Covered Clearing Agency Resilience and Recovery and Orderly Wind-Down Plans

<RULE> SECURITIES AND EXCHANGE COMMISSION <CFR>17 CFR Part 240</CFR> <DEPDOC>[Release No. 34-101446; File No. S7-10-23]</DEPDOC> <RIN>RIN 3235-AN19</RIN> <SUBJECT>Covered Clearing Agency Resilience and Recovery and Orderly Wind-Down Plans</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Securities and Exchange Commission. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Securities and Exchange Commission (“Commission”) is adopting amendments to certain rules in the Covered Clearing Agency Standards (“CCA Standards”) under the Securities Exchange Act of 1934 (“Exchange Act”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The amendments strengthen existing rules by adding new requirements related to the collection of intraday margin by a covered clearing agency (“CCA”) and the use of substantive inputs in its risk-based margin system. The Commission is also adopting a new rule to establish required elements of a CCA's recovery and orderly wind-down plan (“RWP”). </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> January 17, 2025. <E T="03">Compliance date:</E> The applicable compliance dates are discussed in Part III. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Elizabeth Fitzgerald, Assistant Director, Matthew Lee, Assistant Director, Jesse Capelle, Special Counsel, Adam Allogramento, Special Counsel, Haley Holliday, Attorney-Adviser, and David Li, Senior Financial Analyst, at (202) 551-5710, Office of Clearance and Settlement, Division of Trading and Markets; Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-7010. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> Pursuant to section 17A of the Exchange Act, <SU>1</SU> <FTREF/> as well as the Payment, Clearing, and Settlement Supervision Act (“Clearing Supervision Act”) in Title VIII of the Dodd-Frank Act, <SU>2</SU> <FTREF/> the Commission is adopting amendments to 17 CFR 240.17ad-22(e)(6) and adding new § 240.17ad-26. Below is a table of citations to the rules referenced in this release, including all rules being amended or adopted: <FTNT> <SU>1</SU>  15 U.S.C. 78q-1. </FTNT> <FTNT> <SU>2</SU>  12 U.S.C. 5461 <E T="03">et seq.</E> </FTNT> <GPOTABLE COLS="2" OPTS="L2,tp0,i1" CDEF="s130,r100"> <TTITLE> </TTITLE> <CHED H="1">Commission reference</CHED> <CHED H="1">CFR citation (17 CFR)</CHED> <ROW> <ENT I="22">Exchange Act:</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22</ENT> <ENT>§ 240.17ad-22.</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(3)(ii)</ENT> <ENT>§ 240.17ad-22(e)(3)(ii).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(4)</ENT> <ENT>§ 240.17ad-22(e)(4).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(6)</ENT> <ENT>§ 240.17ad-22(e)(6).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(6)(ii)</ENT> <ENT>§ 240.17ad-22(e)(6)(ii).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(6)(iv)</ENT> <ENT>§ 240.17ad-22(e)(6)(iv).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(15)</ENT> <ENT>§ 240.17ad-22(e)(15).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(15)(ii)</ENT> <ENT>§ 240.17ad-22(e)(15)(ii).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(23)</ENT> <ENT>§ 240.17ad-22(e)(23).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(23)(i)</ENT> <ENT>§ 240.17ad-22(e)(23)(i).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(23)(ii)</ENT> <ENT>§ 240.17ad-22(e)(23)(ii).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-22(e)(23)(iv)</ENT> <ENT>§ 240.17ad-22(e)(23)(iv).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-25</ENT> <ENT>§ 240.17ad-25.</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-25(c)</ENT> <ENT>§ 240.17ad-25(c).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-25(i)</ENT> <ENT>§ 240.17ad-25(i).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-25(j)</ENT> <ENT>§ 240.17ad-25(j).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26</ENT> <ENT>§ 240.17ad-26.</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)</ENT> <ENT>§ 240.17ad-26(a).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(1)</ENT> <ENT>§ 240.17ad-26(a)(1).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(2)</ENT> <ENT>§ 240.17ad-26(a)(2).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(3)</ENT> <ENT>§ 240.17ad-26(a)(3).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(4)</ENT> <ENT>§ 240.17ad-26(a)(4).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(5)</ENT> <ENT>§ 240.17ad-26(a)(5).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(6)</ENT> <ENT>§ 240.17ad-26(a)(6).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(7)</ENT> <ENT>§ 240.17ad-26(a)(7).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(8)</ENT> <ENT>§ 240.17ad-26(a)(8).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(a)(9)</ENT> <ENT>§ 240.17ad-26(a)(9).</ENT> </ROW> <ROW> <ENT I="03">Rule 17Ad-26(b)</ENT> <ENT>§ 240.17ad-26(b).</ENT> </ROW> </GPOTABLE> The amendments to Rule 17Ad-22(e)(6)(ii) establish new requirements with respect to a CCA's policies and procedures regarding the collection of intraday margin, specifically, to (i) include a new requirement to monitor intraday exposures on an ongoing basis, (ii) modify the preexisting reference to making intraday calls “in defined circumstances” to making intraday calls “as frequently as circumstances warrant” and identifying examples of such circumstances, and (iii) require that a CCA document when it determines not to make an intraday margin call pursuant to its written policies and procedures required under paragraph (e)(6)(ii). The amendments to Rule 17Ad-22(e)(6)(iv) establish new requirements for a CCA relying upon substantive inputs to its risk-based margin model, including when such substantive inputs are not readily available or reliable. New Rule 17Ad-26 prescribes requirements for the contents of a CCA's RWP. While Rule 17Ad-22(e)(3)(ii) currently requires a CCA's written policies and procedures to include the CCA's RWP, Rule 17Ad-22(e)(3)(ii) did not include requirements for the content of RWPs. <SU>3</SU> <FTREF/> New Rule 17Ad-26 identifies elements that a CCA's RWP must contain, including: (i) elements related to planning, including the identification and use of scenarios, triggers, tools, staffing, and service providers, as discussed in Parts II.C.1 through 5; (ii) timing and implementation of the plans, as discussed in Parts II.C.6 and 7; and (iii) testing and board approval of the plans, as discussed in Parts II.C.8 and 9. Definitions included in new Rule 17Ad-26 are discussed in Part II.D. <FTNT> <SU>3</SU>  17 CFR 240.17ad-22(e)(3)(ii). </FTNT> In developing these final rules, Commission staff has consulted with the Financial Stability Oversight Council (“FSOC”), the Commodity Futures Trading Commission (“CFTC”), the Federal Deposit Insurance Corporation (“FDIC”), and the Board of Governors of the Federal Reserve System (“FRB”). <SU>4</SU> <FTREF/> <FTNT> <SU>4</SU>   <E T="03">See, e.g.,</E> 12 U.S.C. 5464(a)(2); 5472. </FTNT> The compliance dates for the amendments to Rule 17Ad-22(e)(6) and new Rule 17Ad-26 are discussed in Part III. <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Introduction</FP> <FP SOURCE="FP-2">II. Discussion of Comments Received and Final Rules</FP> <FP SOURCE="FP1-2">A. Collection of Intraday Margin</FP> <FP SOURCE="FP1-2">1. Proposed Amendment to Rule 17Ad-22(e)(6)(ii)</FP> <FP SOURCE="FP1-2">2. Discussion of Comments</FP> <FP SOURCE="FP1-2">B. Inputs to Margin System</FP> <FP SOURCE="FP1-2">1. Proposed Amendment to Rule 17Ad-22(e)(6)(iv)</FP> <FP SOURCE="FP1-2">2. Discussion of Comments</FP> <FP SOURCE="FP1-2">C. Contents of Recovery and Orderly Wind-Down Plans</FP> <FP SOURCE="FP1-2">1. Core Services: Rule 17Ad-26(a)(1)</FP> <FP SOURCE="FP1-2">2. Service Providers: Rule 17Ad-26(a)(2)</FP> <FP SOURCE="FP1-2">3. Scenarios: Rule 17Ad-26(a)(3)</FP> <FP SOURCE="FP1-2">4. Triggers: Rule 17Ad-26(a)(4)</FP> <FP SOURCE="FP1-2">5. Tools: Rule 17Ad-26(a)(5)</FP> <FP SOURCE="FP1-2">6. Implementation: Rule 17Ad-26(a)(6)</FP> <FP SOURCE="FP1-2">7. Notification to Commission: Rule 17Ad-26(a)(7)</FP> <FP SOURCE="FP1-2">8. Testing: Rule 17Ad-26(a)(8)</FP> <FP SOURCE="FP1-2">9. Board Approval: Rule 17Ad-26(a)(9)</FP> <FP SOURCE="FP1-2">10. Other Comments</FP> <FP SOURCE="FP1-2">D. Defined Terms in Rule 17Ad-26</FP> <FP SOURCE="FP1-2">1. Definition of “Orderly Wind-Down”</FP> <FP SOURCE="FP1-2">2. Other Defined Terms and Introductory Clause</FP> <FP SOURCE="FP-2">III. Compliance Date</FP> <FP SOURCE="FP-2">IV. Economic Analysis</FP> <FP SOURCE="FP1-2">A. Introduction</FP> <FP SOURCE="FP1-2">B. Economic Baseline</FP> <FP SOURCE="FP1-2">1. Description of Market</FP> <FP SOURCE="FP1-2">2. Overview of the Existing Regulatory Framework</FP> <FP SOURCE="FP1-2">3. Current Recovery and Orderly Wind-Down Plans</FP> <FP SOURCE="FP1-2">4. Current Risk-Based Margin</FP> <FP SOURCE="FP1-2">C. Consideration of Benefits and Costs as Well as the Effects on Efficiency, Competition, and Capital Formation</FP> <FP SOURCE="FP1-2">1. Final Rule 17Ad-26</FP> <FP SOURCE="FP1-2">2. Amendments to Rule 17Ad-22(e)(6)</FP> <FP SOURCE="FP1-2">3. Other Compliance Costs</FP> <FP SOURCE="FP1-2">4. Efficiency, Competition, and Capital Formation</FP> <FP SOURCE="FP1-2">D. Reasonable Alternatives to the Final Rule and Amendments</FP> <FP SOURCE="FP1-2">1. Establish Precise Triggers for Implementation of RWPs Across All CCAs</FP> <FP SOURCE="FP1-2">2. Establish Specific Scenarios and Analyses</FP> <FP SOURCE="FP1-2">3. Establish Specific Rules, Policies, Procedures, Tools, and Resources</FP> <FP SOURCE="FP1-2">4. Require the Identification of Interconnections and Interdependencies</FP> <FP SOURCE="FP1-2">5. Establish a Specific Monitoring Frequency for Intraday Margin Calls</FP> <FP SOURCE="FP1-2">6. A ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 528k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━