November 20, 2016
Dear Chair White and the Commissioners Several,
The Proposed Rule does little to clarify how securities settlement systems and covered clearing agencies are defined and, indeed, even less to clarify how they are expected to behave by virtue of their definitions or where they sit within the SEC's taxonomy of actors. In my view, the existing framework (e.g. 15 U.S. Code 78c and its companion rules) already sufficiently describes the major categories of entities contemplated by the Proposed Rule and does so at least as well as the Proposed Rule is able to do. Further, taken in concert with "Standards for Clearing Agencies" (see 240.17Ad-22) and similar rules and guidelines, the existing framework achieves the three things that can be expected of such rules: 1) it identifies to what the rule applies and excludes (affirmatively or inferentially) the items to which it does not apply, 2) it suggests the manner in which the entities and mechanisms to which it applies are expected to behave and what might represent misbehavior, and 3) it places clear, actionable, and precise burdens on the entities it controls around key matters that affect the public's perception and trust such as governance (requirements as to the public interest set forth in Section 17A of the Act (15 U.S.C. 78q-1)), audit 17 CFR 210.2-02(a-d), and so forth. Meanwhile, the Proposed Rule fails to meaningfully enhance 1) the precision with which these entities are defined, 2) the public's understanding of each category, 3) the public's trust that an entity, defined in one way or another, will then behave in - and be regulated in - expected rather than unexpected ways.
As such, I respectfully write in opposition to the adoption of the Proposed Rule in its current form.
My views here represent only my perspective as an individual and are not submitted on behalf of any other party, person, or institution.
Karl T. Muth
Lecturer in Economics and Public Policy, Northwestern University
Lecturer in Law, Pritzker School of Law, Northwestern University