On July 21, 2010, Title VIII of the Dodd-Frank Act, the Payment, Clearing, and Settlement Supervision Act of 2010 , became effective upon enactment. Title VIII authorizes the Federal Reserve, in coordination with other federal agencies, to supervise and regulate the infrastructure that enables financial intermediaries to process and complete financial transactions. Payment, clearing, and settlement (PCS) activities facilitate a variety of financial transactions such as transferring payments for and completing retail purchases, foreign exchange transactions, securities transactions, and derivatives trades. Some key systems in the United States have been operated by the Federal Reserve Banks and others by the private sector. PCS systems serve a critical role in the financial services sector and the broader economy. In the United States, the value of transactions for large-value payment systems amounted to $1.06 quadrillion in 2011. Attention was drawn to the functioning of the U.S. financial system in 2008 when major financial institutions entered bankruptcy (e.g., Lehman Brothers), receivership (e.g., Washington Mutual), or were kept solvent through government assistance (e.g., AIG). The interconnectedness of large financial intermediaries deemed "too-big-to-fail" heightened concerns about systemic risk, which can be understood as the failure of one firm leading to system-wide disruptions. One channel through which systemic risk can spread, as discussed in this report, is a disruption, such as the failure of a "too-big-to-fail" institution, cascading through PCS systems or activities. AIG, a major insurance company, experienced a crisis stemming from a subsidiary that was a leading underwriter of credit default swaps (CDS), a type of over-the-counter derivative. CDS provide protection to buyers against credit events such as an issuer's default on corporate debt obligations and structured securities. CDS had been traded bilaterally between institutions through an over-the-counter market system that regulatory authorities had criticized for its inefficiencies and lack of transparency. The Federal Reserve Bank of New York undertook efforts to encourage industry participants to voluntarily improve the infrastructure of the OTC derivatives market in recent years. In 2006, Alan Greenspan, then-Chairman of the Federal Reserve, reportedly said that he was appalled that people were relying on scraps of paper to record transactions, a practice which some blamed for causing a backlog of unconfirmed contracts. Prior to the Dodd-Frank Act, various federal regulatory authorities had oversight responsibilities for certain systems or entities engaged in processing those financial transactions. Title VIII reflects recommendations by the previous and current administrations to give the Federal Reserve explicit statutory oversight authority with respect to elements of the financial infrastructure in the United States, while also giving similar authority to the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) for certain parts of the infrastructure. Title VIII introduces the term "financial market utility" (FMU or utility) for those multilateral systems that transfer, clear, or settle payments, securities, or other financial transactions among financial institutions (FI) or between a FMU and a financial institution. Title VIII addresses the federal regulatory oversight of systemically important payment, clearing, and settlement (PCS) systems and PCS activities of financial institutions that facilitate various financial transactions. Financial transactions processed daily in the U.S. economy include payment transfers ranging from small-dollar retail purchase transactions to large-value purchases of securities; clearing transactions for derivatives trading; and securities settlement. Title VIII regulatory powers apply specifically to those financial market utilities and PCS activities (of financial institutions) that are designated as systemically important by the Financial Stability Oversight Council (FSOC), also created by the Dodd-Frank Act. It is notable that Title VIII does not consolidate or centralize authority for the approval of the formation of new utilities or PCS activities with the Federal Reserve or any single regulatory agency. Prior to the enactment of Title VIII, the Federal Reserve derived its oversight responsibilities for payment and settlement systems from a range of statutory responsibilities for monetary policy, banking supervision, lender of last resort, and provision of payment and settlement services. Recently, the Federal Reserve released a final rule regarding FMUs. On July 18, 2012, FSOC voted unanimously to designate eight FMUs as systemically important (see " FMUs Designated by the FSOC "). FSOC did not designate any PCS activities as systemically important at that time. Title VIII primarily addresses the regulatory framework rather than affecting the flows of funds through existing payment and settlement systems. TitleVII addresses the derivatives clearing systems and activities for OTC swap transactions. Some Representatives opposed Title VIII and struck the title governing PCS supervision from the financial reform bill that the House of Representatives passed in December 2009. Concerns held by some opponents of the title may have included a sense that the U.S. financial infrastructure was adequately supervised, or that the title might have given too much discretionary authority to the Federal Reserve. Other reservations may have included the view that Title VIII was unnecessary in light of the Federal Reserve's efforts to encourage firms to voluntarily strengthen infrastructure procedures in various markets, and the absence of a PCS-related breakdown in September 2008. S. 3497 , introduced on August 2, 2012, seeks to repeal Title VIII, stripping FSOC of its authority to designate FMUs as systemically important. This report begins by introducing the major PCS systems operating in the United States, followed by the basics of PCS systems and activities. The report then describes the different risks, including systemic risk, that are commonly associated with PCS systems and activities. The next part of the report discusses the oversight authority of the FMU and FI regulators that was in place prior to the enactment of the Dodd-Frank Act, after which the report summarizes the changes made by Title VIII, including the new regulatory oversight authority of the Fed. The final part of the report addresses implementation of Title VIII by relevant agencies and the impact of Title VIII on FMUs and FIs. The Federal Reserve and the private sector operate the systems that constitute the infrastructure for the processing and completion of financial transactions in the United States. Listed below are some of the major systems currently operating in the United States. Some privately-operated systems have been designated by FSOC as systemically important under Title VIII. Additional information regarding selected systems, including recent transaction volume levels, is set forth in an Appendix to this report. In the future, new and evolving types of financial products, transactions and instruments could lead to new payment, clearing, and settlement systems and activities. On July 18, 2012, FSOC voted unanimously to designate eight FMUs as systemically important. Each was assigned a supervisory agency on the basis of the types of activities that they perform. The eight systemically important FMUs are The Clearing House Payments Company, on the basis of its role as operator of the Clearing House Interbank Payments System (CHIPS). (Supervisory Agency—The Federal Reserve) CLS Bank (foreign exchange) (Supervisory Agency—The Federal Reserve) Chicago Mercantile Exchange (CME) Clearing (credit default and interest rate swaps) (Supervisory Agency—Commodity Futures Trading Commission) Depository Trust Company (DTC) (Supervisory Agency—Securities and Exchange Commission) Fixed Income Clearing Corporation operating the Government Securities Division (GSD) and the Mortgage-Backed Securities Division (MBSD) (Supervisory Agency—Securities and Exchange Commission) ICE Trust (credit default swaps) (Supervisory Agency—Commodity Futures Trading Commission) National Securities Clearing Corporation (NSCC) (Supervisory Agency—Securities and Exchange Commission The Options Clearing Corporation (equity derivatives) (Supervisory Agency—Securities and Exchange Commission) The Clearing House operates an interbank funds transfer system known as CHIPS and an ACH system known as EPN. DTCC operates the Depository Trust Company (DTC), the major U.S. depository, and clearing corporations for government, mortgage-backed, and corporate and municipal securities. These entities provide the primary infrastructure for the clearance, settlement, and custody of the vast majority of transactions in the United States involving equities, corporate debt, municipal bonds, money market instruments, and government securities. In the future, FSOC may add or remove PCS systems from the designated list, as conditions warrant. The Federal Reserve Banks operate the following three wholesale payment services and an electronic payment system providing ACH services to depository institutions: Fedwire ® Funds Service Fedwire Securities Service, also known as the National Book-Entry System (NBES) National Settlement Service (NSS) FedACH ® Service The Federal Reserve Banks began providing services using telecommunications in the early 1900s to transfer funds between accounts maintained in different Federal Reserve Districts. In 1981, the Federal Reserve was required by law to price most of the Federal Reserve Bank financial services, including funds transfers and securities safekeeping, and to give nonmember depository institutions direct access to those services. The Fedwire services enable depository institutions, the U.S. Treasury and other government agencies to transfer funds and book-entry securities nationwide. The Fedwire Funds Services is a real-time gross settlement (RTGS) system to settle funds electronically between banks; the Fedwire Securities Service provides issuance, settlement, and transfer services for U.S. Treasury securities and other government-related securities; and the National Settlement Service, which is a multilateral settlement service, is used by clearinghouses, financial exchanges, and other clearing and settlement groups. The Fedwire funds and securities transactions are processed in real time when received and are final and irrevocable when settled.