additional information regarding the 

types of metrics that may be considered 

by the Council. 

Stage One 

As described above, the Council is 

proposing subcategories to further build 

out the four specific statutory 

considerations that are set forth in DFA 

section 804(a)(2). Some of these 

subcategories and associated metrics are 

described below to provide illustrative 

examples of how the factors will be 

considered in assessing systemic 

importance. 

Consideration (A): Aggregate 

monetary value of transactions 

processed by an FMU 

• Number of transactions processed, 

cleared or settled by the FMU 

Within this subcategory, examples of 

the types of metrics that the Council 

may consider include the mean and 

median daily gross and net volumes 

processed, cleared or settled; the 

historical peak daily gross and net 

volumes processed; and the volumes 

processed, cleared or settled as a 

percentage of the total market volume; 

and for derivatives central 

counterparties, the median and peak 

daily changes in open interest. 

• Value of transactions processed, 

cleared or settled, by the FMU 

For this second subcategory, examples 

of the types of metrics that the Council 

may consider include the mean and 

median daily gross and net values 

processed, cleared or settled; the 

historical peak daily gross and net 

values processed, cleared or settled; and 

the values processed, cleared or settled 

as a percentage of the total market value. 

• Value of other financial flows that 

may flow through an FMU 

For this third subcategory, the 

Council may consider the mean and 

median daily value of variation margin; 

the peak daily value and change of 

variation margin; and the peak daily 

value of funding flows. 

Consideration (B): Aggregate exposure 

of an FMU to its counterparties 

• Credit exposures 46 to 

counterparties 

Within this first subcategory, the 

Council may consider the use of metrics 

that measure the mean daily and 

historical peak aggregate intraday credit 

provided to participants; the mean and 

peak daily changes in the value of 

variation margin collected by an FMU; 

the mean and peak daily value of initial 

margin held by an FMU; and the mean 

and peak aggregate value of an FMU’s 

financial resources held to address the 

credit risks arising from a potential 

participant default (i.e., participant, 

clearing or margin fund). 

• Liquidity exposures to 

counterparties 

Under the second subcategory, the 

Council may consider measures of the 

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estimated peak liquidity need in the 

case of the default of the largest single 

participant to the FMU, the mean and 

peak aggregate dollar value of pay outs 

by an FMU to participants; and the 

mean and peak value of financial 

resources available to the FMU, broken 

out by liquidity and quality. 

Consideration (C): Relationship, 

interdependencies, or other interactions 

of an FMU with other FMUs or 

payment, clearing or settlement 

activities 

Within this category, the Council may 

consider metrics that measure the 

relationships and interdependencies of 

an FMU, including those that measure 

interactions of an FMU with different 

participants, such as systemically 

important financial and/or nonfinancial 

companies, central banks, or other 

payment, clearing or settlement systems, 

with trading platforms (such as 

exchanges and alternative trading 

systems), and with the market 

environment more generally, including 

contractual relationships, that support 

the operations of an FMU. 

Consideration (D): Effect that the 

failure of or disruption to an FMU 

would have on critical markets, 

financial institutions or the broader 

financial system 

• Role of an FMU in the market 

served 

The Council may consider metrics 

such as the type of market(s) served by 

an FMU and the FMU’s role in primary 

and secondary markets. 

• Availability of substitutes 

Under the second subcategory, the 

Council may consider the number of 

other FMUs that may serve the same 

function and/or product and how 

readily available a potential substitute 

would be for participants, considering 

such additional factors as operational 

capability and timing. 

• Concentration of participants 

Under the third subcategory, the 

Council may consider metrics that look 

at concentrations of the single largest 

participant, the top five participants and 

the top ten participants, as a percentage 

of the value and volume of activity by 

all participants. 

• Concentration by product type 

Under this subcategory, the Council 

may consider information regarding the 

degree to which the FMU is a major or 

sole processor for a particular financial 

contract or instrument. 

• Degree of tiering 

Under this subcategory, the Council 

may consider information regarding the 

number of an FMU’s indirect 

participants, as well as the 

concentration of such indirect clearing 

through an FMU’s direct participants. 

• Potential impact/spillover in the 

event of a failure or disruption. 

Lastly, under this sixth subcategory, 

some examples of the types of metrics 

that the Council may consider include 

the number and type of systemically 

important financial and non-financial 

institutions participating in the 

activities of the FMU; and the daily 

gross value of repurchase agreements 

(both securities-driven and cash-driven), 

as well as other instruments that are 

cleared or settled by an FMU. 

Consideration (E): Any other factors 

that the Council deems appropriate 

Under this statutory consideration, 

the Council retains its ability to 

consider additional subcategories, 

metrics and qualitative factors as may be 

relevant based on the particular 

characteristics of an individual FMU 

being reviewed, including for example 

the nature of its operations, corporate 

structure and business model, and to 

add any relevant subcategories and 

metrics to the proposed analytical 

framework. 

Stage Two 

The second stage will provide the 

Council with the opportunity to perform 

a more in-depth review and analysis of 

specific FMUs from both a quantitative 

and qualitative perspective. In this 

stage, the Council can consider any 

elements that may be particular to a 

specific FMU, a type of FMU or market. 

Each FMU under consideration will 

undergo a tailored analysis of the 

potential impact that a failure of or a 

disruption to the function of the FMU 

has on the stability of the U.S. financial 

system, such as the creation of, or 

increase to, the risk of significant 

liquidity or credit problems spreading 

among financial institutions or markets. 

Review of Prior Considerations and 

Designations 

The Council expects to begin 

assessing the systemic importance of 

FMUs under the proposed analytical 

framework shortly after adopting a final 

rule. Subsequently, on at least an annual 

basis, the Council will continue to 

evaluate whether there are other FMUs 

that require designation, and whether 

previous designations of systemically 

important FMUs should be rescinded. 

C. Evaluation Process for Designations 

Overview of Process 

The proposed rule implements 

provisions of Title VIII of the DFA that 

outline the process that the Council, 

working with its committees, will carry 

out in making designations. As noted, 

the Council is considering using a two 

stage process for evaluating FMUs prior 

to a presentation to the Council of an 

initial assessment of the FMU for a 

formal vote of proposed designation by 

the Council. If an FMU reaches the 

second stage of this evaluation process, 

the Council will notify the FMU under 

consideration and provide the FMU 

with an opportunity to submit written 

materials to the Council in support of or 

in opposition to, as it deems relevant, 

designation by the Council as outlined 

in proposed section 1320.11. In the case 

of an affirmative formal vote of the 

proposed designation by two-thirds of 

the Council, including the Chairperson, 

an FMU will be notified and given the 

opportunity to request a written or oral 

hearing before the Council to 

demonstrate that the proposed 

designation or rescission is not 

supported by substantial evidence as 

outlined in proposed section 1320.12. 

Following this, the Council will 

complete its considerations and carry 

out its final vote and notification to the 

FMU. Below is a more detailed stage-bystage discussion of the proposed 

process. 

Stage One Process: Identification of 

FMUs for Further Evaluation 

The first stage will be largely datadriven to identify a preliminary set of 

FMUs, whose failure or disruption 

could potentially threaten the stability 

of the financial system of the United 

States, and which therefore should be 

subject to a more thorough review under 

the second stage. This first stage will be 

informed by both publicly available 

information and information that is 

available to a Federal agency with 

jurisdiction over the FMU. The 

assessments in stage one will result in 

materials that provide an overview of 

the FMUs for further review and 

consideration. This first-stage 

identification of potentially systemically 

important FMUs will be performed at 

least annually. A reassessment of 

already designated FMUs will also 

occur at least annually. 

Stage Two Process: In-Depth Evaluation 

of FMUs under Consideration 

The second stage will involve a more 

in-depth review and analysis, from both 

a quantitative and qualitative 

perspective, of the FMUs determined to 

merit further assessment based on the 

first-stage review. This stage involves 

consideration of additional elements 

that may be particular to a specific FMU 

or type of FMU and assembly of a 

detailed assessment of the FMU and indepth analysis for consideration by the 

Council in connection with the 

Council’s determination whether to 

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47Examples of the value other financial flows 

may include analysis of the gains, losses or 

collateral related to other transactions. 

48 In the context of derivatives clearing, the term 

‘‘credit exposures’’ refers to potential future 

exposures as opposed to actual credit extended. 

make a formal vote of proposed 

designation. The Council will provide 

an FMU with the opportunity to submit 

a written statement in support of or 

opposition to, as it deems relevant, 

designation by the Council as provided 

in proposed section 1320.11. Any 

statement submitted by an FMU will be 

included in information provided to the 

Council for its consideration in 

connection with the Council’s formal 

vote of proposed designation. The 

Council is proposing to provide this 

opportunity as part of the two-stage 

evaluative process, in addition to the 

statutory requirement affording an FMU 

notification and opportunity for hearing 

before the Council’s final vote on 

whether to designate an FMU as 

systemically important. 

In addition, the Council has the 

opportunity under stage two to request 

further information from an FMU (as per 

section 809(a)(1) of the DFA), if the 

information needed is not available 

publicly or from a federal agency with 

jurisdiction over the FMU. The FMU 

will be notified that this information is 

being collected to help evaluate whether 

it should be designated by the Council, 

based on the Council’s determination 

that there is reasonable cause to believe 

the FMU meets the regulatory criteria 

for designation. 

IV. Explanation and Proposed Rules 

The Council is providing a sixty (60) 

day comment period for this proposed 

rule. 

A. Authority and Purpose 

Proposed section 1320.1(a) clarifies 

that sections 111, 112, 804, 809, and 810 

of the DFA provide the statutory 

authority for the Council to promulgate 

this part. Proposed section 1320.1(b) 

explains that the principal purpose of 

the part is to set forth standards and 

procedures governing the Council’s 

designation of FMUs that the Council 

determines are, or are likely to become, 

systemically important. 

B. Definitions 

Proposed section 1320.2 contains 

definitions that are necessary to 

implement the proposed rules. The 

proposed definitions (including 

‘‘financial market utility,’’ ‘‘Supervisory 

Agency,’’ and ‘‘systemically important’’) 

are taken from the statutory language in 

sections 2 and 803 of the DFA. The 

Council is soliciting comment on all 

aspects of the proposed definitions. In 

particular, the Council requests 

comment on whether additional 

definitions are needed to implement the 

proposed rules. 

C. Considerations for Designating FMUs 

Proposed section 1320.10 lists five 

factors for the Council to consider in 

making a determination on whether to 

designate or rescind the designation of 

an FMU. The five factors are derived 

from section 804(a)(2) of the DFA. Of 

the five factors, four are specific and the 

fifth—any other factors that the Council 

deems appropriate—is open-ended. For 

purposes of providing greater 

transparency as to how the Council will 

apply each of the specific factors, the 

Council proposes to include 

subcategories in the proposed rule. 

These subcategories are not exclusive, 

and the Council may take additional 

items into consideration under each 

statutory factor when appropriate, in the 

Council’s experience and judgment in 

light of the particular circumstances of 

any FMU, but the Council believes 

including illustrative subcategories will 

give the public a better understanding of 

the designation process. 

With regard to the first factor covering 

the aggregate monetary value of 

transactions processed by an FMU, the 

Council proposes to consider the 

number of transactions processed, the 

value of transactions cleared, settled, 

and processed, and the value of other 

financial flows.47 The Council believes 

that information derived from this 

subcategory will inform an evaluation of 

the extent of an FMU’s operations. 

For the second factor covering the 

aggregate exposure of the FMU to its 

counterparties, the Council proposes to 

consider credit exposures 48 and 

liquidity exposures. The Council 

believes that these two subcategories 

will assist in formulating an assessment 

of an FMU’s exposures to its 

counterparties. 

For the third factor covering the 

relationship, interdependencies, or 

other interactions of an FMU with other 

FMUs or payment, clearing, or 

settlement activities, the proposed rule 

focuses on understanding the FMU’s 

interactions by types of participants. 

The Council believes that this 

subcategory will help provide a 

foundation for an evaluation of the 

extent to which an FMU is 

interconnected with other FMUs, the 

payment, clearing, or settlement 

activities of financial institutions or the 

financial markets as a whole. 

For the fourth factor covering the 

effect that the failure of or a disruption 

to an FMU would have on critical 

markets, financial institutions, or the 

broader financial system, the proposed 

rule lists subcategories focused on the 

roles of the FMU in the market served, 

the availability of substitutes, the 

concentration of participants and 

product types, the degree of tiering, and 

the potential impact or spillover in the 

event of a failure or disruption. The 

Council believes that these six 

subcategories will assist the Council’s 

evaluation of the effect of the failure of 

or a disruption to an FMU on critical 

markets, financial institutions, and the 

broader financial system. 

The Council requests comment on 

whether the subcategories in each 

specific factor are clear, sufficiently 

detailed, and appropriate. In particular, 

the Council requests comment on 

whether the Council should add 

subcategories, and whether the Council 

should eliminate or modify any of the 

proposed subcategories. 

D. Consultation With Financial Market 

Utility 

Proposed section 1320.11 provides 

that before providing an FMU with 

notice of a proposed determination 

under section 1320.12, the Council will 

provide an FMU with written notice 

that the Council is reviewing the FMU 

under this part and allow the FMU to 

submit written materials to the Council 

in support of or in opposition to, as the 

FMU deems relevant, designation by the 

Council. Written materials may also 

include any actions the FMU proposes 

to take to reduce or increase its systemic 

risk. The proposed rule does not fix the 

time frame for an FMU to submit 

written materials, but rather leaves it up 

to the Council to decide such timing on 

a case-by-case basis. The Council 

believes such flexibility is appropriate 

to provide FMUs appropriate time to 

gather and submit information. The 

Council believes that affording FMUs 

that progress to Stage 2 of the review 

process an opportunity to voluntarily 

submit information to the Council will 

be mutually beneficial. Specifically, the 

Council believes an FMU will benefit by 

having an opportunity to provide the 

Council with information and analysis 

that the FMU deems relevant on 

whether to make a proposed 

determination. The Council believes 

that any written materials provided by 

an FMU will allow it to make a more 

informed decision regarding a proposed 

determination. However, the Council 

notes that the submission of any written 

materials by an FMU under this 

proposed section 1320.11 is strictly 

voluntary. The Council requests 

comment on the utility of the proposed 

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voluntary collection of information. In 

particular, the Council requests 

comment on whether the Council 

should establish a set time period for 

FMUs to submit written materials to the 

Council or whether flexibility in the 

time permitted for FMUs to submit 

information is appropriate. 

E. Advance Notice of Proposed 

Determination 

Proposed section 1320.12 sets out the 

process by which the Council will 

provide an FMU with advance notice 

and an opportunity for a hearing to 

contest the Council’s proposed 

determination. As set forth in section 

804(c)(2) of the DFA, the Council will 

provide an FMU with advance written 

notice of its proposed determination. 

The FMU will generally have thirty (30) 

calendar days to request a hearing 

before the Council to demonstrate that 

the Council’s proposed determination is 

not supported by substantial evidence. 

Upon receipt of a timely request for a 

hearing, the Council will fix a time for 

the hearing, which in most instances 

will be through the submission of 

written materials to the Council, not 

more than thirty (30) calendar days after 

receipt of the request for a hearing. The 

Council requests comment on whether 

the proposed process is sufficiently 

detailed and clear. 

F. Council Determination Regarding 

Systemic Importance 

Proposed section 1320.13 sets out the 

requirement for the Council to designate 

an FMU and rescind the designation of 

a designated FMU depending on 

whether the standards for systemic 

importance are met. Proposed section 

1320.13 makes clear that any Council 

proposed or final determination is nondelegable and requires at least a twothirds vote of the voting members then 

serving, including the affirmative vote 

of the Chairperson of the Council. The 

proposed rule also requires the Council 

to consult with the relevant Supervisory 

Agency and the Federal Reserve Board 

before making any proposed or final 

determination. These requirements are 

taken from the statutory language in 

section 804(a), (b), and (c)(1) of the DFA. 

The Council requests comment on 

whether the proposed process is 

sufficiently detailed and clear. 

G. Emergency Exception 

Proposed section 1320.14 sets out an 

emergency exception that allows the 

Council to waive or modify the notice, 

consultation and hearing requirements 

set forth in the proposed rules and 

designate an FMU as systemically 

important. The Council may invoke this 

exception only where the Council 

makes a determination that an 

emergency designation is necessary to 

prevent or mitigate an immediate threat 

to the financial system posed by the 

FMU. The exercise of this emergency 

exception requires at least a two-thirds 

vote of the voting members of the 

Council then serving, including the 

affirmative vote of the Chairperson of 

the Council. In addition, the Council 

must provide notice of its use of the 

emergency exception to the FMU no 

later than 24 hours after such exception 

is invoked. The emergency exception is 

based on statutory language in section 

804(c)(3) of the DFA. The Council 

requests comment on whether the 

proposed emergency exception is 

sufficiently detailed and clear. In 

particular, the Council requests 

comment on whether it should provide 

a designated FMU an opportunity for a 

hearing to contest the Council’s 

determination to waive the notification 

and hearing requirements and the extent 

to which the opportunity for a hearing 

should mirror section 113(f)(4) and (5) 

of the DFA. 

H. Notification of Final Determination 

In accordance with section 804(d) of 

the DFA, proposed section 1320.15 sets 

out the deadline for the Council to 

notify an FMU of the Council’s final 

determination after providing an FMU 

notice of the proposed determination 

and an opportunity for a hearing. If the 

FMU has timely requested a hearing, the 

Council must notify the FMU in writing 

of its final determination within 60 

calendar days of the hearing, which 

must also include the Council’s findings 

of fact upon which the Council’s 

determination is based. If an FMU does 

not timely request a hearing, the 

Council will notify the FMU in writing 

of its final determination within 30 

calendar days after the expiration of the 

date by which the FMU could have 

requested a hearing. The Council 

requests comment on whether the 

notification process is sufficiently 

detailed and clear. In particular, the 

Council requests comment on whether 

the notification to an FMU that did not 

timely request a hearing should also 

include the Council’s findings of fact. 

I. Extension of Time Periods 

As set forth in section 804(e) of the 

DFA, proposed section 1320.16 

authorizes the Council to extend the 

time periods by which an FMU may 

request a hearing and submit written 

materials to contest the Council’s 

proposed determination, the 24 hour 

time period for the Council to notify an 

FMU of an emergency designation, and 

the time period for the Council to notify 

an FMU of its final determination. The 

Council requests comment on whether 

the extension of time periods process is 

sufficiently detailed and clear. 

J. Council Information Collection and 

Coordination 

Proposed section 1320.20 authorizes 

the Council to require any FMU to 

submit information that the Council 

may require for the sole purpose of 

assessing whether the FMU is 

systemically important. However, before 

the Council may impose an information 

collection burden on an FMU, the 

Council must have reasonable cause to 

believe that the FMU meets the 

standards for systemic importance. The 

Council must also coordinate with the 

FMU’s Supervisory Agency to 

determine if the requested information 

is available from or may be obtained by 

the Supervisory Agency. If the 

Supervisory Agency is unable to 

provide the Council with the requested 

information in less than 15 calendar 

days after the date the material is 

requested, the Council may then request 

the information directly from the FMU. 

In requesting information from an FMU, 

the Council must provide a written 

explanation of the basis for the 

Council’s reasonable cause 

determination. The Council believes 

that providing a written explanation to 

the FMU will help reduce or mitigate an 

FMU’s paperwork burden by providing 

specific context to the Council’s request. 

This information collection and 

coordination authority is substantially 

derived from the statutory language in 

section 809 of the DFA. The Council 

requests comment on whether the 

information collection and consultation 

process is sufficiently detailed and 

clear. In particular, the Council requests 

comment on the utility of the Council 

providing an FMU with a written 

explanation of the basis for its belief 

that the FMU is systemically important. 

V. Regulatory Flexibility Act 

It is hereby certified that this rule will 

not have a significant economic impact 

on a substantial number of small 

entities. The rule would apply only to 

FMUs whose failure could pose a threat 

to the stability of the U.S. financial 

system Size is an important factor, 

although not the exclusive factor, in 

assessing whether an FMU’s failure 

could pose a threat the stability of the 

U.S. financial system. The Council does 

not expect the rule to directly affect a 

substantial number of small entities. 

Accordingly, a regulatory flexibility 

analysis under the Regulatory 

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Flexibility Act (5 U.S.C. 601, et seq.) is 

not required. 

VI. Paperwork Reduction Act 

The collection of information 

contained in this notice of proposed 

rulemaking has been submitted to the 

Office of Management and Budget in 

accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

3507(d)). Comments on the collection of 

information should be sent to the Office 

of Management and Budget, Attn: Desk 

Officer for the Financial Stability 

Oversight Council, Office of Information 

and Regulatory Affairs, Washington, DC 

20503, with copies to Kirsten J. Harlow, 

Department of the Treasury, 

Washington, DC 20220. Comments on 

the collection of information must be 

received by May 27, 2011. Comments 

are specifically requested concerning: 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Council, including: 

Whether the information will have 

practical utility; 

The accuracy of the estimated burden 

associated with the proposed collection 

of information; 

How the quality, utility, and clarity of 

the information to be collected may be 

enhanced; 

How the burden of complying with 

the proposed collection of information 

may be minimized, including through 

the application of automated collection 

techniques or other forms of information 

technology; and 

Estimates of capital or start-up costs 

and costs of operation, maintenance, 

and purchase of services to provide 

information. 

The collection of information in these 

proposed regulations are found in 

§ 1320.11, § 1320.12, and § 1320.20. 

Estimated total annual reporting 

burden: 500 hours. 

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 assigned by the Office of 

Management and Budget. 

VII. Executive Order 12866 

Executive Orders 13563 and 12866 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. This rule 

has been designated a ‘‘significant 

regulatory action’’ although not 

economically significant, under section 

3(f) of Executive Order 12866. 

Accordingly, the rule has been reviewed 

by the Office of Management and 

Budget. 

List of Subjects in 12 CFR Part 1310 

Administrative practice and 

procedure, Banks, banking, Commodity 

futures, Electronic funds transfers, 

Financial market utilities, Securities. 

Financial Stability Oversight Council 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Financial Stability 

Oversight Council proposes to add a 

new part 1320 to 12 CFR chapter XIII, 

as proposed to be established at 76 FR 

4562, January 26, 2011, to read as 

follows: 

PART 1320—DESIGNATION OF 

FINANCIAL MARKET UTILITIES 

Sec. 

Subpart A—General 

1320.1 Authority and purpose. 

1320.2 Definitions. 

Subpart B—Consultations, Determinations 

and Hearings 

1320.10 Factors for consideration in 

designations. 

1320.11 Consultation with Financial Market 

Utility. 

1320.12 Advance notice of proposed 

determination. 

1320.13 Council determination regarding 

systemic importance. 

1320.14 Emergency exception. 

1320.15 Notification of final determination. 

1320.16 Extension of time periods. 

Subpart C—Information Collection 

1320.20 Council information collection and 

coordination. 

Authority: 12 U.S.C. 5321; 12 U.S.C. 5322; 

12 U.S.C. 5463; 12 U.S.C. 5468; 12 U.S.C. 

5469 

Subpart A—General 

§ 1320.1 Authority and purpose. 

(a) Authority. This part is issued by 

the Financial Stability Oversight 

Council under sections 111, 112, 804, 

809, and 810 of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (‘‘Dodd-Frank Act’’) (12 U.S.C. 5321, 

5322, 5463, 5468, and 5469). 

(b) Purpose. The principal purpose of 

this part is to set forth the standards and 

procedures governing the Council’s 

designation of a financial market utility 

that the Council determines is, or is 

likely to become, systemically 

important. 

§ 1320.2 Definitions. 

The terms used in this regulation have 

the following meanings: 

Appropriate Federal banking agency. 

The term ‘‘appropriate Federal banking 

agency’’ has the same meaning as in 

section 3(q) of the Federal Deposit 

Insurance Act (12 U.S.C. 1813(q)), as 

amended. 

Board of Governors. The term ‘‘Board 

of Governors’’ means the Board of 

Governors of the Federal Reserve 

System. 

Council. The term ‘‘Council’’ means 

the Financial Stability Oversight 

Council. 

Designated financial market utility. 

The term ‘‘designated financial market 

utility’’ means a financial market utility 

that the Council has designated as 

systemically important under § 1320.13. 

Designated clearing entity. The term 

‘‘designated clearing entity’’ means a 

designated financial market utility that 

is a derivatives clearing organization 

registered under section 5b of the 

Commodity Exchange Act (7 U.S.C. 7a1) or a clearing agency registered with 

the Securities and Exchange 

Commission under section 17A of the 

Securities Exchange Act of 1934 (15 

U.S.C. 78q-1). 

Financial institution. The term 

‘‘financial institution’’— 

(1) Means— 

(i) A depository institution as defined 

in section 3 of the Federal Deposit 

Insurance Act (12 U.S.C. 1813); 

(ii) A branch or agency of a foreign 

bank, as defined in section 1(b) of the 

International Banking Act of 1978 (12 

U.S.C. 3101); 

(iii) An organization operating under 

section 25 or 25A of the Federal Reserve 

Act (12 U.S.C. 601–604a and 611 

through 631); 

(iv) A credit union, as defined in 

section 101 of the Federal Credit Union 

Act (12 U.S.C. 1752); 

(v) A broker or dealer, as defined in 

section 3 of the Securities Exchange Act 

of 1934 (15 U.S.C. 78c); 

(vi) An investment company, as 

defined in section 3 of the Investment 

Company Act of 1940 (15 U.S.C. 80a-3); 

(vii) An insurance company, as 

defined in section 2 of the Investment 

Company Act of 1940 (15 U.S.C. 80a-2); 

(viii) An investment adviser, as 

defined in section 202 of the Investment 

Advisers Act of 1940 (15 U.S.C. 80b-2); 

(ix) A futures commission merchant, 

commodity trading advisor, or 

commodity pool operator, as defined in 

section 1a of the Commodity Exchange 

Act (7 U.S.C. 1a); and 

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(x) Any company engaged in activities 

that are financial in nature or incidental 

to a financial activity, as described in 

section 4 of the Bank Holding Company 

Act of 1956 (12 U.S.C. 1843(k)). 

(2) Does not include designated 

contract markets, registered futures 

associations, swap data repositories, and 

swap execution facilities registered 

under the Commodity Exchange Act (7 

U.S.C. 1 et seq.), or national securities 

exchanges, national securities 

associations, alternative trading 

systems, securities information 

processors solely with respect to the 

activities of the entity as a securities 

information processor, security-based 

swap data repositories, and swap 

execution facilities registered under the 

Securities Exchange Act of 1934 (15 

U.S.C. 78a et seq.), or designated 

clearing entities, provided that the 

exclusions in this paragraph apply only 

with respect to the activities that require 

the entity to be so registered. 

Financial market utility. The term 

‘‘financial market utility’’— 

(1) Means any person that manages or 

operates a multilateral system for the 

purpose of transferring, clearing, or 

settling payments, securities, or other 

financial transactions among financial 

institutions or between financial 

institutions and the person; and 

(2) Does not include— 

(i) Designated contract markets, 

registered futures associations, swap 

data repositories, and swap execution 

facilities registered under the 

Commodity Exchange Act (7 U.S.C. 1 et 

seq.), or national securities exchanges, 

national securities associations, 

alternative trading systems, securitybased swap data repositories, and swap 

data execution facilities registered 

under the Securities Exchange Act of 

1934 (15 U.S.C. 78a et seq.), solely by 

reason of their providing facilities for 

comparison of data respecting the terms 

of settlement of securities or futures 

transactions effected on such exchange 

or by means of any electronic system 

operated or controlled by such entities, 

provided that the exclusions in this 

clause apply only with respect to the 

activities that require the entity to be so 

registered; and 

(ii) Any broker, dealer, transfer agent, 

or investment company, or any futures 

commission merchant, introducing 

broker, commodity trading advisor, or 

commodity pool operator, solely by 

reason of functions performed by such 

institution as part of brokerage, dealing, 

transfer agency, or investment company 

activities, or solely by reason of acting 

on behalf of a financial market utility or 

a participant therein in connection with 

the furnishing by the financial market 

utility of services to its participants or 

the use of services of the financial 

market utility by its participants, 

provided that services performed by 

such institution do not constitute 

critical risk management or processing 

functions of the financial market utility. 

Payment, clearing, or settlement 

activity. 

(1) The term ‘‘payment, clearing, or 

settlement activity’’ means an activity 

carried out by 1 or more financial 

institutions to facilitate the completion 

of financial transactions, but shall not 

include any offer or sale of a security 

under the Securities Act of 1933 (15 

U.S.C. 77a et seq.), or any quotation, 

order entry, negotiation, or other pretrade activity or execution activity. 

(2) For purposes of paragraph (1), the 

term ‘‘financial transaction’’ includes— 

(i) Funds transfers; 

(ii) Securities contracts; 

(iii) Contracts of sale of a commodity 

for future delivery; 

(iv) Forward contracts; 

(v) Repurchase agreements; 

(vi) Swaps; 

(vii) Security-based swaps; 

(viii) Swap agreements; 

(ix) Security-based swap agreements; 

(x) Foreign exchange contracts; 

(xi) Financial derivatives contracts; 

and 

(xii) Any similar transaction that the 

Council determines to be a financial 

transaction for purposes of this part. 

(3) When conducted with respect to a 

financial transaction, payment, clearing, 

and settlement activities may include— 

(i) The calculation and 

communication of unsettled financial 

transactions between counterparties; 

(ii) The netting of transactions; 

(iii) Provision and maintenance of 

trade, contract, or instrument 

information; 

(iv) The management of risks and 

activities associated with continuing 

financial transactions; 

(v) Transmittal and storage of 

payment instructions; 

(vi) The movement of funds; 

(vii) The final settlement of financial 

transactions; and 

(viii) Other similar functions that the 

Council may determine. 

(4) Payment, clearing, and settlement 

activities shall not include public 

reporting of swap transactions under 

section 727 or 763(i) of the Dodd-Frank 

Act. 

Supervisory Agency. The term 

‘‘Supervisory Agency’’— 

(1) Means the Federal agency that has 

primary jurisdiction over a designated 

financial market utility under Federal 

banking, securities, or commodity 

futures laws as follows— 

(i) The Securities and Exchange 

Commission, with respect to a 

designated financial market utility that 

is a clearing agency registered with the 

Securities and Exchange Commission. 

(ii) The Commodity Futures Trading 

Commission, with respect to a 

designated financial market utility that 

is a derivatives clearing organization 

registered with the Commodity Futures 

Trading Commission. 

(iii) The appropriate Federal banking 

agency, with respect to a designated 

financial market utility that is an 

institution described in section 3(q) of 

the Federal Deposit Insurance Act. 

(iv) The Board of Governors, with 

respect to a designated financial market 

utility that is otherwise not subject to 

the jurisdiction of any agency listed in 

clauses (i), (ii), and (iii). 

(2) If a designated financial market 

utility is subject to the jurisdictional 

supervision of more than one agency 

listed in paragraph (1), then such 

agencies should agree on one agency to 

act as the Supervisory Agency, and if 

such agencies cannot agree on which 

agency has primary jurisdiction, the 

Council shall decide which is the 

Supervisory Agency for purposes of this 

part. 

Systemically important and systemic 

importance. The terms ‘‘systemically 

important’’ and ‘‘systemic importance’’ 

mean a situation where the failure of or 

a disruption to the functioning of a 

financial market utility could create, or 

increase, the risk of significant liquidity 

or credit problems spreading among 

financial institutions or markets and 

thereby threaten the stability of the 

financial system of the United States. 

Subpart B—Consultations, 

Determinations and Hearings 

§ 1320.10 Factors for consideration in 

designations. 

In making any proposed or final 

determination with respect to whether a 

financial market utility is, or is likely to 

become, systemically important under 

this part, the Council shall take into 

consideration: 

(a) The aggregate monetary value of 

transactions processed by the financial 

market utility, including without 

limitation— 

(1) The number of transactions 

processed, cleared or settled; 

(2) The value of transactions 

processed, cleared or settled; and 

(3) The value of other financial flows. 

(b) The aggregate exposure of the 

financial market utility to its 

counterparties, including without 

limitation— 

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(1) Credit exposures, which includes 

but is not limited to potential future 

exposures; and 

(2) Liquidity exposures. 

(c) The relationship, 

interdependencies, or other interactions 

of the financial market utility with other 

financial market utilities or payment, 

clearing, or settlement activities, 

including without limitation 

interactions by types of participants. 

(d) The effect that the failure of or a 

disruption to the financial market utility 

would have on critical markets, 

financial institutions, or the broader 

financial system, including without 

limitation— 

(1) Role of the financial market utility 

in the market served; 

(2) Availability of substitutes; 

(3) Concentration of participants; 

(4) Concentration by product type; 

(5) Degree of tiering; and 

(6) Potential impact or spillover in the 

event of a failure or disruption. 

(e) Any other factors that the Council 

deems appropriate. 

§ 1320.11 Consultation with Financial 

Market Utility. 

Before providing a financial market 

utility notice of a proposed 

determination under section 1320.12, 

the Council shall provide the financial 

market utility with— 

(a) Written notice that the Council is 

considering whether to make a proposed 

determination with respect to the 

financial market utility under § 1320.13; 

and 

(b) An opportunity to submit written 

materials to the Council, within such 

time as the Council determines to be 

appropriate, concerning— 

(1) Whether the financial market 

utility is systemically important taking 

into consideration the factors set out in 

§ 1320.10; and 

(2) Proposed changes by the financial 

market utility that could— 

(i) Reduce or increase the inherent 

systemic risk the financial market utility 

poses; and 

(ii) Reduce or increase the need for 

designation under § 1320.13; or 

(iii) Reduce or increase the 

appropriateness of rescission under 

§ 1320.13. 

(3) The Council shall consider any 

written materials submitted by the 

financial market utility under this 

section before making a proposed 

determination under section 1320.13. 

§ 1320.12 Advance notice of proposed 

determination. 

(a) Notice of proposed determination 

and opportunity for hearing. Before 

making any final determination under 

§ 1320.13, the Council shall provide the 

financial market utility with advance 

notice of the proposed determination of 

the Council, and proposed findings of 

fact supporting that determination. 

(b) Request for hearing. Within 30 

calendar days from the date of any 

provision of notice of the proposed 

determination of the Council, the 

financial market utility may request, in 

writing, an opportunity for a written or 

oral hearing before the Council to 

demonstrate that the proposed 

designation or rescission of designation 

is not supported by substantial 

evidence. 

(c) Written submissions. Upon receipt 

of a timely request, the Council shall fix 

a time, not more than 30 calendar days 

after receipt of the request, unless 

extended at the request of the financial 

market utility, and place at which the 

financial market utility may appear, 

personally or through counsel, to submit 

written materials, or, at the sole 

discretion of the Council, oral testimony 

or oral argument. 

§ 1320.13 Council determination regarding 

systemic importance. 

(a) Designation determination. The 

Council shall designate a financial 

market utility if the Council determines 

that the financial market utility is, or is 

likely to become, systemically 

important. 

(b) Rescission determination. The 

Council shall rescind a designation of 

systemic importance for a designated 

financial market utility if the Council 

determines that the financial market 

utility no longer meets the standards for 

systemic importance. 

(c) Vote required. Any proposed or 

final determination under paragraph (a) 

or (b) of this section shall— 

(1) Be made by the Council and may 

not be delegated by the Council; and 

(2) Require the vote of not fewer than 

two-thirds of the members of the 

Council then serving, including the 

affirmative vote of the Chairperson of 

the Council. 

(d) Consultations. Before making any 

determination under paragraph (a) or (b) 

of this section, the Council shall consult 

with the relevant Supervisory Agency 

and the Board of Governors. 

§ 1320.14 Emergency exception. 

(a) Emergency exception. 

Notwithstanding §§ 1320.11 and 

1320.12, the Council may waive or 

modify any or all of the notice, hearing, 

and other requirements of §§ 1320.11 

and 1320.12 with respect to a financial 

market utility if— 

(1) The Council determines that the 

waiver or modification is necessary to 

prevent or mitigate an immediate threat 

to the financial system posed by the 

financial market utility; and 

(2) The Council provides notice of the 

waiver or modification to the financial 

market utility concerned, as soon as 

practicable, but not later than 24 hours 

after the waiver or modification. 

(b) Vote required. Any determination 

by the Council under paragraph (a) to 

waive or modify any of the requirements 

of §§ 1320.11 and 1320.12 shall— 

(1) Be made by the Council; 

(2) Require the affirmative vote of not 

fewer than two-thirds of members then 

serving, including the affirmative vote 

of the Chairperson of Council. 

§ 1320.15 Notification of final 

determination. 

(a) Notification of final determination 

after a hearing. (1) Within 60 calendar 

days of any hearing under § 1320.12, the 

Council shall provide to the financial 

market utility written notification of the 

final determination of the Council under 

§ 1320.13, which shall include findings 

of fact upon which the determination of 

the Council is based. 

(b) Notification of final determination 

if no hearing. If the Council does not 

receive a timely request for a hearing 

under § 1320.12, the Council shall 

provide the financial market utility 

written notification of the final 

determination of the Council under 

§ 1320.13 not later than 30 calendar 

days after the expiration of the date by 

which a financial market utility could 

have requested a hearing. 

§ 1320.16 Extension of time periods. 

The Council may extend the time 

periods established in §§ 1320.12, 

1320.14, or 1320.15 as the Council 

determines to be necessary or 

appropriate. 

Subpart C—Information Collection 

§ 1320.20 Council information collection 

and coordination. 

(a) Information collection to assess 

systemic importance. The Council may 

require any financial market utility to 

submit such information to the Council 

as the Council may require for the sole 

purpose of assessing whether the 

financial market utility is systemically 

important. 

(b) Prerequisites to information 

collection. Before requiring any 

financial market utility to submit 

information to the Council under 

paragraph (a) of this section, the Council 

shall— 

(1) Determine that it has reasonable 

cause to believe that the financial 

market utility meets the standards for 

systemic importance in § 1320.10; or 

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(2) Determine that that it has 

reasonable cause to believe that the 

designated financial market utility no 

longer meets the standards for systemic 

importance in § 1320.10; and 

(3) Coordinate with the Supervisory 

Agency for the financial market utility 

to determine if the information is 

available from or may be obtained by 

the Supervisory Agency in the form, 

format, or detail required by the 

Council. 

(c) Timing of response from the 

appropriate Supervisory Agency. If the 

information, reports, records, or data 

requested by the Council under 

paragraph (b)(3) of this section are not 

provided in full by the Supervisory 

Agency in less than 15 calendar days 

after the date on which the material is 

requested, the Council may request the 

information directly from the financial 

market utility with notice to the 

Supervisory Agency. 

(d) Notice to financial market utility 

of information collection requirement. 

In requiring a financial market utility to 

submit information to the Council, the 

Council shall provide to the financial 

market utility the following— 

(1) Written notice that the Council is 

considering whether to make a proposed 

determination under § 1320.13; and 

(2) A description of the basis for the 

Council’s belief under paragraphs (b)(1) 

or (b)(2) of of this section. 

Dated: March 18, 2011. 

Alastair Fitzpayne, 

Deputy Chief of Staff and Executive Secretary, 

Department of the Treasury. 

[FR Doc. 2011–7003 Filed 3–25–11; 8:45 am] 

BILLING CODE 4810–25–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 25 

[Docket No. NM451; Notice No. 25–11–10– 

SC] 

Special Conditions: Bombardier Model 

BD–700–1A10 and BD–700–1A11 

Airplanes, Head-Up Display (HUD) With 

Video Synthetic Vision System (SVS) 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed special 

conditions. 

SUMMARY: This action proposes special 

conditions for Bombardier Model BD– 

700–1A10 and BD–700–1A11 airplanes. 

These airplanes, as modified by 

Bombardier Inc., will have a novel or 

unusual design features associated with 

a SVS that displays video imagery on 

the HUD. The applicable airworthiness 

regulations do not contain adequate or 

appropriate safety standards for this 

design feature. These special conditions 

contain the additional safety standards 

that the Administrator considers 

necessary to establish a level of safety 

equivalent to that established by the 

existing airworthiness standards. 

DATES: We must receive your comments 

by April 18, 2011. 

ADDRESSES: You must mail two copies 

of your comments to: Federal Aviation 

Administration, Transport Airplane 

Directorate, Attn: Rules Docket (ANM– 

113), Docket No. NM451, 1601 Lind 

Avenue, SW., Renton, Washington 

98057–3356. You may deliver two 

copies to the Transport Airplane 

Directorate at the above address. You 

must mark your comments: Docket No. 

NM451 You can inspect comments in 

the Rules Docket weekdays, except 

Federal holidays, between 7:30 a.m. and 

4 p.m. 

FOR FURTHER INFORMATION CONTACT: Dale 

Dunford, FAA, ANM–111, Transport 

Airplane Directorate, Aircraft 

Certification Service, 1601 Lind 

Avenue, SW., Renton, Washington 

98057–3356; telephone (425) 227–2239 

facsimile (425) 227–1100. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

We invite interested people to take 

part in this rulemaking by sending 

written comments, data, or views. The 

most helpful comments reference a 

specific portion of the special 

conditions, explain the reason for any 

recommended change, and include 

supporting data. We ask that you send 

us two copies of written comments. 

We will file in the docket all 

comments we receive, as well as a 

report summarizing each substantive 

public contact with FAA personnel 

concerning these special conditions. 

You can inspect the docket before and 

after the comment closing date. If you 

wish to review the docket in person, go 

to the address in the ADDRESSES section 

of this preamble between 7:30 a.m. and 

4 p.m., Monday through Friday, except 

Federal holidays. 

We will consider all comments we 

receive on or before the closing date for 

comments. We will consider comments 

filed late if it is possible to do so 

without incurring expense or delay. We 

may change these special conditions 

based on the comments we receive. 

If you want us to acknowledge receipt 

of your comments on this proposal, 

include with your comments a selfaddressed, stamped postcard on which 

you have written the docket number. 

We will stamp the date on the postcard 

and mail it back to you. 

Background 

On January 26, 2007, Transport 

Canada Civil Aviation (TCCA), on 

behalf of Bombardier Inc., located in 

Montreal, Canada, applied to the New 

York Aircraft Certification Office 

(NYACO) for FAA approval of a typedesign change on the Bombardier Model 

BD–700–1A10 and BD–700–1A11 

airplanes. Per Type Certificate Data 

Sheet (TCDS) T00003NY, those aircraft 

models are known under the marketing 

designation of Global Express and 

Global 5000, respectively. The change is 

to introduce the Rockwell-Collins 

avionics suite to replace the existing 

Honeywell Primus 2000EP avionics 

suite. It includes the installation of a 

SVS that displays video imagery. 

Video display on the HUD constitutes 

new and novel technology for which the 

FAA has no certification criteria. Title 

14, Code of Federal Regulations (14 

CFR) 25.773 does not permit visual 

distortions and reflections that could 

interfere with the pilot’s normal duties 

and was not written in anticipation of 

such technology. Other applications for 

certification of such technology are 

anticipated in the near future and 

magnify the need to establish FAA 

safety standards that can be applied 

consistently for all such approvals. 

Special conditions are therefore 

proposed as prescribed under the 

provisions of § 21.16. 

Type Certification Basis 

Under the provisions of 14 CFR 

21.101, Bombardier Inc. must show that 

the Bombardier Model BD–700–1A10 

and BD–700–1A11 airplanes, as 

changed, continue to meet the 

applicable provisions of the regulations 

incorporated by reference in T00003NY 

or the applicable regulations in effect on 

the date of application for the change. 

The regulations incorporated by 

reference in the type certificate are 

commonly referred to as the ‘‘original 

type certification basis.’’ The regulations 

incorporated by reference in T00003NY 

are as follows: 

Based on the application date, January 

26, 2007, under the provisions of 

§ 21.101, the applicable typecertification standards for the 

modification to the Bombardier Model 

BD–700–1A10 and BD–700–1A11 

airplanes are as follows: 

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