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.

Underthe 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 amandate from the 2010 Dodd-Frank Wall Street Reform Actto 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.