SEC Sets Risk Standards for Clearers

The Securities and Exchange Commission late Monday adopted a rule that establishes standards for how clearing agencies should manage risks and run their operations.

Under the rule as adopted, a registered clearing agency will have to “establish, implement, maintain and enforce written policies and procedures” that will ensure that it can:

• Measure credit exposures to market participants once a day, or more.

• Limit its credit exposures to participants using margin requirements

• Use risk-based models and parameters to set those requirements

• Review those models and thresholds at least monthly.

• Maintain sufficient financial resources to withstand a default by the “participant family” to which it has the greatest exposure

• Have its exposure model reviewed by an independent party once a year

“These new rules are designed to ensure that clearing agencies will be able to fulfill their responsibilities in the multi-trillion dollar derivatives market as well as more traditional securities markets,” SEC Chairman Mary L. Schapiro said, in a statement. “They’re part of a broader effort to put in place an entirely new regulatory regime intended to mitigate systemic risks that emerged during the financial crisis.”

The rule is part of a mandate from the 2010 Dodd-Frank Wall Street Reform Act to establish agencies that will clear security-based swaps.

The new rule, titled 17Ad-22, will become effective 60 days after publication in the Federal Register.