1

This document has been submitted to the Office of the Federal Register (OFR) for publication and is

currently pending placement on public display at the OFR and publication in the Federal Register.  The

document may vary slightly from the published document if minor editorial changes have been made

during the OFR review process.  Upon publication in the Federal Register, the regulation can be found at

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published in the Federal Register is the official document.

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 Dodd-Frank 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 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. 
2

DATES: Comments must be received on or before [insert 60 days from date of publication] 

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, N.W., 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. 
3

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. 
4

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 
5

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 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 

                                                           

1

 Comments 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 www.regulations.gov. 
6

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 

                                                           

2

 See, 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. 
7

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 

                                                           

3 See the DTCC letter, p.3.

4

 See comment letter from TIAA-CREF (Jan. 20, 2011) (hereinafter the “TIAA-CREF letter”), p. 9. 
8

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? 

                                                           

5

 See, e.g. the ISDA letter, p. 4. 
9

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 is important to consider average and peak daily levels of open interest to have a more 

                                                           

6

 See the TIAA-CREF letter, p. 8. 
10

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-overday 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-to-market 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 

                                                           

7

 See comment letter from Better Markets (Jan. 20. 2011) (hereinafter the “Better Markets letter”), p. 7. 
11

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 

                                                           

8

 See comment letter from LCH.Clearnet (Jan. 20, 2011) (hereinafter the “LCH.Clearnet letter”), p. 4.

9

 See the TIAA-CREF letter, p. 8. 

10 See comment letter from The Pew Charitable Trust (Jan. 19, 2011) (hereinafter the “Pew letter”), p. 8. 
12

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 time frame (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 

                                                           

11 See the TIAA-CREF letter, pp. 8-9. 

12 See the Pew letter, p. 10. 

13 See comment letter from The Financial Services Roundtable (Jan 20, 2011)(hereinafter the “Financial Services 

Roundtable letter), p3. 
13

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 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 

                                                           

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

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

16 See the TIAA-CREF letter, p. 9. 
14

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 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 

                                                           

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

18 See, 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. 
15

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 readily-available 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 

                                                           

19 See, 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. 

20 See the NACHA letter, p. 4. 

21 See the TIAA-CREF letter, p. 9 and the Pew letter, p. 10. 
16

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 

                                                           

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

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

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

25 See, e.g. the ABA letter, p. 2, 5. 
17

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 

                                                           

26 See, e.g., the comment letter from Debevoise & Plimpton (Jan. 20, 2011) (hereinafter “the Debevoise letter”), 

pp.2-5. 
18

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. 

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? 

                                                           

27 See, 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). 

28 See the Better Markets letter, pp. 7-8. 
19

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, cross-margining 

agreements, and service provider relationships)? 

                                                           

29 See the Better Markets letter, p. 8. 

30 See, e.g., the LCH.Clearnet letter, p.7. 
20

One commenter emphasized the importance for FMUs to operate under a wellestablished 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 readily-available alternative would 

                                                           

31 See the TIAA-CREF letter, p. 11. 

32 See the LCH.Clearnet letter, p. 7. 
21

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 
22

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 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

                                                           

33 See the LCH.Clearnet letter, p.8. 
23

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 

                                                           

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

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

36 See the Financial Services Roundtable letter, p.5. 
24

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

                                                           

37 See the ISDA letter, pp. 5-7. 

38 See the Pew letter, pp. 3-7. 
25

Lastly, one commenter noted that a supervisory gap existed in the oversight of internetbased 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 Principles40 and the work of 

the Financial Stability Board41 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 

                                                           

39 See the Clearing House letter, p.10. 

40 See CPSS “Core Principles for Systemically Important Payment Systems” (Jan. 2001). 

41 See, e.g. www.financialstabilityboard.org.

42 See, e.g., the ISDA letter, pp. 6-7. 
26

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 nonU.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 

                                                           

43 See the LCH.Clearnet letter, p. 9. 

44 See the Financial Services Roundtable letter, pp. 5-6. 
27

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 

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. 
28

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. 
29

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 
30

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 
31

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 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. 
32

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 nonU.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 riskrelated 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 
33

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 committees45 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-

                                                           

45 See “Financial Stability Oversight Council Committee Structure” (Nov. 23, 2010 Council Meeting Document), 

available at http://www.treasury.gov/initiatives/Pages/FSOC-index.aspx. 
34

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 
35

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 exposures46 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 estimated peak 

liquidity need in the case of the default of the largest single participant to the FMU, the mean and 

                                                           

46 In the context of derivatives clearing, the term “credit exposures” refers to potential future exposures.
36

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. 
37

 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 nonfinancial 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 
38

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 indepth 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
39

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-by-stage discussion of the proposed process. 

Stage One Process: Identification of FMUs for Further Evaluation

The first stage will be largely data-driven 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. 
40

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 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. 
41

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 
42

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 exposures48 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 

                                                           

47 Examples 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.
43

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 
44

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 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 
45

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 non-delegable and requires at least a two-thirds 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 
46

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 
47

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. 
48

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 

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 [insert 60 days from date of publication]. 

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; 
49

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 
50

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 Title 12 of the Code of Federal 

Regulations, 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. 
51

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. 
52

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. 7a-1) or a clearing agency registered with the Securities 

and Exchange Commission under section 17A of the Securities Exchange Act of 1934 (15 

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

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); 
53

 (v) A broker or dealer, as defined in section 3 of the Securities Exchange Act of 1934 (15 

U.S.C. 78c); 

 (vi) An investment company, as defined in section 3 of the Investment Company Act of 

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

 (vii) An insurance company, as defined in section 2 of the Investment Company Act of 

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

 (viii) An investment adviser, as defined in section 202 of the Investment Advisers Act of 

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

 (ix) A futures commission merchant, commodity trading advisor, or commodity pool 

operator, as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); and 

 (x) Any company engaged in activities that are financial in nature or incidental to a 

financial activity, as described in section 4 of the Bank Holding Company Act of 1956 (12 

U.S.C. 1843(k)). 

 (2) Does not include designated contract markets, registered futures associations, swap 

data repositories, and swap execution facilities registered under the Commodity Exchange Act (7 

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

trading systems, securities information processors solely with respect to the activities of the 

entity as a securities information processor, security-based swap data repositories, and swap 

execution facilities registered under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), 

or designated clearing entities, provided that the exclusions in this paragraph apply only with 

respect to the activities that require the entity to be so registered. 

 Financial market utility. The term “financial market utility”— 

(1) Means any person that manages or operates a multilateral system for the 
54

purpose of transferring, clearing, or settling payments, securities, or other financial transactions 

among financial institutions or between financial institutions and the person; and 

(2) Does not include— 

(i) Designated contract markets, registered futures associations, swap data 

repositories, and swap execution facilities registered under the Commodity Exchange Act (7 

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

trading systems, security-based swap data repositories, and swap data execution facilities 

registered under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), solely by reason of 

their providing facilities for comparison of data respecting the terms of settlement of securities or 

futures transactions effected on such exchange or by means of any electronic system operated or 

controlled by such entities, provided that the exclusions in this clause apply only with respect to 

the activities that require the entity to be so registered; and 

(ii) Any broker, dealer, transfer agent, or investment company, or any 

futures commission merchant, introducing broker, commodity trading advisor, or commodity 

pool operator, solely by reason of functions performed by such institution as part of brokerage, 

dealing, transfer agency, or investment company activities, or solely by reason of acting on 

behalf of a financial market utility or a participant therein in connection with the furnishing by 

the financial market utility of services to its participants or the use of services of the financial 

market utility by its participants, provided that services performed by such institution do not 

constitute critical risk management or processing functions of the financial market utility. 

Payment, clearing, or settlement activity. 

(1) The term “payment, clearing, or settlement activity” means an activity carried out 
55

by 1 or more financial institutions to facilitate the completion of financial transactions, but 

shall not include any offer or sale of a security under the Securities Act of 1933 (15 U.S.C. 77a 

et seq.), or any quotation, order entry, negotiation, or other pre-trade activity or execution 

activity. 

 (2) For purposes of paragraph (1), 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; 
56

(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. 
57

 (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. 
58

(b) The aggregate exposure of the financial market utility to its counterparties, including 

without limitation— 

(1) Credit exposures, which includes but is not limited to potential future exposures; and 

(2) Liquidity exposures. 

(c) The relationship, interdependencies, or other interactions of the financial market 

utility with other financial market utilities or payment, clearing, or settlement activities, 

including without limitation interactions 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 
59

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. 
60

(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 subsection (a) or (b) 

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 subsection (a) or (b), 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 
61

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 subsection (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 
62

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 subsection (a), 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 

(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 subsection (b)(3) are not provided in full 
63

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 (1) or (2) of 

subsection (b). 

Dated: ________________________ 

_____________________________ 

Alastair Fitzpayne 

Deputy Chief of Staff and Executive Secretary, 

Department of the Treasury