On October 25th, the SEC adopted rule amendments to strengthen the resilience as well as the recovery and orderly wind-down plans (RWPs) of covered clearing agencies (CCAs). The revisions, originally proposed in May 2023, update the requirements regarding a CCA’s collection of intraday margin and a CCA’s dependence on substantive inputs to its risk-based margin model.
More specifically, the rule amendments would benefit investors, issuers, and the markets by:
- requiring a CCA to have policies and procedures to establish a risk-based margin system that monitors intraday exposure on an ongoing basis. This includes the authority and operational capacity to make intraday margin calls as often as deemed necessary (including when risk thresholds specified by the CCA are breached or when the products cleared or markets served display elevated volatility).
- requiring a CCA to have policies and procedures to establish a risk-based margin system that address the use of substantive inputs to its risk-based margin system when such inputs are not readily available or reliable.
Additional requirements have been added to a CCA’s RWP current content requirements, and include the following mandates to:
- identify and describe the CCA’s critical payment, clearing, and settlement services and address how it would continue to provide services in the event of recovery. During an orderly wind-down, this includes identification of the staffing necessary to support such services and analysis of how such staffing would continue in the event of a recovery and during an orderly wind-down.
- identify and describe any service providers that the CCA relies on to provide its identified critical services, specify which service providers are relevant, and address how the CCA would ensure that such service providers would continue to provide these services in a recovery and orderly wind-down, including consideration of contractual obligations with such service providers and whether those obligations are subject to alteration or termination as a result of the initiation of the RWP
- identify and describe criteria that could trigger the RWP’s implementation and the process that the CCA uses to monitor and determine whether the criteria have been met, including the applicable governance arrangements
- identify and describe the rules, policies, procedures, and any other tools the CCA would use in a recovery or orderly wind-down
- identify and describe scenarios that may potentially prevent the CCA from being able to provide its critical services, including as arising from uncovered credit losses, uncovered liquidity shortfalls, and general business losses
- include procedures for review of the plans by the board of directors at least on a yearly basis or following material changes that would significantly affect the RWPs’ viability or execution, with such review informed, as appropriate, by the RWP testing
- include procedures for testing the CCA’s ability to implement the RWPs at least on a yearly basis, including by requiring its participants and, when possible, other stakeholders to participate in testing its plans, providing for reporting the testing results to its board of directors and senior management, and specifying the procedures for amending the plans to address the testing results
- include procedures for informing the SEC as soon as possible when the CCA is considering initiating a recovery or orderly wind-down
Finally, the SEC is adopting the following compliance dates:
- 150 days following publication in the Federal Register for a CCA to file any required proposed rule changes or advance notices with the SEC
- 390 days following publication in the Federal Register for such proposed rule changes and advance notices to be effective
For further details, please see the Covered Clearing Agency Resilience and Recovery and Orderly Wind-Down Plans final rule on the SEC’s website.
Source:
Covered Clearing Agency Resilience and Recovery and Wind-Down Plans (sec.gov)