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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Opening Statement Regarding Proposed Rules for Operation and Governance of Clearing Agencies


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

SEC Open Meeting
Washington, D.C.
March 2, 2011

The next two items, which we will consider together, also stem from the Dodd-Frank Act and relate to the way clearing agencies operate and are governed.

Clearing agencies play a critical role in our securities markets by ensuring that transactions settle on time and on the agreed-upon terms.

Robust and resilient clearing and settlement operations directly affect the success of our markets. When operated and managed effectively, clearing agencies help bolster confidence in the markets and help promote financial stability.

At the same time, poorly functioning clearing agencies can pose significant risks to the financial system and have the potential to magnify episodes of economic stress.

Today, the Commission will consider whether to propose rules that would require clearing agencies to, among other things:

  • Maintain certain standards with respect to risk management and operations.
  • Have adequate safeguards and procedures to protect the confidentiality of trading information.
  • Have procedures that identify and address conflicts of interest.
  • Require minimum governance standards for their boards of directors.
  • Designate a chief compliance officer.
  • Disseminate pricing and valuation information if they perform central counterparty services for security-based swaps.

While some of the new rules being considered today apply solely to clearing agencies that clear security-based swaps, many would apply to all clearing agencies. Additionally, the proposed rules that we will consider are consistent with and build upon current international standards.

Some of the rules we are considering are intended to help mitigate the conflicts of interest that may result when a small number of participants exercise undue influence over a security-based swap clearing agency. We identified this type of conflict in the Regulation MC proposal the Commission advanced last October.

Similarly, the rules we proposed in February relating to the registration and regulation of security-based swap execution facilities include provisions that address certain conflicts of interest identified in Regulation MC. As a result, the Commission will consider today reopening the comment period for our October proposal to allow the public additional time to consider the Regulation MC proposal in light of these more recent efforts.

As the regulator of the both the clearing system and the securities markets generally, the Commission has sought to ensure that clearing agencies effectively perform their functions, which are critical to securities transactions and the various markets where those transactions are executed.

The rules the Commission is proposing today are designed to further strengthen the Commission’s 35-year oversight of securities clearing agencies, promote consistency in the regulation of clearing organizations generally, and mitigate systemic risk concerns brought to light following the financial crisis.

In preparing the rules proposed today, our rulemaking teams have been working closely with the CFTC and the Federal Reserve. The teams also have consulted extensively with other regulatory agencies, market participants, and the public through means like the Dodd-Frank inbox, staff roundtables and many meetings. These inputs are reflected in the proposals before us today, and I would like to thank the staff for their efforts in preparing the materials we will discuss.

Before I ask Robert Cook, Director of the Division of Trading and Markets, to discuss the proposed rules, I would like to thank Robert as well as John Ramsay, Brian Bussey, Haimera Workie, Jeffrey Mooney, Peter Curley, Marta Chaffee, Andrew Blake, and Andrew Bernstein from the Division of Trading and Markets for their hard work on this rulemaking.

Thanks as well to David Blass, Paula Jenson, Deborah Flynn and Cynthia Ginsberg from the Office of the General Counsel; Adam Glass and Sandra Mortal from the Division of Risk, Strategy and Financial Innovation; Lisa Watson and Jouky Chang from the Office of the Chief Accountant; and Amy Starr from the Division of Corporation Finance.

Finally I would like to thank the other Commissioners and all of their counsels for their work and comments on the proposed rule.

Now we will turn to Robert Cook to hear more about the Division’s recommendations.



Modified: 03/02/2011