SEC Proposes Rule Amendments and New Rule to Enhance Risk Management and Resilience of Covered Clearing Agencies

The Securities and Exchange Commission (SEC) has recently put forward a proposal for rule changes aimed at strengthening the risk management and resilience of covered clearing agencies. By amending existing rules and introducing new ones, the SEC seeks to ensure the continuity of clearing services and bolster the stability of the capital markets. This move is essential for safeguarding the interests of investors, issuers, and the overall market. Let's delve into the details of the proposed amendments and their potential impact.

The proposed rule changes aim to bolster the risk-based margin systems of covered clearing agencies. This involves two key areas: intraday margin monitoring and the use of substantive inputs. The SEC proposal requires covered clearing agencies to establish policies and procedures that continually monitor intraday exposure and possess the authority to make intraday margin calls whenever necessary. This includes situations where risk thresholds defined by the clearing agency are breached or when the cleared products or served markets exhibit heightened volatility.

According to SEC Chair Gary Gensler, "Today's proposal would help ensure the continuity of clearing services during times of significant stress." By having well-regulated and well-managed clearinghouses that can effectively manage risk, the proposal aims to reduce risks for the public and enhance the resiliency of market infrastructure. This, in turn, benefits all stakeholders involved.

The SEC's proposal also emphasizes the need for covered clearing agencies to address the use of substantive inputs within their risk-based margin systems. When such inputs are not readily available or reliable, it becomes crucial for agencies to establish policies and procedures to mitigate any resulting risks. The proposed changes aim to provide clarity on how covered clearing agencies should handle situations where reliable inputs are not accessible, ensuring that risk management remains robust and effective.

Additionally, the SEC's proposal introduces a new rule that builds upon the existing requirement for covered clearing agencies to have a recovery and wind-down plan. The new rule specifies nine essential elements that must be included in these plans. By providing clearer guidelines, the SEC aims to enhance the preparedness of covered clearing agencies in the event of a recovery or wind-down situation. This step promotes proactive planning and enables agencies to navigate such scenarios with greater efficiency and minimal disruption to market participants.

The SEC's proposed rule amendments and the introduction of a new rule reflect the agency's commitment to improving the risk management and resilience of covered clearing agencies. By focusing on intraday margin monitoring, addressing the use of substantive inputs, and strengthening recovery and wind-down plans, the SEC aims to bolster the stability of the capital markets. These proposed changes, if adopted, will contribute to the continuity of clearing services during times of stress and benefit investors, issuers, and the overall market. The public now has an opportunity to provide their feedback during the comment period, ensuring a collaborative approach in shaping these regulatory reforms.

If and when increased oversight goes into effect, it’s important to stay compliant with SEC federal law and adjust accordingly. As a private company, if you’re looking to raise capital, you can utilize VerifyInvestor.com to verify accredited investors both now and as regulations change.