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Statement at SEC Open Meeting

Commissioner Daniel M. Gallagher

March 12, 2014

Thank you Chair White. I would like to join my colleagues in thanking the staff for all of the hard work that went into today’s proposing release. Although it has already been noted, I would like to acknowledge the tremendous efforts of Peter Curley, Katherine Martin, Hari Phatak, and Adam Yonce and their colleagues in the Division of Trading and Markets and Division of Economic and Risk Analysis.

Today’s proposing release follows on the Commission’s 2012 efforts to establish minimum requirements regarding how clearing agencies maintain effective risk management procedures and controls.[1] The Commission is now proposing new policies and procedures requirements for a specific set of clearing agencies deemed “covered clearing agencies.” In proposing these rules, the Commission gave careful consideration to the standards set forth in CPSS-IOSCO’s 2012 PFMI Report.

When I was Deputy and Co-Acting Director of TM, I pushed hard to get the resources we needed to be active participants in the CPSS-IOSCO efforts to craft standards for payment and settlement systems. Fortunately, Chairman Schapiro and the Commission agreed that our participation was important, and we sent some of our best staffers – Jeff Mooney being the best example– to be active leaders in the CPSS-IOSCO workstreams.

It is critically important that capital markets regulators like the SEC have a seat at the table during discussions about international – or domestic for that matter– standards that will impact markets and market participants that we oversee. For that reason, I am happy to support our ongoing efforts in the work of CPSS-IOSCO, and it makes sense that we take the best learning from the work of CPSS-IOSCO and use it in updating our rules, only where appropriate. I hope and expect that we will also continue to play an active and substantive role in similar international forums such as the FSB and IOSCO as both of those bodies deliberate matters of the utmost importance to global –and more importantly, the U.S. – capital markets.

Today’s proposing release continues the SEC’s contributions to the ongoing conversations on appropriate and effective risk management procedures for clearing agencies, and I’m pleased to be able to support its publication for public comment. Lastly, I want to stress that, while I think we are generally moving in the right direction with this proposal, I am not convinced that we got it exactly right, so I look forward to receiving meaningful comment on these critically important issues.

In particular, I urge commenters to pay special attention to the questions in the release. By presenting controversial ideas in question format, the Commission avoids having to subject them to the rigorous cost-benefit review mandated by our economic analysis guidance for all rulemakings, whether proposed or final. This continues a disturbing trend towards substantive questions that amount to shadow proposals in question format, – best illustrated by the Volcker Rule – and I question the viability of this process under the Administrative Procedure Act.

[1] Exchange Act Release No. 34-68080 (Oct. 22, 2012), 77 FR 66219, 66221–22 (Nov. 2, 2012) (“Clearing Agency Standards Release”).

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