SEC Proposes Rule Changes to Improve Resilience and Recovery Planning of Covered Clearing Agencies

The Securities and Exchange Commission (SEC) has proposed rule changes that aim to improve the resilience and recovery as well as wind-down planning of covered clearing agencies, i.e. those organizations that provide assurance that a contract between two parties will be fulfilled. The revised rules would require covered clearing agencies to establish a risk-based margin system which monitors intraday exposures, including making intraday margin calls as needed, based on predetermined risk thresholds or when the products being cleared are especially volatile. Additionally, they should have policies in place regarding the use of substantive inputs in their risk-based margin system, if applicable. Finally, the proposal encourages covered clearing agencies to develop a recovery and wind-down plan that includes nine specified elements. This plan should serve to provide enough support from the agency should a particular situation arise. This proposed change is an effort to enhance the resiliency of the market plumbing for the benefit of investors, issuers, and the overall markets. The public comment period is open for 60 days after it publishes on the SEC website or 30 days after publication in the Federal Register.