[Federal Register Volume 85, Number 94 (Thursday, May 14, 2020)]
[Rules and Regulations]
[Pages 28853-28867]
[FR Doc No: 2020-07905]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-88616; File No. S7-23-16]
RIN 3235-AL48

Definition of ``Covered Clearing Agency''

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to the definitions of ``covered clearing agency,''
``central securities depository services,'' and ``sensitivity
analysis'' pursuant to Section 17A of the Securities Exchange Act of
1934 (``Exchange Act'') and the Payment, Clearing, and Settlement
Supervision Act of 2010 (``Clearing Supervision Act''), enacted in
Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (``Dodd-Frank Act'').

DATES: Effective date: July 13, 2020.

FOR FURTHER INFORMATION CONTACT: Matthew Lee, Assistant Director, or
Jesse Capelle, Special Counsel, Office of Clearance and Settlement,
Division of Trading and Markets, Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549-7010, at<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The Commission is amending 17 CFR 240.17Ad-
22(a)(5) (``Rule 17Ad-22(a)(5)'') to define ``covered clearing agency''
to mean a registered clearing agency that provides the services of a
central counterparty (``CCP'') or central securities depository
(``CSD''). The Commission also is amending 17 CFR 240.17Ad-22(a)(3)
(``Rule 17Ad-22(a)(3)'') to define ``central securities depository'' to
mean a clearing agency that is a securities depository as described in
Section 3(a)(23)(A) of the Exchange Act.\1\ In addition, the Commission
is amending the definition of ``sensitivity analysis'' in 17 CFR
240.17Ad-22(a)(16) (``Rule 17Ad-22(a)(16)'') so that the policies and
procedures of all covered clearing agencies that are CCPs provide for a
sensitivity analysis that considers the most volatile relevant periods,
where practical, that have been experienced by the markets served by
the covered clearing agency. The Commission is not adopting the
proposed definition of ``securities settlement system.''
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    \1\ 15 U.S.C. 78c(a)(23)(A).
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    In developing these rule amendments, Commission staff has consulted
with the Financial Stability Oversight Council (``FSOC''), Commodity
Futures Trading Commission (``CFTC''), and Board of Governors of the
Federal Reserve System (``FRB'').\2\ The Commission has also considered
the relevant international standards as required by Section
805(a)(2)(A) of the Clearing Supervision Act.\3\ The relevant

international standards for CCPs and CSDs are the Principles for
Financial Market Infrastructures.\4\
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    \2\ See 12 U.S.C. 5472.
    \3\ 12 U.S.C. 5464(a)(2)(A).
    \4\ See Committee on Payment and Settlement Systems and
Technical Committee of the International Organization of Securities
Commissions, Principles for Financial Market Infrastructures (Apr.
16, 2012) (``PFMI''), http://www.bis.org/publ/cpss101a.pdf.
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Table of Contents

I. Background
II. Amendments to Rule 17Ad-22
    A. Rule 17Ad-22(a)(5)
    B. Rule 17Ad-22(a)(3)
    C. Rule 17Ad-22(a)(16)
    D. Proposed Definition of ``Securities Settlement System''
III. Economic Analysis
    A. Economic Background
    B. Baseline
    C. Consideration of Benefits, Costs, and the Effect on
Competition, Efficiency, and
    Capital Formation
IV. Paperwork Reduction Act
    A. Summary of Collection of Information and Use of Information
    B. Respondent Clearing Agencies
    C. Total Annual Reporting and Recordkeeping Burdens
    D. Collection of Information Is Mandatory
    E. Confidentiality
V. Regulatory Flexibility Act Certification
    A. Registered Clearing Agencies
    B. Certification
VI. Other Matters
VII. Statutory Authority

I. Background

    In 2012, the Commission adopted 17 CFR 240.17Ad-22 (``Rule 17Ad-
22'') under the Exchange Act to strengthen the substantive regulation
of registered clearing agencies and promote their safe and reliable
operation.\5\ In 2016, the Commission also took an important step in
the development of its regulatory framework for registered clearing
agencies by adding 17 CFR 240.17Ad-22(e) (``Rule 17Ad-22(e)''),\6\
which strengthened the existing framework by establishing requirements
for registered clearing agencies that meet the definition of a
``covered clearing agency.'' Rule 17Ad-22(e) includes requirements for
covered clearing agencies intended to address the activity and risks
that their size, operation, and importance pose to the U.S. securities
markets, the risks inherent in the products they clear, and the goals
of both the Exchange Act and the Dodd-Frank Act. Of particular note,
the requirements in Rule 17Ad-22(e) that address policies and
procedures for transparency, governance, financial risk management, and
operational risk management help ensure that covered clearing agencies
are robust and stable.\7\
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    \5\ See 17 CFR 240.17Ad-22; Release No. 34-68080 (Oct. 22,
2012), 77 FR 66219, 66225-26 (Nov. 2, 2012) (``Clearing Agency
Standards adopting release'').
    \6\ Release No. 34-78961 (Sept. 28, 2016), 81 FR 70786, 70902-05
(Oct. 13, 2016) (``CCA Standards adopting release'').
    \7\ CCA Standards adopting release, supra note 6, at 70793,
70801-10, 70837-38.
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    As adopted in 2016, Rule 17Ad-22(e) established enhanced
requirements for an initial group of registered clearing agencies.\8\
The Commission also contemporaneously proposed to amend the definition
of ``covered clearing agency'' and certain other definitions to expand
coverage of Rule 17Ad-22(e) to all registered clearing agencies
providing the services of a CCP, CSD, or securities settlement
system.\9\ The Commission received several comments in response to the
proposed amendments.\10\ In this document, the Commission is adopting
amendments to the definitions of ``covered clearing agency'' in Rule
17Ad-22(a)(5), ``central securities depository services'' in Rule 17Ad-
22(a)(3), and ``sensitivity analysis'' in Rule 17Ad-22(a)(16), and the
Commission is not adopting the proposed definition of ``securities
settlement system.'' The effect of these amendments is to expand the
coverage of Rule 17Ad-22(e) so that all registered clearing agencies
providing the services of a CCP or CSD are subject to Rule 17Ad-22(e).
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    \8\ Release No. 34-71699 (Mar. 12, 2014), 79 FR 16865 (Mar. 26,
2014), corrected at 79 FR 29507 (May 22, 2014) (``CCA Standards
proposing release'').
    \9\ Release No. 34-78963 (Sept. 28, 2016), 81 FR 70744 (Oct. 13,
2016) (``CCA Definition proposing release'').
    \10\ Letters from Chris Barnard, dated Dec. 9, 2016
(``Barnard''); Keith Bishop, former California Commissioner of
Corporations, dated Oct. 10, 2016 (``Bishop''); Ashley Burrowes,
dated Oct. 28, 2016 (``Burrowes''); Carrie Devorah, dated Oct. 18,
2016 (``Devorah''); Andrew Helmin, dated Dec. 9, 2016 (``Helmin'');
Karl Muth, dated Nov. 20, 2016 (``Muth''); Suzanne Shatto, dated
Jan. 24, 2017 (``Shatto''). The comment letters are available on the
Commission's website at https://www.sec.gov/comments/s7-23-16/s72316.htm.
     In addition, two commenters expressed views unrelated to the
proposed amendments. For example, one commenter expressed views on
the regulation of clearing brokers and another expressed views on
counterparty default, margin requirements, failed trades, and the
use of shortselling. See Devorah (expressing views regarding J.P.
Morgan Chase & Co.'s activity as a clearing broker) and Shatto
(expressing views on counterparty default, margin requirements,
failed trades, and the use of shortselling). Because these comments
are not relevant to the rule amendments adopted in this document,
they have not been addressed in Part II.
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II. Amendments to Rule 17Ad-22

A. Rule 17Ad-22(a)(5)

1. Proposed Amendment and Comment Received
    As discussed in the CCA Definition proposing release, the previous
definition of ``covered clearing agency'' in Rule 17Ad-22(a)(5) stated
that ``covered clearing agency'' means a designated clearing agency or
a clearing agency involved in activities with a more complex risk
profile for which the Commodity Futures Trading Commission is not the
Supervisory Agency as defined in Section 803(8) of the Payment,
Clearing and Settlement Supervision Act of 2010 (12 U.S.C. 5461 et
seq.).\11\ The Commission proposed to amend the definition of ``covered
clearing agency'' in Rule 17Ad-22(a)(5) to mean a registered clearing
agency that provides the services of a CCP, CSD, or securities
settlement system.
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    \11\ See CCA Definition proposing release, supra note 9, at
70749.
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    The Commission received one comment regarding the proposed
amendment to the definition of ``covered clearing agency.'' \12\ The
commenter opposed adoption of the proposed amendment, stating that, in
contrast to existing Rule 17Ad-22, the proposal fails to meaningfully
enhance (i) the precision with which the entities are defined, (ii) the
public's understanding of each category, and (iii) the public's trust
that an entity will then behave in and be regulated in expected
ways.\13\
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    \12\ See Muth. Comments directed specifically to the
``securities settlement system'' element of the proposed definition
are discussed in Part II.D.
    \13\ See Muth.
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    The Commission disagrees that the amendment to the definition of
``covered clearing agency'' fails to meaningfully enhance the precision
with which the entities are defined. The Commission believes that the
amended definition is more precise than the previous definition because
it is simpler and more accessible, consolidating all of the relevant
concepts and factors into one definition in Rule 17Ad-22 and requiring
a less subjective analysis to determine whether a clearing agency is
subject to the requirements in Rule 17Ad-22(e). The Commission notes
that the previous definition of ``covered clearing agency'' included a
number of separate factors that a reader must interpret and apply to
determine whether a clearing agency is subject to the enhanced risk
management requirements in Rule 17Ad-22(e). Those factors, which are
largely but not entirely contained in the previous Rule 17Ad-22(a)(5),
include whether a registered clearing agency has been designated as
systemically important under Title VIII of the Dodd-Frank Act by FSOC,
whether the Commission or the CFTC is the supervisory agency for the
registered clearing agency, and whether the registered clearing agency
is involved in activities with a more

complex risk profile.\14\ Readers seeking to understand how to apply
and interpret the term ``clearing agency involved in activities with a
more complex risk profile'' must look to 17 CFR 240.17Ad-22(a)(4) and
engage in additional analysis, including considering: (i) Whether the
clearing agency provides central counterparty services for security-
based swaps; (ii) whether the Commission has made a determination that
a clearing agency is involved in activities with a more complex risk
profile at the time of its initial registration (thereby requiring a
reader to look to Commission orders approving the registration of a
registered clearing agency); and (iii) whether, subsequent to approving
a clearing agency's initial registration, the Commission has made a
determination pursuant to another rule, 17 CFR 240.17Ab2-2, that the
clearing agency is involved in activities with a more complex risk
profile.\15\
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    \14\ See 17 CFR 240.17Ad-22(a)(5).
    \15\ See 17 CFR 240.17Ad-22(a)(4).
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    In addition, and as first explained in the CCA Definition proposing
release, the Commission believes that consideration of these types of
factors could result in conflicting outcomes where certain CCPs and
CSDs, now or in the future, are excluded from the definition of
``covered clearing agency,'' resulting in competitive asymmetries
between registered clearing agencies that otherwise provide similar
clearing agency services.\16\ Similarly, the Commission also believes
that the amended definition of ``covered clearing agency'' should
enhance public trust that an entity will behave and be regulated in
expected ways because the proposed definition eliminates the potential
for different regulatory treatment, and therefore different regulatory
behaviors and outcomes, across clearing agencies that provide the same
clearing agency services and present similar risks to the U.S.
securities markets.
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    \16\ See CCA Definition proposing release, supra note 9, at
70753, 70768.
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    With respect to whether the amended definition of ``covered
clearing agency'' enhances the public's understanding of each category
of covered clearing agency, the Commission also disagrees with the
commenter. In contrast to the previous definition, the amendment bases
the definition of ``covered clearing agency'' solely on the particular
clearing agency services provided by registered clearing agencies--
namely, CCP and CSD services--and therefore enables a clearer
understanding and regulatory approach, based on the single and well-
understood factor of clearing agency activity, across registered
clearing agencies that perform these critical functions.\17\ By
amending the definition of ``covered clearing agency'' so that it
references only clearing agency functions, the Commission believes that
the amendment better aligns the meaning of ``covered clearing agency''
with the services that such a clearing agency would provide. In
addition, these two functions implicate the concentration and
management of risk (in particular financial risks, such as credit and
liquidity risk) and the potential transmission of systemic risk--
activities which, by virtue of their significance to the U.S. financial
system generally, and the national system for clearance and settlement
in particular, warrant the application of the enhanced requirements in
Rule 17Ad-22(e).\18\
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    \17\ See CCA Standards adopting release, supra note 6, at 70787
(describing clearing agency functions).
    \18\ See CCA Definition proposing release, supra note 9, at
70750.
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    Further, since the 2007-2009 financial crisis, the Commission
understands that the terms CCP and CSD have become widespread and well-
known among market participants,\19\ and therefore the Commission
believes that using terminology consistent with industry practice in
the definition of ``covered clearing agency'' should help enhance the
public's understanding of the relevant clearing agency services that
meet the definition of a ``covered clearing agency.''
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    \19\ See, e.g., Commission, CFTC & FRB, Risk Management
Supervision of Designated Clearing Entities, (2011) at 7, https://www.sec.gov/news/studies/2011/813study.pdf.
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2. Final Rule
    The Commission is adopting the proposed definition of ``covered
clearing agency'' but modifying it to remove reference to ``securities
settlement system,'' as further discussed in Part II.D.\20\
Accordingly, Rule 17Ad-22(a)(5) as adopted defines ``covered clearing
agency'' to mean a registered clearing agency that provides the
services of a CCP or CSD.
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    \20\ Comments on the proposed definition of ``securities
settlement system'' are discussed in Part II.D.
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a. Overview of the Definitions of CCP and CSD
    In light of the amended definition, as of the effective date, all
CCPs and CSDs registered with the Commission (that do not already meet
the existing definition of ``covered clearing agency'') will become
subject to examinations for compliance with Rule 17Ad-22(e) and, when
filing proposed rule changes under 17 CFR 240.19b-4, will need to
consider how rule changes are consistent with Rule 17Ad-22(e).\21\ In
addition, entities seeking to register as a clearing agency that
provide CCP or CSD services, as of the effective date, would also be
subject to Rule 17Ad-22(e). The Commission would therefore review any
applications on Form CA-1 submitted by such an entity for consistency
with Rule 17Ad-22(e). The Commission previously provided guidance on
these topics in the CCA Standards adopting release.\22\ In the CCA
Definition proposing release, the Commission also discussed the
important services that CCPs and CSDs provide and how those services
support the application of the enhanced requirements in Rule 17Ad-
22(e).\23\ Below, the Commission is providing further guidance on the
types of services that CCPs and CSDs generally provide.
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    \21\ As a result of the amended definition, as of the effective
date, ICE Clear Credit, which provides CCP services for security-
based swap transactions, will be a covered clearing agency subject
to Rule 17Ad-22(e). The existing CCPs that are already covered
clearing agencies and subject to the provisions of Rule 17Ad-22(e)
are Banque Centrale De Compensation, Fixed Income Clearing
Corporation, ICE Clear Europe, National Securities Clearing
Corporation, and The Options Clearing Corporation. The Depository
Trust Company is the only CSD registered as a clearing agency in the
United States, and it was also already a covered clearing agency
subject to Rule 17Ad-22(e).
    \22\ See CCA Standards adopting release, supra note 6, at 70848-
49 (in the discussion of effective and compliance dates).
    \23\ See CCA Definition proposing release, supra note 9, at
70750-52 (discussing the critical functions common among and
specific to CCPs and CSDs).
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    As defined in 17 CFR 240.17Ad-22(a)(2) (``Rule 17Ad-22(a)(2)''),
``central counterparty'' means a clearing agency that interposes itself
between the counterparties to a trade, acting functionally as the buyer
to every seller and the seller to every buyer.\24\ The definition
includes two core concepts: (i) Interposing between the counterparties
to a trade; and (ii) acting functionally as the buyer to every seller
and vice versa. These concepts encompass a wide variety of practices,
and differences in the practices of CCPs may reflect the risk
characteristics of the instruments that the CCP clears, the
characteristics of the participants for which the CCP clears, other
external factors, or the design of the CCP's risk-management
framework.\25\ For example, the Commission has previously explained
that a CCP often assumes a central role in ensuring the performance

of open contracts and facilitating the clearance and settlement of
trades through risk management tools such as: Novating and guaranteeing
trades, netting, and collecting clearing fund contributions from
members.\26\ In novating and guaranteeing trades, a CCP assumes the
original parties' contractual obligations to each other and assumes
their credit risk.\27\ In netting, a CCP reduces its overall exposure
to its counterparties.\28\ By collecting clearing fund contributions, a
CCP can maintain sufficient financial resources in the event a member
defaults on its obligations to the CCP.\29\ In describing these aspects
of CCP practices, the Commission stated its belief that a CCP, through
its core functions and use of its risk management tools, helps reduce
credit, market, and liquidity risk among and to its counterparties.\30\
Ultimately, the Commission believes that the essence of a CCP is its
role in managing and mitigating credit exposures and liquidity risk.
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    \24\ See 17 CFR 240.17Ad-22(a)(2); Clearing Agency Standards
adopting release, supra note 5, at 66229.
    \25\ See PFMI, supra note 4, at 155-57 (describing the variety
in CCP structure and operations).
    \26\ Release No. 34-80295 (Mar. 22, 2017), 82 FR 15564, 15566
(Mar. 29, 2017).
    \27\ See id.
    \28\ See id.
    \29\ See id.
    \30\ See id. at 15567.
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    Like CCPs, CSDs encompass a wide variety of practices. For example,
a clearing agency performs CSD services when it (i) acts as a custodian
of securities in connection with a system for the central handling of
securities whereby all securities of a particular class or series of
any issuer deposited within the system are treated as fungible and may
be transferred, loaned, or pledged by bookkeeping entry without
physical delivery of securities certificates; or (ii) otherwise permits
or facilitates the settlement of securities transactions or the
hypothecation or lending of securities without physical delivery of
securities certificates.\31\ As a result, the Commission believes that
a range of activities could meet the definition of CSD.
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    \31\ See 15 U.S.C. 78c(a)(23)(A); 17 CFR 240.17Ad-22(a)(3).
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b. Registered Clearing Agencies That Are Not Covered Clearing Agencies
    As discussed in the CCA Definition proposing release,\32\
registered clearing agencies that are not covered clearing agencies,
such as registered clearing agencies that do not provide CCP or CSD
services, will continue to be governed by other provisions of Rule
17Ad-22, including 17 CFR 240.17Ad-22(d) (``Rule 17Ad-22(d)''), which
contain requirements for various aspects of the payment, clearance, and
settlement process.\33\
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    \32\ See CCA Definition proposing release, supra note 9, at
70747 n.35.
    \33\ See 17 CFR 240.17Ad-22(d)(1)-(13).
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B. Rule 17Ad-22(a)(3)

    The Commission proposed to amend the defined term ``central
securities depository services'' in Rule 17Ad-22(a)(3) by deleting the
word ``services'' so that the rule would instead define the term
``central securities depository'' to mean a clearing agency that is a
securities depository as described in Section 3(a)(23)(A) of the
Exchange Act. While the Commission proposed to amend the defined term,
it did not propose to amend the meaning of the term as set forth in
Rule 17Ad-22(a)(3). The purpose of this proposed amendment was to
ensure consistency with the use of the defined term ``central
counterparty'' in Rule 17Ad-22(a)(2) in the proposed definition of
``covered clearing agency.''
    The Commission received one comment regarding the amendment to the
definition of ``central securities depository services.'' \34\ This
commenter stated that the proposed definition is ``unnecessary
surplusage'' because Rule 17Ad-22(a)(3) already defines ``central
securities depository services.'' \35\ The Commission notes that the
purpose of the proposed modification was to conform the defined term
``central securities depository'' with the defined term ``central
counterparty'' in Rule 17Ad-22(a)(2) by removing the reference to
``services'' in the term. As previously discussed, the term ``central
securities depository,'' like the term ``central counterparty,'' is
widely known and used among market participants, as CSDs and CCPs are
critical financial market utilities.\36\ Further, the Commission
continues to believe that the amendment improves consistency with the
use of ``central counterparty'' throughout Rule 17Ad-22 and helps make
the amended definition of ``covered clearing agency'' clear. Finally,
and for the reasons just given above, the amendment removes a term in
Rule 17Ad-22(a)(3) that the Commission believes to be in excess of what
is necessary to ensure consistency in expressing a well understood
concept both across the Commission's rules as well as market
participants' application of such terms. For these reasons, the
Commission believes that the amendment is appropriate.
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    \34\ See Bishop.
    \35\ See id.
    \36\ See supra note 19 and accompanying text.
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    For the reasons discussed above, the Commission is adopting the
amended definition of ``central securities depository'' in Rule 17Ad-
22(a)(3) as proposed.

C. Rule 17Ad-22(a)(16)

    As discussed in the CCA Definition proposing release, a covered
clearing agency that provides CCP services must establish, implement,
maintain and enforce written policies and procedures reasonably
designed to regularly review, test, and verify its risk-based margin
system by conducting a sensitivity analysis of its margin model, among
other things.\37\ The Commission proposed two amendments to the
definition of ``sensitivity analysis'' in Rule 17Ad-22(a)(16). First,
in conjunction with the proposed definition of ``covered clearing
agency,'' the Commission proposed to amend the definition of
``sensitivity analysis'' to remove the reference to ``a covered
clearing agency involved in activities with a more complex risk
profile'' from paragraph (a)(16)(ii). Second, in order to improve
consistency among the elements within the definition of sensitivity
analysis, the Commission proposed to separate the two elements in
paragraph (a)(16)(i) into two separate paragraphs and renumber the
existing paragraphs accordingly.
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    \37\ See CCA Definition proposing release, supra note 9, at
70754-55.
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    Thus, taking these two proposed amendments together, the proposed
definition of ``sensitivity analysis'' would apply to covered clearing
agencies that provide CCP services and would mean an analysis that
involves analyzing the sensitivity of a model to its assumptions,
parameters, and inputs that (i) considers the impact on the model of
both moderate and extreme changes in a wide range of inputs,
parameters, and assumptions, including correlations of price movements
or returns if relevant, which reflect a variety of historical and
hypothetical market conditions; (ii) uses actual portfolios and, where
applicable, hypothetical portfolios that reflect the characteristics of
proprietary positions and customer positions; (iii) considers the most
volatile relevant periods, where practical, that have been experienced
by the markets served by the clearing agency; and (iv) tests the
sensitivity of the model to stressed market conditions, including the
market conditions that may ensue after the default of a member and
other extreme but plausible conditions as defined in a covered clearing
agency's risk policies.
    In response to the proposal, one commenter suggested that the
Commission specifically refer to reverse stress testing in the
amendments to the

rule.\38\ The Commission previously addressed this issue in the CCA
Standards adopting release. As explained there, Rule 17Ad-22(e) does
not preclude a covered clearing agency from performing reverse stress
testing as part of its financial risk management; indeed, the
Commission indicated that a covered clearing agency generally should
consider using reverse stress testing to evaluate the adequacy of
financial resources.\39\ However, the Commission continues to believe
that each covered clearing agency should retain flexibility, subject to
its obligations and responsibilities as an SRO under the Exchange Act,
to develop its stress testing framework in light of the ever-evolving
challenges and risks inherent in the securities markets. Further, the
Commission notes that reverse stress testing, which can be a useful
tool to evaluate the adequacy of financial resources held by a covered
clearing agency, is a distinct concept from sensitivity analysis, which
in the context of Rule 17Ad-22(a)(16) concerns how assumptions,
parameters, and inputs into a covered clearing agency's margin model
react to potential changes in market conditions.
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    \38\ Barnard.
    \39\ See CCA Standards adopting release, supra note 6, at 70815.
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    For the reasons discussed above, the Commission is adopting the
amended definition of ``sensitivity analysis'' in Rule 17Ad-22(a)(16)
as proposed.

D. Proposed Definition of ``Securities Settlement System''

    In the CCA Definition proposing release, the Commission proposed to
define ``securities settlement system'' to mean a clearing agency that
enables securities to be transferred and settled by book entry
according to a set of predetermined multilateral rules.\40\
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    \40\ See CCA Definition proposing release, supra note 9, at
70754.
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    Several commenters raised concerns regarding the proposed
definition, stating that it was unclear,\41\ ambiguous,\42\ and
superfluous.\43\ Commenters raised these concerns because the term
``securities settlement system'' does not appear in the Exchange
Act,\44\ and one commenter did not understand the meaning of
``multilateral rules'' as used in the definition.\45\
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    \41\ See Bishop.
    \42\ See Burrowes.
    \43\ See id.
    \44\ See Bishop; Burrowes.
    \45\ See Helmin.
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    In consideration of these comments, the Commission is not adopting
the proposed definition of ``securities settlement system.'' At this
time, no registered clearing agency currently provides only the
services of a securities settlement system. Rather, as explained in the
CCA Definition proposing release, clearing agencies provide differing
clusters of services for their participants, and the Commission has
registered several clearing agencies over the years that provide the
services of a securities settlement system along with other
services.\46\ For example, in the past, the Commission has included
book-entry transfers among the services provided by either a CSD or a
securities settlement system.\47\ As another example, one registered
clearing agency currently provides both CSD services and the services
of a securities settlement system for the U.S. securities markets.\48\
Because the services of a securities settlement system have not been
offered as standalone services historically and are not currently,\49\
the Commission believes that the amended definition of ``covered
clearing agency,'' as adopted and discussed in Part II.A, covers
substantially the same scope of clearing agency activity as the
proposed definition.
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    \46\ See CCA Definition proposing release, supra note 9, at
70752 & nn.83-88.
    \47\ See id. at 70748, 70752.
    \48\ See id.
    \49\ As described in the CCA Definition proposing release, over
the years the Commission has registered a number of entities as
clearing agencies that provide a variety of services, including
securities settlement services for transactions executed by
specialists on an exchange, for mortgage-backed securities
transactions, and for cross-border transactions. See id. at 70752.
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    Thus, in response to the concerns identified by commenters and to
eliminate ambiguity, the Commission is not adopting the proposed
definition of ``securities settlement system.'' \50\
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    \50\ Because the Commission is not adopting the definition of
``securities settlement system,'' the numbering for the definition
of ``sensitivity analysis'' will be different than proposed, and the
definitions of ``stress testing,'' ``systemically important in
multiple jurisdictions,'' and ``transparent'' will retain their
original numbering, rather than be renumbered as proposed.
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III. Economic Analysis

    The Commission is sensitive to the economic consequences and
effects of the adopted amendments, including their benefits and costs.
Under Section 3(f) of the Exchange Act, whenever the Commission engages
in rulemaking under the Exchange Act and is required to consider or
determine whether an action is necessary or appropriate in the public
interest, it must consider, in addition to the protection of investors,
whether the action will promote efficiency, competition, and capital
formation.\51\ Further, as noted above, Section 17A of the Exchange Act
directs the Commission, when using its authority to facilitate the
establishment of a national system for clearance and settlement of
securities transactions, to have due regard for the public interest,
the protection of investors, the safeguarding of securities and funds,
and maintenance of fair competition among brokers and dealers, clearing
agencies, and transfer agents.\52\ Section 23(a)(2) of the Exchange Act
also prohibits the Commission from adopting any rule that would impose
a burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.\53\
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    \51\ See 15 U.S.C. 78c(f).
    \52\ See CCA Definition proposing release, supra note 9, at
70745-46.
    \53\ See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission is amending the definition of ``covered clearing
agency'' in Rule 17Ad-22(a)(5) by focusing directly on clearing agency
functions. Thus the amended definition of ``covered clearing agency''
covers all clearing agencies that provide the services of a CCP or CSD.
The Commission is also adopting a conforming amendment to the
definition of ``central securities depository services'' in Rule 17Ad-
22(a)(3), and the Commission is amending the definition of
``sensitivity analysis'' in Rule 17Ad-22(a)(16). As discussed in Part
II, these amendments expand the scope of registered clearing agencies
subject to Rule 17Ad-22(e) and encompass one additional registered
clearing agency that now meets the definition of a ``covered clearing
agency'' and is subject to the requirements of Rule 17Ad-22(e).

A. Economic Background

    As the Commission has noted before, registered clearing agencies
have become an essential part of the infrastructure of the U.S.
securities markets.\54\ While central clearing generally benefits the
markets in which it is available, clearing agencies can pose
substantial risk to the financial system as a whole, due in part to the
fact that central clearing concentrates risk in the clearing
agency.\55\ Disruption to a

clearing agency's operations, or failure on the part of a clearing
agency to meet its obligations, could therefore serve as a potential
source of contagion, resulting in significant costs not only to the
clearing agency itself or its members but also to other market
participants or the broader U.S. financial system.\56\ As a result,
proper management of the risks associated with central clearing is
necessary to ensure the stability of the U.S. securities markets and
the broader U.S. financial system. When a clearing agency provides CCP
services, central clearing replaces bilateral counterparty exposures
with exposures against the clearing agency. Consequently, a move to
central clearing of security-based swaps, holding the volume of
security-based swap transactions constant, increases economic exposures
against clearing agencies that centrally clear security-based swaps.
Increased exposures in turn raise the possibility that these clearing
agencies may serve as a transmission mechanism for systemic events.
---------------------------------------------------------------------------

    \54\ See CCA Definition proposing release, supra note 9, at
70756; see also CCA Standards adopting release, supra note 6, at
70849.
    \55\ For example, the default and liquidation of a clearing
agency would be costly and disruptive to financial markets. See,
e.g., CCA Standards adopting release, supra note 6, at 70866; see
also Robert Cox & Robert Steigerwald, A CCP is a CCP is a CCP, (Fed.
Reserve Bank of Chi. Policy Discussion Paper 2017-01, Apr. 2017), at
13-14, https://www.chicagofed.org/publications/policy-discussion-papers/2017/pdp-1. Further, clearing members face risks if losses
borne by clearing agencies, including the default of one member, are
mutualized across non-defaulting members. See, e.g., CCA Standards
adopting release, supra note 6, at 70854-59 (describing the risks
clearing agencies face, including, among others, counterparty credit
risk, liquidity risk, and operational risk).
    \56\ See generally Dietrich Domanski, Leonardo Gambacorta, &
Cristina Picillo, Central Clearing: Trends and Current Issues, BIS
Q. Rev., Dec. 2015, at 59, https://www.bis.org/publ/qtrpdf/r_qt1512g.pdf (describing links between CCP financial risk
management and systemic risk); Darrell Duffie, Ada Li, & Theo Lubke,
Policy Perspectives on OTC Derivatives Market Infrastructure, (Fed.
Reserve Bank of N.Y. Staff Report No. 424, Jan. 2010), at 9, http://www.newyorkfed.org/research/staff_reports/sr424.pdf (``If a CCP is
successful in clearing a large quantity of derivatives trades, the
CCP is itself a systemically important financial institution. The
failure of a CCP could suddenly expose many major market
participants to losses. Any such failure, moreover, is likely to
have been triggered by the failure of one or more large clearing
members, and therefore to occur during a period of extreme market
fragility.''); Craig Pirrong, The Inefficiency of Clearing Mandates
(CATO Inst. Policy Analysis No. 655, July 21, 2010), at 11-14, 16-
17, 24-26, http://www.cato.org/pubs/pas/PA665.pdf (stating, among
other things, that ``CCPs are concentrated points of potential
failure that can create their own systemic risks,'' that ``[a]t
most, creation of CCPs changes the topology of the network of
connections among firms, but it does not eliminate these
connections,'' that clearing may lead speculators and hedgers to
take larger positions, that a CCP's failure to effectively price
counterparty risks may lead to moral hazard and adverse selection
problems, that the main effect of clearing would be to
``redistribute losses consequent to a bankruptcy or run,'' and that
clearing entities have failed or come close to failing in the past,
including in connection with the 1987 market break); Froukelien
Wendt, Central Counterparties: Addressing Their Too Important to
Fail Nature (IMF Working Paper No. 15/21, Jan. 2015), https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Central-Counterparties-Addressing-their-Too-Important-to-Fail-Nature-42637
(assessing the potential channels for contagion arising from CCP
interconnectedness); Manmohan Singh, Making OTC Derivatives Safe--A
Fresh Look (IMF Working Paper No. 11/66, Mar. 2011), at 5-11, http://www.imf.org/external/pubs/ft/wp/2011/wp1166.pdf (addressing factors
that could lead central counterparties to be ``risk nodes'' that may
threaten systemic disruption). See also Ben Bernanke, Clearing and
Settlement during the Crash, 3 Rev. Fin. Stud. 133 (1990) for a
discussion of the risks affecting clearing and settlement during the
October 1987 stock market crash.
---------------------------------------------------------------------------

    As the Commission discussed in the CCA Definition proposing
release, clearing agencies have incentives to implement a risk
management framework that can effectively manage the risks posed by
central clearing, but these incentives can also be tempered by
pressures to reduce costs and maximize profits that are distinct from
goals set forth in governing statutes.\57\ In addition, regulatory
reforms, including efforts to mandate central clearing for OTC
derivatives, can alter incentives to manage risks for both CCPs and
clearing members. These factors may cause CCPs to choose risk
management policies that do not fully reflect the costs and benefits
that accrue to other financial market participants as a result of their
decisions, and these choices may have implications for financial
stability.
---------------------------------------------------------------------------

    \57\ See id.
---------------------------------------------------------------------------

B. Baseline

    In order to assess the economic effects of the amendments to Rule
17Ad-22, the Commission uses an economic baseline that considers the
current market for clearance and settlement services. As discussed in
the CCA Definition proposing release,\58\ the Commission believes that
the amendment to the definition of ``covered clearing agency'' will
likely result in one additional registered clearing agency, ICE Clear
Credit (``ICC''), becoming subject to the requirements in Rule 17Ad-
22(e), and may also affect ICE Clear Europe (``ICEU'') because ICEU is
a potential substitute provider of CCP services for security-based
swaps to ICC's clearing members, even though the amendment to the
definition of ``covered clearing agency'' does not affect ICEU's
current status as a covered clearing agency.\59\ Since publication of
the CCA Definition proposing release, the Commission has registered
Banque Central de Compensation, which conducts business under the name
LCH SA (``LCH SA''), as a clearing agency to provide CCP services for
U.S. persons for security-based swaps, including single-name credit
default swaps, through its CDSClear business unit. Similar to ICEU, the
Commission believes that ICC becoming subject to the requirements in
Rule 17Ad-22(e) may also affect CDSClear because LCH SA is also a
potential substitute provider of CCP services for security-based swaps
to ICC's clearing members, even though the amendment to the definition
of ``covered clearing agency'' does not affect LCH SA's current status
as a covered clearing agency.\60\ The Commission's baseline therefore
includes these three entities in the market for clearance and
settlement services, the current market practices at these entities, as
well as the regulatory framework for these entities, including rules
adopted by other regulators to the extent that these rules affect the
cost structure, business, and market practices of the above-mentioned
entities. Accordingly, Table 1 below provides membership statistics for
ICC, ICEU, and LCH SA's CDSClear as of February 2020.
---------------------------------------------------------------------------

    \58\ See id. at 70757.
    \59\ See infra Part III.C.1.c. Because ICC, ICEU, and LCH SA's
CDSClear overlap in the products they clear, the amendments could
potentially cause business to shift among these three clearing
agencies.
    \60\ See supra note 59 and accompanying text.
    \61\ Membership statistics are taken from the websites of each
of the listed clearing agencies as of February 2020: ICE Clear
Credit Participants, https://www.theice.com/clear-credit/participants; ICE Clear Europe Membership, https://www.theice.com/clear-europe/membership; LCH SA Member Search, https://www.lch.com/membership/member-search.

 Table 1--Membership Statistics for ICE Clear Credit, ICE Clear Europe,
                       and LCH SA's CDSClear \61\
------------------------------------------------------------------------
                                                                 Number
------------------------------------------------------------------------
ICE
  Clear Credit Members.......................................         29
  Clear Europe Members.......................................         89
  --*Clear Europe Members that clear CDS.....................         30
LCH
  SA Members.................................................        119
  --CDSClear Members.........................................         26
------------------------------------------------------------------------

With respect to the regulatory framework and current practices, the
Commission discussed each at length in the CCA Definition proposing
release.\62\ The regulatory framework, which includes Section 17A of
the Exchange Act, Section 19 of the Exchange Act, Titles VII and VIII
of the Dodd-Frank Act, Rule 17Ad-22 under the Exchange Act, and certain
regulations adopted by the CFTC, remains substantially unchanged. The
current practices of ICC and ICEU also remain substantially unchanged,
except that the Commission has approved the following proposed rule
changes at ICC and ICEU since

publication of the CCA Definition proposing release:
---------------------------------------------------------------------------

    \62\ See CCA Definition proposing release, supra note 9, at
70757-64.
---------------------------------------------------------------------------

     With respect to risk management, ICC has expanded the
scope of credit default swap contracts for which it provides clearing
services,\63\ revised its risk management framework,\64\ revised its
liquidity risk management and stress testing frameworks,\65\ revised
policies and procedures regarding liquidity thresholds,\66\ amended
policies and procedures for end-of-day price discovery,\67\ revised and
formalized its model validation framework,\68\ revised and formalized
its back-testing framework,\69\ revised and formalized its new
initiatives approval policy and procedural framework,\70\ and revised
and formalized its risk parameter setting and review policy; \71\
---------------------------------------------------------------------------

    \63\ See, e.g., Release Nos. 34-87297 (Oct. 15, 2019), 84 FR
56270 (Oct. 21, 2019); 34-84130 (Sept. 18, 2018), 83 FR 47665 (Sept.
20, 2018); 34-82853 (Mar. 12, 2018), 83 FR 11570 (Mar. 15, 2018);
34-81646 (Sept. 18, 2017), 82 FR 44477 (Sept. 22, 2017); 34-79892
(Jan. 27, 2017), 82 FR 9086 (Feb. 2, 2017); 34-79197 (Oct. 31,
2016), 81 FR 76987 (Nov. 4, 2016).
    \64\ See, e.g., Release Nos. 34-87297 (Oct. 15, 2019), 84 FR
56270 (Oct. 21, 2019); 34-84457 (Oct. 19, 2018), 83 FR 53917 (Oct.
25, 2018); 34-83832 (Aug. 13, 2018), 83 FR 41118 (Aug. 17, 2018);
34-82853 (Mar. 12, 2018), 83 FR 11570 (Mar. 15, 2018); 34-79220
(Nov. 2, 2016), 81 FR 78677 (Nov. 8, 2016).
    \65\ See, e.g., Release Nos. 34-86838 (Aug. 30, 2019), 84 FR
47019 (Sept. 9, 2019); 34-86378 (July 15, 2019), 84 FR 34990 (July
19, 2019); 34-82853 (Mar. 12, 2018), 83 FR 11570 (Mar. 15, 2018);
34-81797 (Oct. 2, 2017), 82 FR 46844 (Oct. 6, 2017); 34-81347 (Aug.
8, 2017), 82 FR 37917 (Aug. 14, 2017).
    \66\ Release No. 34-80324 (Mar. 28, 2017), 82 FR 16244 (Apr. 3,
2017).
    \67\ See, e.g., Release Nos. 34-87297 (Oct. 15, 2019), 84 FR
56270 (Oct. 21, 2019); 34-82960 (Mar. 28, 2018), 83 FR 14300 (Apr.
3, 2018); 34-81186 (July 21, 2017), 82 FR 34997 (July 27, 2017); 34-
80858 (June 5, 2017), 82 FR 26824 (June 9, 2017).
    \68\ See, e.g., Release No. 34-86039 (June 5, 2019), 84 FR 27167
(June 11, 2019); 34-83690 (July 24, 2018), 83 FR 36655 (July 30,
2018).
    \69\ Release No. 34-85357 (Mar. 19, 2019), 84 FR 11146 (Mar. 25,
2019).
    \70\ Release No. 34-85105 (Feb. 11, 2019), 84 FR 4570 (Feb. 15,
2019).
    \71\ Release No. 34-85495 (Apr. 3, 2019), 84 FR 14158 (Apr. 9,
2019).
---------------------------------------------------------------------------

     With respect to risk management, ICEU has modified rules
relating to its own contribution to CDS default resources,\72\ allowed
new transaction types,\73\ revised policies and procedures concerning
end-of-day price discovery,\74\ amended its loss-given default
framework,\75\ amended its collateral and haircut policy,\76\ modified
its procyclicality framework,\77\ amended its stress testing
policy,\78\ amended its liquidity plan,\79\ amended its finance
procedures,\80\ amended its single name CDS liquidity charge
methodology,\81\ modified rules relating to its model risk governance
framework,\82\ revised its back-testing policy,\83\ revised its risk
policy,\84\ and revised its policies relating to liquidity management;
\85\
---------------------------------------------------------------------------

    \72\ Release No. 34-81076 (July 5, 2017), 82 FR 32037 (July 11,
2017).
    \73\ Release No. 34-82890 (Mar. 16, 2018), 83 FR 12630 (Mar. 22,
2018).
    \74\ See, e.g., Release Nos. 34-84033 (Sept. 5, 2018), 83 FR
46005 (Sept. 11, 2018); 34-83389 (June 6, 2018), 83 FR 27356 (June
12, 2018); 34-81031 (June 27, 2017), 82 FR 30918 (July 3, 2017); 34-
80978 (June 20, 2017), 82 FR 28919 (June 26, 2017).
    \75\ See supra note 73.
    \76\ Release No. 34-82659 (Feb. 8, 2018), 83 FR 6660 (Feb. 14,
2018).
    \77\ Release No. 34-82313 (Dec. 13, 2017), 82 FR 60254 (Dec. 19,
2017).
    \78\ Release Nos. 34-85236 (Mar. 1, 2019), 84 FR 8348 (Mar. 7,
2019); 34-83243 (May 15, 2018), 83 FR 23506 (May 21, 2018).
    \79\ Release No. 34-84754 (Dec. 7, 2018), 83 FR 64171 (Dec. 13,
2018).
    \80\ Release No. 34-84375 (Oct. 5, 2018), 83 FR 51715 (Oct. 12,
2018).
    \81\ Release No. 34-85776 (May 3, 2019), 84 FR 20454 (May 9,
2019).
    \82\ See, e.g., Release No. 34-85128 (Feb. 13, 2019), 84 FR 5137
(Feb. 20, 2019).
    \83\ See, e.g., Release Nos. 34-87360 (Oct. 18, 2019), 84 FR
57100 (Oct. 24, 2019); 34-85236 (Mar. 1, 2019), 84 FR 8348 (Mar. 7,
2019).
    \84\ See, e.g., Release Nos. 34-85236 (Mar. 1, 2019), 84 FR 8348
(Mar. 7, 2019); 34-81680 (Sept. 22, 2017), 82 FR 45339 (Sept. 28,
2017).
    \85\ Release No. 34-86891 (Sept. 6, 2019), 84 FR 48191 (Sept.
12, 2019).
---------------------------------------------------------------------------

     With respect to client clearing, ICEU modified its rules
to permit indirect client clearing arrangements; \86\
---------------------------------------------------------------------------

    \86\ Release No. 34-82422 (Dec. 29, 2017), 83 FR 546 (Jan. 4,
2018).
---------------------------------------------------------------------------

     With respect to recovery and wind-down plans, both ICC and
ICEU amended their clearing rules relating to default management,
recovery, and wind-down; \87\
---------------------------------------------------------------------------

    \87\ See, e.g., Release Nos. 34-86783 (Aug 28, 2019), 84 FR
46575 (Sept. 4, 2019); 34-86364 (July 12, 2019), 84 FR 34455 (July
18, 2019); 34-86259 (July 1, 2019), 84 FR 32483 (July 8, 2019); 34-
83651 (July 17, 2018), 83 FR 34891 (July 23, 2018); 34-79750 (Jan.
6, 2017), 82 FR 3831 (Jan. 12, 2017).
---------------------------------------------------------------------------

     With respect to policies and procedures for default
management, both ICC and ICEU revised their rules relating to the
application of default provisions \88\ and revised their auction
procedures for a defaulting clearing participant's open CDS positions;
\89\
---------------------------------------------------------------------------

    \88\ See, e.g., Release Nos. 34-86838 (Aug. 30, 2019), 84 FR
47019 (Sept. 9, 2019); 34-80304 (Mar. 24, 2017), 82 FR 15733 (Mar.
30, 2017).
    \89\ Release No. 34-87804 (Dec. 19, 2019), 84 FR 71501 (Dec. 27,
2019).
---------------------------------------------------------------------------

     With respect to recognizing credit events, both ICC and
ICEU modified their clearing rules to reflect ISDA's Narrowly Tailored
Credit Event supplement; \90\
---------------------------------------------------------------------------

    \90\ See, e.g., Release Nos. 34-87971 (Jan. 15, 2020), 85 FR
3724 (Jan. 22, 2020); 34-88013 (Jan. 22, 2020), 85 FR 5058 (Jan. 28,
2020).
---------------------------------------------------------------------------

     With respect to treasury operations, ICC amended its
treasury operations policies and procedures; \91\
---------------------------------------------------------------------------

    \91\ See, e.g., Release Nos. 34-87859 (Dec. 26, 2019), 85 FR 157
(Jan. 2, 2020); 34-84312 (Sept. 28, 2018), 83 FR 50124 (Oct. 4,
2018); 34-81386 (Aug. 14, 2017), 82 FR 39484 (Aug. 18, 2017).
---------------------------------------------------------------------------

     With respect to clearing membership policy, ICEU
formalized and added requirements for applications for CDS clearing
membership; \92\ and
---------------------------------------------------------------------------

    \92\ Release No. 34-86359 (July 11, 2019), 84 FR 34241 (July 17,
2019).
---------------------------------------------------------------------------

     With respect to operational risk, both ICC and ICEU
amended their operational risk management frameworks.\93\
---------------------------------------------------------------------------

    \93\ See, e.g., Release Nos. 34-86184 (June 24, 2019), 84 FR
31132 (June 28, 2019); 34-83071 (Apr. 19, 2018), 83 FR 18108 (Apr.
25, 2018).

    In addition, the Commission approved LCH SA's registration as a
clearing agency after publication of the CCA Definition proposing
release, and since then the Commission has also approved rule changes
by LCH SA concerning its policies and procedures for risk management,
including with respect to liquidity risk, margin, and default fund
management.\94\
---------------------------------------------------------------------------

    \94\ See, e.g., Release Nos. 34-88039 (Jan. 24, 2020), 85 FR
5489 (Jan. 30, 2020); 34-87881 (Jan. 2, 2020), 85 FR 947 (Jan. 8,
2020); 34-86376 (July 15, 2019), 84 FR 34955 (July 19, 2019); 34-
83691 (July 24, 2018), 83 FR 36635 (July 30, 2018); 34-82345 (Dec.
18, 2017), 82 FR 60781 (Dec. 22, 2017); 34-81056 (June 30, 2017), 82
FR 31364 (July 6, 2017); 34-80849 (June 2, 2017), 82 FR 26721 (June
8, 2017); 34-80848 (June 2, 2017), 82 FR 26728 (June 8, 2017).
---------------------------------------------------------------------------

    The Commission believes that ICEU's rule changes, LCH SA's
registration, and LCH SA's subsequent rule changes would not
substantially affect the preliminary assessment of most of the economic
effects set forth in the CCA Definition proposing release, except to
the extent that uniform regulatory requirements among ICEU, LCH SA, and
ICC may enable clearing members to shift their business from ICEU or
LCH SA to ICC.\95\ The Commission also believes that the ICC rule
changes may affect the Commission's preliminary assessment of benefits,
costs, and the effect on competition, efficiency, and capital formation
in two ways, as follows. First, to the extent that changes to ICC's
risk management framework result in changes to ICC's clearing fund
deposits, margin deposits, and deposits collected in lieu of margin,
the updated calculations in Part III.C.1.a below include the effects of
such rule changes in estimating the anticipated benefits for clearing
members. Second, to the extent that these rule changes improve
compliance with any aspect of Rule 17Ad-22(e) or the CFTC's comparable
rules, ICC may have lower costs of complying with the amendments to
Rule 17Ad-22 than first estimated in 2016.
---------------------------------------------------------------------------

    \95\ See infra Part III.C.1.c.

---------------------------------------------------------------------------

C. Consideration of Benefits, Costs, and the Effect on Competition,
Efficiency, and Capital Formation

    As discussed in the CCA Definition proposing release, the aggregate
economic effects of the amendments to Rule 17Ad-22 arise from two
sources: (i) The amendments' likely effects on existing registered
clearing agencies, and (ii) the amendments' likely effects on clearing
agencies that may register with the Commission in the future. Thus, the
below discussion considers the benefits, costs, and likely effects on
efficiency, competition, and capital formation that may arise from
these two sources separately.\96\ Further, when viewed in isolation,
the economic effects related to existing registered clearing agencies
are likely to be low in magnitude but, when taken together with the
economic effects related to future registrants, could be substantial.
This is particularly true because the rules subject future registrants
that are CCPs or CSDs to the enhanced requirements in Rule 17Ad-22(e),
and these clearing agencies are likely to play critical roles in the
U.S. clearance and settlement system.
---------------------------------------------------------------------------

    \96\ CCA Definition proposing release, supra note 9, at 70764.
---------------------------------------------------------------------------

1. Economic Effects Related to Registered Clearing Agencies
    The Commission continues to believe that the addition of ICC as a
covered clearing agency will incrementally extend the systemic benefits
of risk management first discussed in the CCA Standards adopting
release and previously explained in the CCA Definition proposing
release. These benefits consist of improved financial stability,\97\ a
reduction in the ambiguity associated with holding cleared assets in
the presence of credit and settlement risk, and a reduction in market
fragmentation arising from different requirements across regulatory
regimes.\98\ The Commission also continues to believe that the
extension of these benefits will likely be incremental and will only
appear to the extent that the amendments would result in changes to ICC
policies and procedures because, as explained in the CCA Definition
proposing release, ICC is regulated as a systemically important
derivatives clearing organization (``SIDCO'') by the CFTC, and Rule
17Ad-22(e) is consistent with comparable regulatory provisions adopted
by the CFTC.\99\ The following sections attempt to estimate particular
benefits that could accrue to ICC and its members as a result of ICC
being more likely to qualify as a Qualified CCP (``QCCP'') under the
amended definitions,\100\ and then they discuss the costs and the
effect on efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \97\ See id. at 70765; see also CCA Standards adopting release,
supra note 6, at 70867-80.
    \98\ See CCA Definition proposing release, supra note 9, at
70765; see also CCA Standards adopting release, supra note 6, at
70861-62.
    \99\ See CCA Definition proposing release, supra note 9, at
70765.
    \100\ The BCBS capital framework, as well as the rules adopted
by the FRB and Office of the Comptroller of the Currency consistent
with that framework, applies lower risk weights to indirect
exposures of banks to QCCPs. See BCBS, Capital Requirements for Bank
Exposures to Central Counterparties (Dec. 2019), https://www.bis.org/basel_framework/chapter/CRE/54.htm?inforce=20191215&export=pdf (``BCBS capital framework''); see
also Regulatory Capital Rules: Regulatory Capital, Implementation of
Basel III, Capital Adequacy, Transition Provisions, Prompt
Corrective Action, Standardized Approach for Risk-Weighted Assets,
Market Discipline and Disclosure Requirements, Advanced Approaches
Risk-Based Capital Rule, and Market Risk Capital Rule, 76 FR 62017,
62099 (Oct. 11, 2013), at 62103.
---------------------------------------------------------------------------

a. Benefits
    As explained in the CCA Definition proposing release, the
amendments to Rule 17Ad-22 make it more likely that ICC will qualify as
a QCCP for security-based swap transactions in foreign jurisdictions
that have adopted the BCBS capital framework's QCCP definition.\101\ In
particular, ICC's qualification as a QCCP would result in its foreign
bank clearing members and foreign bank indirect participants facing
lower capital requirements with respect to cleared security-based swap
transactions relative to the baseline in which foreign banking
regulators do not determine ICC to be a QCCP.\102\
---------------------------------------------------------------------------

    \101\ See CCA Definition proposing release, supra note 9, at
70765.
    \102\ The benefits to bank clearing members are contingent upon
regulators in other jurisdictions taking action to recognize ICC's
QCCP status following adoption of the amended definition of
``covered clearing agency.''
---------------------------------------------------------------------------

    As explained in the CCA Definition proposing release, the BCBS
capital framework affects capital requirements for bank exposures to
CCPs in two important ways: (i) Generally, trade exposures held against
a QCCP are assigned a risk weight of two percent rather than risk
weights ranging from 20 to 100 percent depending on counterparty credit
risk; and (ii) the risk weight applied to default fund contributions to
a QCCP are generally lower than those applied to default fund
contributions to a non-QCCP.\103\ In the proposing release, the
Commission used a method permitted under the interim BCBS capital
requirements to estimate an upper bound for the benefits to clearing
members of lower capital requirements for exposures to QCCPs.\104\
Since the CCA Definition proposing release, the BCBS capital framework
updated the capital requirements for bank exposures to CCPs. In
contrast to the interim approach that was in force until January 1,
2017, the current requirements permit only one method for computing
capital requirements for default fund contributions to QCCPs.\105\
Under the current requirements, a bank clearing member's default fund
contribution has a capital requirement that is the greater of either
(i) the hypothetical capital requirement of the CCP reflecting all of
its counterparty credit risk exposures multiplied by the proportion of
the bank clearing member's contribution to the CCP's default fund or
(ii) eight percent multiplied by two percent multiplied by the clearing
member bank's default fund contribution.\106\ Although the change in
capital requirements affects the magnitude of benefits that bank
clearing members might experience as a result of QCCP status, the
Commission continues to expect that bank clearing members subject to
the BCBS capital framework may benefit from an improved capital
position and lowering funding costs relative to the bank clearing
members of non-qualifying CCPs.
---------------------------------------------------------------------------

    \103\ See CCA Definition proposing release, supra note 9, at
70765.
    \104\ See BCBS, Capital Requirements for Bank Exposures to
Central Counterparties (July 2012), https://www.bis.org/publ/bcbs227.pdf.
    \105\ See CCA Definition proposing release, supra note 9, at
70765, for a discussion of the 2014 methods for calculating capital
requirements for bank exposures to CCPs; see also supra note 104 and
accompanying text.
    \106\ See BCBS capital framework, supra note 100; see also supra
note 101.
---------------------------------------------------------------------------

    As set forth in the CCA Definition proposing release, the
Commission has attempted to quantify the benefits of achieving QCCP
status using publicly available information with regard to ICC.\107\ To
estimate the upper bound for the potential benefits accruing to bank
clearing members at ICC as a result of its QCCP status, the Commission
identified the sample of 15 bank holding companies and foreign
equivalents of bank holding companies that own clearing members and,
for each, collected information about total assets, risk-weighted
assets, net income, and tier-one capital ratio at the holding company
level for 2019.\108\ The

Commission then allocated trade exposures and default fund exposures
across the sample of bank clearing members based on the level of risk-
weighted assets.\109\ The Commission measured the impact on risk-
weighted assets for foreign bank clearing members under two different
capital treatment regimes. In the first regime, ICC does not obtain
QCCP status, and bank clearing members are subject to a 100 percent
risk weight for trade exposures and a 1250 percent risk weight for
default fund exposures. In the second regime, ICC obtains QCCP status,
and bank clearing members can apply a two percent risk weight to trade
exposures and the greater of either (i) ICC's hypothetical capital
requirement multiplied by the proportion of the bank clearing member's
contribution to the CCP's default fund, or (ii) 0.16 percent of the
bank clearing member's default fund contribution.\110\ If ICC is
determined to be a QCCP, then the increase in risk-weighted assets will
be smaller in magnitude, implying a smaller adjustment at lower cost.
Using data through December 2019, the Commission now estimates that the
benefits of lower capital requirements against exposures to QCCPs as a
result of the amendments to Rule 17Ad-22 have an upper bound of $17.8
million per year (up from the estimate of $12.9 million provided in the
CCA Definition proposing release, which was based on data through
August 2016), or approximately 0.01 percent of the total net income
reported by the bank holding companies and foreign equivalent of bank
holding companies that own ICC clearing members in 2019.\111\
---------------------------------------------------------------------------

    \107\ See CCA Definition proposing release, supra note 9, at
70765-66.
    \108\ The Commission used the set of entities it identified as
banks on ICC's member list available at https://www.theice.com/clear-credit/participants. For U.S. bank holding companies, 2019
total assets, risk weighted assets, net income, and tier-one capital
ratios were collected from Y-9C reports from the National
Information Center, available at https://www.ffiec.gov/nicpubweb/nicweb/nichome.aspx. For the foreign equivalent of bank holding
companies, Commission staff obtained corresponding data from
financial statements and supplementary financial materials posted to
company websites. Where necessary, values were converted back to
U.S. dollars at September 30, 2019 or December 31, 2019 (depending
on the most recently reported quarterly financial results) exchange
rates obtained from the Federal Reserve at http://www.federalreserve.gov/releases/h10/hist/.
    \109\ For example, one bank in the sample, with 8.52 percent of
total risk-weighted assets, was assigned 8.52 percent of the total
trade and default fund exposures while another bank in the sample,
with 3.01 percent of total risk weighted assets, was assigned 3.01
percent of these exposures. Because trade exposures of ICC members
against ICC are nonpublic, the Commission used the balance of ICC
margin deposits in house accounts held by ICC, $11.1 billion, as a
proxy for trade exposures. ICC's clearing participant guaranty fund
deposits as of September 30, 2019 were valued at $2.28 billion. See
ICC 2019 Q3 Quantitative Disclosure, https://www.theice.com/clear-credit/regulation#quantitative-disclosures.
    \110\ See BCBS capital framework, supra note 100. ICC's
hypothetical capital requirement (``KCCP'') as of September 30, 2019
was $126.38 million. See supra note 109 and accompanying text
(discussing ICC's guaranty fund deposits).
    \111\ The Commission quantified the benefits related to ICC's
attaining QCCP status for ICC's bank clearing members and indirect
participants with respect to all reported exposures. Over the period
of March 2009 through December 2019, the gross notional value of
security-based swap transactions cleared by ICE Clear Credit
comprised 9.6 percent of the total value of all CDS transactions
cleared (see https://www.theice.com/clear-credit). Based on this
information, the Commission arrived at the benefits to ICC's bank
clearing members and bank indirect participants from ICC's attaining
QCCP status with respect to security-based swap transactions by
multiplying the total benefits by 0.096.
---------------------------------------------------------------------------

    As previously explained in the CCA Definition proposing release,
the Commission's analysis here is limited in several respects and
relies on several assumptions about the nature of trade exposures to
ICC,\112\ as discussed further below. First, the Commission is using
the balance of ICC's margin account and default fund as proxies for
trade exposures and guaranty fund deposits, respectively. These likely
include deposits both by bank clearing members, who would directly
experience lower capital requirements under the BCBS capital framework,
and non-bank subsidiaries of bank holding companies and foreign
equivalents of bank holding companies, who would experience effects
through the lower capital requirements of their parent bank holding
companies. Furthermore, the guaranty fund deposits may include deposits
by non-bank client clearing participants. For the purposes of this
analysis, the Commission continues to assume, to establish an upper
bound for the benefits to market participants that are associated with
QCCP status for ICC under the adopted rules, that ICC's guaranty fund
accounts are attributable only to bank clearing members. Additionally,
the Commission continues to assume an extreme case where, in the
absence of QCCP status, trade exposures against a CCP would be assigned
a 100 percent risk weight, causing the largest possible shock to risk-
weighted assets for affected banks.
---------------------------------------------------------------------------

    \112\ See CCA Definition proposing release, supra note 9, at
70766-77.
---------------------------------------------------------------------------

    Second, lower capital requirements on exposures to ICC would
produce effects in the real economy only under certain conditions. For
example, agency problems, taxes, or other capital market imperfections
could result in banks targeting a particular capital structure.
Additionally, the BCBS capital framework must constrain bank clearing
members such that these banks cannot either use capital to invest in
assets whose returns exceed the banks' cost of capital or return
capital to shareholders because these actions would decrease their
capital ratios below regulatory minimums. Using publicly available
data, however, it remains unfeasible to determine to what extent the
finalized BCBS capital requirements will constrain bank clearing
members. Instead, the Commission continues to assume that all bank
clearing members of ICC act as if they are at their minimum allowed
tier-one capital ratios before accounting for exposures to CCPs.\113\
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    \113\ The Commission notes that, at present, no bank in its
sample of bank clearing members of ICC has only the minimum amount
of capital required by the BCBS capital framework. For U.S. bank
holding companies, tier-one capital ratios were collected from Y-9C
reports from the National Information Center, available at https://www.ffiec.gov/nicpubweb/nicweb/nichome.aspx. For the foreign
equivalent of bank holding companies, Commission staff obtained
corresponding data from financial statements and supplementary
financial materials posted to company websites. The Commission used
data from 2019 for its sample of clearing members. This sample's
minimum tier-one capital ratio is 12.2 percent, and the minimum
amount by which a clearing member exceeds its tier-one capital
requirement is two percent.
---------------------------------------------------------------------------

    Third, the Commission continues to assume that banks choose to
adjust to new capital requirements by deleveraging. In particular, the
Commission has assumed that banks would respond by reducing risk-
weighted assets equally across all risk classes until they reach the
minimum tier-one capital ratio under the BCBS capital framework.\114\
The Commission continues to measure the ongoing costs to each foreign
bank clearing member by multiplying the implied change in total assets
by each bank's return on assets, using up to 12 years of annual
financial statement data.\115\
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    \114\ Each bank, bank holding company, and foreign equivalent of
a bank holding company faces the same six percent base tier-one
capital ratio requirement and 2.5 percent capital conservation
buffer. Additionally, each bank holding company has a buffer for
being a globally or domestically systemically important bank,
ranging from one percent to 3.5 percent. Lastly, some jurisdictions
have instituted countercyclical capital buffers.
    \115\ This data has been taken from Compustat. Due to data
limitations, for certain banks a shorter window was used for this
calculation. The minimum sample window was nine years.
---------------------------------------------------------------------------

    Fourth, the BCBS capital framework yields additional benefits for
QCCPs that the Commission remains unable to quantify due to a lack of
data concerning client clearing arrangements by banks. For client
exposures to clearing members, the BCBS capital framework allows
participants to reflect the shorter close-out period of cleared
transactions in their capitalized exposures. The BCBS capital
framework's treatment of exposures to CCPs also applies to client
exposures to CCPs through clearing members. This may increase the
likelihood that bank

clients of bank clearing members subject to the BCBS capital framework
share some of the benefits of QCCP status.
    Fifth, the BCBS capital framework may impact competition and
concentration. For example, while the amendments to Rule 17Ad-22 may
extend lower capital requirements to certain bank clearing members, the
costs of overall compliance with Rule 17Ad-22 may be borne by all
clearing members, regardless of whether or not they are supervised as
banks. A potential consequence of this allocation of costs and benefits
may be a ``crowding out'' of non-bank members of QCCPs, including any
such subsidiaries of bank holding companies, who may not experience any
or all of the benefits with respect to the BCBS capital framework. This
may result in an unintended consequence of an increased concentration
of clearing activity among ICC's bank clearing members. This increased
concentration could mean that each of the remaining clearing members
becomes more important from the standpoint of systemic risk
transmission since, for example, clearing agencies would have fewer
non-defaulting members to take on a defaulting member's portfolio, and
clearing agencies that rely on clearing members to participate in
default auctions would hold auctions with fewer participants.
    Sixth, the Commission continues to believe that the benefits of ICC
attaining QCCP status may depend on whether foreign bank clearing
members of ICC are currently able to shift their clearing business from
ICC to alternative clearing agencies that serve similar markets. In
this regard, the Commission notes that ICC has several overlapping
members with ICEU and LCH SA's CDSClear. ICEU and CDSClear also clear
many of the same contracts that ICC does.\116\ ICEU clears all of the
European corporate single name CDS and Western European sovereign
single name CDS. Additionally, compared to ICC's 250 North American
corporate single name reference entities, LCH SA clears contracts on
153 North American entities, with significant overlap. Thus, in a
situation where ICEU and LCH SA are QCCPs and ICC is not, common
foreign bank clearing members of the three agencies may obtain many of
the same benefits of ICC having QCCP status by moving their clearing
business to either ICEU or LCH SA's CDSClear. However, under such a
scenario, the full range of benefits stemming from ICC having QCCP
status would not be fully realized because: (i) Some clearing members
of ICC are not clearing members of either ICEU or LCH SA's CDSClear;
(ii) some participants that have a client clearing agreement with ICC
may not have a client clearing agreement with ICEU; and (iii) ICC
clears contracts that neither ICEU or LCH SA's CDSClear does. Thus,
even common bank members may not be able to move their entire clearing
business to another CCP.
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    \116\ ICEU clears all of the European corporate security-based
swaps and Western European sovereign security-based swaps that ICC
does. CDSClear only clears corporate security-based swaps that
reference constituents of the index products it accepts. The 153
unique North American reference entities have a substantial overlap
with the North American corporate security-based swaps that ICC
clears. The Commission used the description of ICEU cleared
contracts available at https://www.theice.com/clear-europe/cds and
CDSClear cleared contracts available at https://www.lch.com/services/cdsclear/what-we-clear.
---------------------------------------------------------------------------

b. Costs
    As previously discussed, ICC is a SIDCO regulated by the CFTC under
a regime that is consistent and comparable with Rule 17Ad-22(e). In
light of the similarity among the two regulatory frameworks, the
Commission continues to believe that the economic costs ICC will bear
as a result of the amendments to Rule 17Ad-22 will be related to the
establishment, implementation, and maintenance of certain policies and
procedures under Rule 17Ad-22(e). The Commission now estimates that
these costs will at most include one-time costs of approximately
$752,673 \117\ and annual costs of approximately $158,594.\118\ As
noted above in Part III.B, to the extent that rule changes implemented
by ICC since 2016 facilitate compliance with Rule 17Ad-22(e), the
actual cost to ICC may be lower.
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    \117\ Calculated as ((Assistant General Counsel for 440 hours at
$478 per hour) + (Chief Compliance Officer for 146 hours at $544 per
hour) + (Chief Financial Officer for 50 hours at $1,111 per hour) +
(Compliance Attorney for 377 hours at $374 per hour) + (Computer
Operations Department Manager for 344 hours at $452 per hour) +
(Financial Analyst for 70 hours at $281 per hour) + (Senior Business
Analyst for 85 hours at $281 per hour) + (Senior Programmer for 75
hours at $340 dollars per hour) + (Senior Risk Management Specialist
for 114 hours at $367 per hour)) = $752,673. These dollar amounts
have been updated since the CCA Definition proposing release to
account for inflation since 2016.
    To monetize these costs and those set forth below, Commission
staff used data from two SIFMA publications, Management and
Professional Earnings in the Security Industry--2013, and Office
Salaries in the Securities Industry--2013, modified to account for
an 1,800-hour work year and multiplied by 5.35 (professionals) or
2.93 (office) to account for bonuses, firm size, employee benefits
and overhead. Inflation adjustments use data published by the Bureau
of Labor Statistics.
    Commission staff separately estimated an hourly rate for a chief
financial officer, using the website www.salary.com, which reports
median salaries of $378,564, and a Grant Thornton LLP 2019 survey,
which estimates that Russell 2000 financial services chief financial
officers receive a median annual salary of $368,815. Using an
approximate midpoint of these two estimates of $373,690 per year,
and dividing by an 1,800-hour work year and multiplying by the 5.35
factor, which normally is used to include benefits but here is used
as an approximation to offset the fact that New York salaries are
typically higher than the rest of the country, the result is $1,111
per hour.
    \118\ Calculated as ((Administrative Assistant for 20 hours at
$82 per hour) + (Compliance Attorney for 279 hours at $374 per hour)
+ (Computer Operations Department Manager for 12 hours at $452 per
hour) + (Risk Management Specialist for 183 hours at $204 per hour)
+ (Senior Business Analyst for 22 hours at $281 per hour) + (Senior
Risk Management Specialist for 10 hours at $367 per hour)) =
$158,594 per year.
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c. Effects on Efficiency, Competition, and Capital Formation
    As previously discussed, the amendments to Rule 17Ad-22 do not
alter the status of existing covered clearing agencies.\119\ The
Commission continues to believe that the amendments will not change the
behavior of market participants associated with these entities and will
therefore not generate any economic benefits or costs for these
entities. Further, even though the amendments do not alter the status
of ICEU or LCH SA, the Commission continues to believe that the
amendments are likely to generate economic effects for these entities
because ICC clears many of the same security-based swap transactions
that are cleared by ICEU and LCH SA. Because the amendments are likely
to result in uniform regulatory requirements for similar risks at these
clearing agencies, they could potentially cause business to shift from
ICEU or LCH SA to ICC. This could translate into a loss of economies of
scale for ICEU or LCH SA which, in turn, would result in higher
clearing fees and higher transaction costs in cleared products.
Furthermore, it may reduce the benefits of netting and portfolio
margining, which could result in higher margins and consequently
transaction costs for clearing participants.
---------------------------------------------------------------------------

    \119\ See supra note 21 (discussing the six CCPs and one CSD
that, prior to the amendments, were already covered clearing
agencies subject to Rule 17Ad-22(e)).
---------------------------------------------------------------------------

2. Economic Effects Related to Future Registrants
    In addition to the effects imposed on the existing set of
registered clearing agencies, the amendments to Rule 17Ad-22 will
affect the regulation of clearing agencies that register with the
Commission in the future. As previously discussed in the CCA Definition
proposing release, any clearing agency

that provides the services of a CCP or CSD will now be a covered
clearing agency.\120\ This means that covered clearing agencies will no
longer be limited to those that have been designated by FSOC or that
are involved in activities with a complex risk profile. Nor will
clearing agencies be excluded when the CFTC is the supervisory agency
under the Clearing Supervision Act.
---------------------------------------------------------------------------

    \120\ See CCA Definition proposing release, supra note 9, at
70767-68.
---------------------------------------------------------------------------

    Because the Commission continues to be unable to predict the number
of clearing agencies likely to register in the future, much less the
number that are likely to be CCPs or CSDs, it continues to be unable to
quantify the aggregate economic effects that could flow to future
registrants from the amendments to Rule 17Ad-22.\121\ The Commission
continues to believe that the amendments would generally increase the
likelihood that Rule 17Ad-22(e) would apply to a new registrant; in
recent years, however, the Commission has received, on average, fewer
than one application for registration as a clearing agency per
year.\122\ Where possible, the Commission has attempted to estimate the
benefits and costs it would expect the amendments to Rule 17Ad-22 to
have on a single new registrant.
---------------------------------------------------------------------------

    \121\ The comments received did not provide any additional
information regarding the likelihood of new registrant clearing
agencies.
    \122\ The Commission notes that, for new registrants seeking to
provide CCP or CSD services, the amendments ensure that Rule 17Ad-
22(e) would apply to such registrants, but clearing agencies can
perform other functions as well.
---------------------------------------------------------------------------

a. Benefits
    As discussed in the CCA Definition proposing release, the
Commission continues to believe that the amendments to Rule 17Ad-22 may
reduce the costs that potential new providers of clearance and
settlement services expect to incur in determining whether they would
need to meet the enhanced requirements of covered clearing
agencies.\123\ Under the amendments, any registered clearing agency
that expects to provide the services of a CCP or CSD would also expect
to be subject to Rule 17Ad-22(e) without requiring additional
information about FSOC designation or a Commission determination that
its activities have a more complex risk profile. To the extent that
this reduces the need for potential entrants that engage in those
services to assess whether they are likely to be regulated as covered
clearing agencies, the amendments could reduce the costs associated
with registration. The Commission continues to believe that a
reasonable estimate of cost reduction a single registrant is likely to
experience is $4,208, attributable to reduced legal expenses associated
with determining whether or not the registrant will also be regulated
as a covered clearing agency.\124\
---------------------------------------------------------------------------

    \123\ See CCA Definition proposing release, supra note 9, at
70768.
    \124\ The Commission calculated this reduction in costs as
((Assistant General Counsel for 2 hours at $478 per hour) +
(Compliance Attorney for 3 hours at $374 per hour) + (Outside
Counsel for 5 hours at $426 per hour = $4,208. These dollar amounts
have been updated since the CCA Definition proposing release to
account for inflation since 2016.
---------------------------------------------------------------------------

    In the absence of the amendments to Rule 17Ad-22, and without
designation by FSOC or engagement in activities with a more complex
risk profile, a registered clearing agency would instead be subject to
Rule 17Ad-22(d). The amendments therefore increase the likelihood that
new entrants into the market for clearance and settlement services
would be subject to Rule 17Ad-22(e). Generally, to the extent that Rule
17Ad-22(e) imposes higher risk management standards on potential
entrant CCPs and CSDs, the Commission believes the amendments to Rule
17Ad-22 may improve financial stability. As previously discussed, some
of this increased stability may come as a result of lower activity, as
Rule 17Ad-22(e) causes participants of these new entrants to
internalize a greater proportion of the costs that their activity
imposes on the financial system, reducing the costs of default when a
default event occurs. Increased stability may also come as a result of
the higher risk management standards at potential entrants, effectively
lowering the probability that either the entrant clearing agencies or
their members default.\125\
---------------------------------------------------------------------------

    \125\ See CCA Definition proposing release, supra note 9, at
70768; CCA Standards adopting release, supra note 6, at 70881.
---------------------------------------------------------------------------

b. Costs
    As previously discussed, in the absence of these amendments to Rule
17Ad-22, a registered clearing agency that has not been designated by
FSOC or subject to a Commission determination would be subject to Rule
17Ad-22(d) rather than Rule 17Ad-22(e). To the extent that the
requirements under Rule 17Ad-22(e) impose additional costs on potential
entrants who would otherwise have been regulated under Rule 17Ad-22(d),
the Commission continues to believe that the amendments may impose
additional costs on such potential entrants.
    In the CCA Definition proposing release and the CCA Standards
adopting release,\126\ the Commission estimated specific costs that
registered clearing agencies would bear related to holding sufficient
qualifying liquid resources under 17 CFR 240.17Ad-22(e)(7) (``Rule
17Ad-22(e)(7)''). Because the organizational and governance structures
of covered clearing agencies vary, as do the composition of their
members and the products they clear, the Commission remains unable to
provide precise estimates of the costs associated with these
requirements that potential entrants may bear as a result of the
amendments to Rule 17Ad-22. However if a potential entrant resembles
the average covered clearing agency, the Commission continues to expect
that compliance with Rule 17Ad-22(e)(7) would cost the entrant between
$24 million and $40 million per year.\127\ In addition, the Commission
continues to estimate the startup compliance costs associated with
policies and procedures for a potential entrant that is not a CSD to be
substantially similar to the costs estimated in the CCA Standards
adopting release: $691,309, after adjusting for inflation.\128\
Furthermore, 17 CFR 240.17Ad-22(e)(3), (4), (6), (7), (15), and (21)
each include elements of review by either a covered clearing agency's
board or its management on an ongoing basis. The Commission continues
to estimate the cost of ongoing review for these rules at approximately
$40,000 per year for a

potential entrant, as estimated in the CCA Standards adopting
release.\129\
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    \126\ See CCA Definition proposing release, supra note 9, at
70768; CCA Standards adopting release, supra note 6, at 70870-73.
    \127\ To arrive at this range, the Commission divided the
maximum and minimum costs associated with compliance estimated in
the CCA Standards adopting release by five covered clearing
agencies. See CCA Definition proposing release, supra note 9, at
70768.
    \128\ CCA Standards adopting release, supra note 6, at 70881 &
n.757. The total initial cost for an entrant that is not a CSD and
does engage in activities with a more complex risk profile was
calculated as follows: ((Assistant General Counsel for 428 hours at
$478 per hour) + (Compliance Attorney for 365 hours at $374 per
hour) + (Administrative Assistant for 2 hours at $82 per hour) +
(Computer Operations Department Manager for 300 hours at $452 per
hour) + (Senior Business Analyst for 85 hours at $281 per hour) +
(Senior Risk Management Specialist for 114 hours at $367 per hour) +
(Chief Compliance Office for 102 hours at $544 per hour) + (Senior
Programmer for 53 hours at $340 per hour) + (Chief Financial Officer
for 50 hours at $1,111 per hour) + (Financial Analyst for 70 hours
at $281 per hour)) = $691,309. These dollar amounts have been
updated since the CCA Definition proposing release to account for
inflation since 2016. Because only 17 CFR 240.17Ad-22(e)(11) applies
solely to CSDs and many of the other parts of Rule 17Ad-22(e) do not
apply to CSDs, the Commission believes the initial cost of an
entrant that is a CSD would be lower.
    \129\ CCA Standards adopting release, supra note 6, at 70880 &
n.755. To estimate the cost of board review for these rules, the
Commission has used a report by Bloomberg stating that the average
director works 250 hours and earns $251,000, resulting in an
estimated $1,000 per hour for board review. See Jeff Green & Hideki
Suzuki, Board Pay Hits Record $251,000 for 250 Hours, Bloomberg, May
30, 2013, https://www.bloomberg.com/news/articles/2013-05-30/board-director-pay-hits-record-251-000-for-250-hours. As a proxy for the
cost of management review, the Commission is estimating $461 per
hour, based upon the Director of Compliance cost data from SIFMA.
The Commission estimates the total cost of review for each clearing
agency as follows: ((Board Review for 32 hours at $1,000 per hour) +
(Management Review for 16 hours at $500 per hour)) = $40,000. The
estimate for management review has been updated since the CCA
Definition proposing release to account for inflation since 2016.
---------------------------------------------------------------------------

c. Effects on Efficiency, Competition, and Capital Formation
    The Commission continues to believe that substantial direct effects
on efficiency and capital formation are unlikely to flow from the
impact of the amendments to Rule 17Ad-22 on potential entrants;
however, potential effects on competition may arise from how the
amendments affect the regulatory treatment of registered clearing
agencies and the barriers to entry into the market for services
provided by CCPs and CSDs.
    As discussed in the CCA Definition proposing release, the
amendments are likely to result in more consistent regulatory treatment
of firms that provide similar services to the securities markets.\130\
By imposing Rule 17Ad-22(e) on all CCPs and CSDs, regardless of FSOC
designation or their engagement in activities with a more complex risk
profile, the amendments mitigate the risk that registered clearing
agencies with similar businesses are subject to substantially different
regulatory regimes. The Commission continues to believe that more
uniform treatment may provide a more level playing field. By contrast,
in the absence of the amendments to Rule 17Ad-22, an entrant CCP or CSD
that did not engage in activity with a more complex risk profile could
initially receive a competitive advantage by being regulated under Rule
17Ad-22(d) until becoming a designated clearing agency and
internalizing less of the risk it poses to the financial system.
---------------------------------------------------------------------------

    \130\ See CCA Definition proposing release, supra note 9, at
70768.
---------------------------------------------------------------------------

    On the other hand, as previously discussed in the CCA Standards
adopting release and the CCA Definition proposing release, costs
resulting from regulation under Rule 17Ad-22(e) as a result of the
amendments may have the effect of raising already high barriers to
entry.\131\ As the potential entry of new clearing agencies becomes
more remote, existing clearing agencies may be able to reduce service
quality, restrict the supply of services, or increase fees above
marginal cost in an effort to earn economic rents from participants in
cleared markets.\132\
---------------------------------------------------------------------------

    \131\ CCA Definition proposing release, supra note 9, at 70769;
see also CCA Standards adopting release, supra note 6, at 70864-66.
    \132\ See, e.g., Clearing Agency Standards adopting release,
supra note 5, at 66263 n.481.
---------------------------------------------------------------------------

3. Alternatives to the Amended Definition
    In the CCA Definition proposing release, the Commission proposed
including registered clearing agencies that provided the services of a
securities settlement system in the definition of ``covered clearing
agency.'' Among the alternatives discussed in the proposing release was
a definition that excluded securities settlement services from the
definition of a covered clearing agency,\133\ which the Commission is
adopting in this document for the reasons set forth above in Parts II.A
and D.
---------------------------------------------------------------------------

    \133\ See CCA Definition proposing release, supra note 9, at
70769.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') imposes certain
requirements on federal agencies in connection with the conducting or
sponsoring of any ``collection of information.'' \134\ An agency may
not conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number. Further, 44 U.S.C. 3507(a) provides that, before adopting or
revising a collection of information requirement, an agency must, among
other things, publish notice in the Federal Register stating that the
agency has submitted the proposed collection of information to the
Office of Management and Budget (``OMB'') and setting forth certain
required information, including (i) a title for the collection of
information; (ii) a summary of the collection of information; (iii) a
brief description of the need for the information and the proposed use
of the information; (iv) a description of the likely respondents and
proposed frequency of response to the collection of information; (v) an
estimate of the paperwork burden that shall result from the collection
of information; and (vi) notice that comments may be submitted to the
agency and director of OMB.\135\
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    \134\ See 44 U.S.C. 3501 et seq.; 44 U.S.C. 3502(3).
    \135\ See 44 U.S.C. 3507(a)(1)(D); see also 5 CFR
1320.5(a)(1)(iv).
---------------------------------------------------------------------------

    Certain provisions of Rule 17Ad-22(e) impose collection of
information requirements under the PRA. The Commission submitted these
collections of information to the OMB for review in accordance with 44
U.S.C. 3507 and 5 CFR 1320.11. Because the Commission is revising the
respondents under Rule 17Ad-22(e) to account for amended Rule 17Ad-
22(a)(5), the Commission will use the same title and control number:
``Clearing Agency Standards for Operation and Governance,'' OMB Control
No. 3235-0695.
    The Commission provided notice of the PRA estimates in the CCA
Definition proposing release and received no comments in response. The
Commission continues to believe that the PRA estimates set forth in the
CCA Definition proposing release are correct, except where changes are
noted below.

A. Summary of Collection of Information and Use of Information \136\
---------------------------------------------------------------------------

    \136\ The Commission notes that the policies and procedures
required by Rule 17Ad-22(e) would also be used by the Commission as
part of its ongoing efforts to monitor and enforce compliance with
the federal securities laws through, among other things,
examinations and inspections.
---------------------------------------------------------------------------

    As described above, the Commission is adopting amendments to three
definitions in Rules 17Ad-22(a) and is not altering any of the
requirements in Rule 17Ad-22(e).\137\ Accordingly, the Collection of
Information and Use of Information for Rule 17Ad-22(e) previously set
forth in the CCA Standards adopting release and the CCA Definition
proposing release remain unchanged.\138\
---------------------------------------------------------------------------

    \137\ See supra Parts I and II.
    \138\ CCA Standards adopting release, supra note 6, at 70881-90;
CCA Definition proposing release, supra note 9, at 70769-83.
---------------------------------------------------------------------------

B. Respondent Clearing Agencies

    The requirements in Rule 17Ad-22(e) impose a PRA burden on covered
clearing agencies. Under the prior definition of ``covered clearing
agency'' adopted in 2016, Rule 17Ad-22(e) applied to five registered
clearing agencies, including four registered clearing agencies that
provide CCP services and one registered clearing agency that provides
CSD services, and the Commission estimated that two additional entities
might seek to register with the Commission. Accordingly, the Commission
estimated that the majority of the requirements under Rule 17Ad-22(e)
would have seven respondents, of which (i) six would be CCPs and one
would be a CSD, and (ii) two would be

security-based swap clearing agencies. The Commission further clarified
that 17 CFR 240.17Ad-22(e)(6) (``Rule 17Ad-22(e)(6)'') would only have
six respondents because it only applies to CCPs, 17 CFR 240.17Ad-
22(e)(11) (``Rule 17Ad-22(e)(11)'') would only have one respondent
because it only applies to CSDs, and 17 CFR 240.17Ad-22(e)(14) (``Rule
17Ad-22(e)(14)'') would only have two respondents because it only
applies to security-based swap clearing agencies.
    Under the amended definition of ``covered clearing agency'' adopted
in this document, the Commission estimates that Rule 17Ad-22(e) now
applies to seven registered clearing agencies, including six registered
clearing agencies that provide CCP services and one registered clearing
agency that provides CSD services.\139\ The Commission continues to
believe that one additional entity might seek to register with the
Commission in the next three years.\140\ Accordingly, the Commission
estimates that a majority of the requirements under Rule 17Ad-22(e)
have eight respondents, of which (i) seven are CCPs and one is a CSD,
and (ii) three are security-based swap clearing agencies. The
Commission also notes that Rule 17Ad-22(e)(6) now has seven respondents
because it applies to CCPs, Rule 17Ad-22(e)(11) continues to have one
respondent because it only applies to CSDs, and Rule 17Ad-22(e)(14) now
has three respondents because it only applies to security-based swap
clearing agencies.
---------------------------------------------------------------------------

    \139\ The additional respondent clearing agency subject to Rule
17Ad-22(e) under the amended definition of ``covered clearing
agency'' was a registered clearing agency subject to Rule 17Ad-
22(d).
    \140\ In 2016, the Commission registered a new security-based
swap clearing agency that was not previously a registered clearing
agency.
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    The PRA analysis for seven of the eight respondents appears in the
CCA Standards adopting release. Below, the Commission provides a PRA
analysis for the one additional respondent subject to Rule 17Ad-22(e)
under the amended definition of ``covered clearing agency,'' thereby
reflecting the incremental annual reporting and recordkeeping burdens
resulting from the amended definition. Because the one remaining
respondent provides CCP services and does not provide CSD services, the
analysis below does not include Rule 17Ad-22(e)(11).\141\
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    \141\ In addition, in the CCA Definition proposing release, the
Commission included 17 CFR 240.17Ad-22(c)(1) (``Rule 17Ad-
22(c)(1)'') in the PRA discussion. Because the number of respondents
for Rule 17Ad-22(c)(1) is unchanged, the analysis below does not
include Rule 17Ad-22(c)(1).
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C. Total Annual Reporting and Recordkeeping Burdens

    The amendments adopted in this document increase by one the
estimated number of respondent clearing agencies for some aspects of
Rule 17Ad-22(e), as previously discussed. The amendments do not affect
the Commission's rationales and estimates for the annual reporting and
recordkeeping burdens under Rule 17Ad-22(e) as set forth in the CCA
Standards adopting release.\142\ Below, the Commission therefore
summarizes the initial and annual burden estimates for each rule that
the Commission expects will impose a burden on a new respondent
clearing agency subject to Rule 17Ad-22(e) under the amended definition
of ``covered clearing agency'' and then provides the corresponding
increase in the total burden estimate that results under Rule 17Ad-
22(e).
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    \142\ See CCA Standards adopting release, supra note 6, at
70891-99.
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1. Initial and Annual Burden Estimates
    For 17 CFR 240.17Ad-22(e)(1), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of eight
hours and an annual burden of three hours.\143\
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    \143\ These figures were calculated as follows: Assistant
General Counsel for 2 hours + Compliance Attorney for 6 hours = 8
hours of initial burden; Compliance Attorney for 3 hours = 3 hours
of annual burden.
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    For 17 CFR 240.17Ad-22(e)(2), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 25 hours
and an annual burden of five hours.\144\
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    \144\ These figures were calculated as follows: Assistant
General Counsel for 14 hours + Compliance Attorney for 11 hours = 25
hours of initial burden; Compliance Attorney for 5 hours = 5 hours
of annual burden.
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    For 17 CFR 240.17Ad-22(e)(3), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 57 hours
and an annual burden of 49 hours.\145\
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    \145\ These figures were calculated as follows: Assistant
General Counsel for 25 hours + Compliance Attorney for 18 hours +
(Senior Risk Management Specialist for 7 hours + Computer Operations
Manager for 7 hours = 57 hours of initial burden; Compliance
Attorney for 8 hours + Administrative Assistant for 3 hours + Senior
Business Analyst for 5 hours + Risk Management Specialist for 33
hours = 49 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(4), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 219 hours
and an annual burden of 62 hours.\146\
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    \146\ These figures were calculated as follows: Assistant
General Counsel for 74 hours + Compliance Attorney for 45 hours +
Senior Risk Management Specialist for 30 hours + Computer Operations
Manager for 45 hours + Chief Compliance Officer for 15 hours +
Senior Programmer for 10 hours = 219 hours of initial burden;
Compliance Attorney for 26 hours + Administrative Assistant for 3
hours + Senior Business Analyst for 3 hours + Risk Management
Specialist for 30 hours = 62 hours of annual burden.
    The CCA Definition proposing release incorrectly stated the
calculations for the initial burden (as 200 hours) and annual burden
(as 60 hours). These estimates have been corrected for this release
and reflect the PRA estimates that the Commission provided to OMB
for this rulemaking.
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    For 17 CFR 240.17Ad-22(e)(5), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 42 hours
and an annual burden of 36 hours.\147\
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    \147\ These figures were calculated as follows: Assistant
General Counsel for 16 hours + Compliance Attorney for 12 hours +
Senior Risk Management Specialist for 7 hours + Computer Operations
Manager for 7 hours = 42 hours of initial burden; Compliance
Attorney for 6 hours + Risk Management Specialist for 30 hours = 36
hours of annual burden.
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    For Rule 17Ad-22(e)(6), the Commission continues to estimate that a
respondent clearing agency incurs an initial burden of 180 hours and an
annual burden of 60 hours.\148\
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    \148\ These figures were calculated as follows: Assistant
General Counsel for 50 hours + Compliance Attorney for 40 hours +
Senior Risk Management Specialist for 25 hours + Computer Operations
Manager for 40 hours + Chief Compliance Officer for 15 hours +
Senior Programmer for 10 hours = 180 hours of initial burden;
Compliance Attorney for 24 hours + Administrative Assistant for 3
hours + Senior Business Analyst for 3 hours + Risk Management
Specialist for 30 hours = 60 hours of annual burden.
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    For Rule 17Ad-22(e)(7), the Commission continues to estimate that a
respondent clearing agency incurs an initial burden of 330 hours and an
annual burden of 128 hours.\149\
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    \149\ These figures were calculated as follows: Assistant
General Counsel for 95 hours + Compliance Attorney for 85 hours +
Senior Risk Management Specialist for 45 hours + Computer Operations
Manager for 60 hours + Chief Compliance Officer for 30 hours +
Senior Programmer for 15 hours = 330 hours of initial burden;
Compliance Attorney for 48 hours + Administrative Assistant for 5
hours + Senior Business Analyst for 5 hours + Risk Management
Specialist for 60 hours + Senior Risk Management Specialist for 10
hours = 128 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(8), (9), (10), and (12), the Commission
continues to estimate, for each rule, that a respondent clearing agency
incurs an initial burden of 12 hours and an annual burden of five
hours.\150\
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    \150\ These figures were calculated as follows: Assistant
General Counsel for 2 hours + Compliance Attorney for 6 hours +
Senior Business Analyst for 2 hours + Computer Operations Manager
for 2 hours = 12 hours of initial burden; Compliance Attorney for 5
hours = 5 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(13), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 41 hours
and an annual burden of seven hours.\151\
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    \151\ These figures were calculated as follows: Assistant
General Counsel for 6 hours + Compliance Attorney for 11 hours +
Senior Business Analyst for 12 hours + Computer Operations Manager
for 12 hours = 41 hours of initial burden; Compliance Attorney for 7
hours = 7 hours of annual burden.
     The CCA Definition proposing release incorrectly stated the
calculations for the initial burden (as 60 hours) and annual burden
(as 9 hours). These estimates have been corrected for this release
and reflect the PRA estimates that the Commission provided to OMB
for this rulemaking.

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    For Rule 17Ad-22(e)(14), the Commission continues to estimate that
a respondent clearing agency incurs an initial burden of 36 hours and
an annual burden of six hours.\152\
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    \152\ These figures were calculated as follows: Assistant
General Counsel for 12 hours + Compliance Attorney for 10 hours +
Computer Operations Manager for 7 hours + Senior Business Analyst
for 7 hours = 36 hours of initial burden; Compliance Attorney for 6
hours = 6 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(15), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 210 hours
and an annual burden of 48 hours.\153\
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    \153\ These figures were calculated as follows: Assistant
General Counsel for 40 hours + Compliance Attorney for 30 hours +
Computer Operations Manager for 10 hours + Senior Business Analyst
for 10 hours + Financial Analyst for 70 hours + Chief Financial
Officer for 50 hours = 210 hours of initial burden; Compliance
Attorney for 42 hours + Administrative Assistant for 3 hours +
Senior Business Analyst for 3 hours = 48 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(16), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 20 hours
and an annual burden of six hours.\154\
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    \154\ These figures were calculated as follows: Assistant
General Counsel for 4 hours + Compliance Attorney for 8 hours +
Senior Business Analyst for 4 hours + Computer Operations Manager
for 4 hours = 20 hours of initial burden; Compliance Attorney for 6
hours = 6 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(17), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 28 hours
and an annual burden of six hours.\155\
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    \155\ These figures were calculated as follows: Assistant
General Counsel for 4 hours + Compliance Attorney for 8 hours +
Computer Operations Manager for 6 hours + Senior Business Analyst
for 4 hours + Chief Compliance Officer for 4 hours + Senior
Programmer for 2 hours = 28 hours of initial burden; Compliance
Attorney for 6 hours = 6 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(18), (19), and (20), the Commission
continues to estimate, for each rule, that a respondent clearing agency
incurs an initial burden of 44 hours and an annual burden of seven
hours.\156\
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    \156\ These figures were calculated as follows: Assistant
General Counsel for 10 hours + Compliance Attorney for 7 hours +
Computer Operations Manager for 15 hours + Senior Business Analyst
for 5 hours + Chief Compliance Officer for 5 hours + Senior
Programmer for 2 hours = 44 hours of initial burden; Compliance
Attorney for 7 hours = 7 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(21), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 32 hours
and an annual burden of 11 hours.\157\
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    \157\ These figures were calculated as follows: Assistant
General Counsel for 10 hours + Compliance Attorney for 7 hours +
Computer Operations Manager for 10 hours + Senior Business Analyst
for 5 hours = 32 hours of initial burden; Compliance Attorney for 5
hours + Administrative Assistant for 3 hours + Senior Business
Analyst for 3 hours = 11 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(22), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 24 hours
and an annual burden of five hours.\158\
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    \158\ These figures were calculated as follows: Assistant
General Counsel for 2 hours + Compliance Attorney for 6 hours +
Computer Operations Manager for 7 hours + Senior Business Analyst
for 2 hours + Chief Compliance Officer for 5 hours + Senior
Programmer for 2 hours = 24 hours of initial burden; Compliance
Attorney for 5 hours = 5 hours of annual burden.
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    For 17 CFR 240.17Ad-22(e)(23), the Commission continues to estimate
that a respondent clearing agency incurs an initial burden of 138 hours
and an annual burden of 34 hours.\159\
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    \159\ These figures were calculated as follows: Assistant
General Counsel for 38 hours + Compliance Attorney for 24 hours +
Computer Operations Manager for 32 hours + Senior Business Analyst
for 18 hours + Chief Compliance Officer for 18 hours + Senior
Programmer for 8 hours = 138 hours of initial burden; Compliance
Attorney for 34 hours = 34 hours of annual burden.
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    2. Total Burden Estimate
    For the rules above, the Commission estimates that a respondent
clearing agency incurs a total initial burden of 1,570 hours and an
annual burden of 507 hours.\160\
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    \160\ The Commission notes that these estimates are slightly
higher than those stated in the CCA Definition proposing release
after correcting for the errors previously noted above. See supra
notes 146 and 151.
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D. Collection of Information is Mandatory

    The collection of information requirements for the rules above
continue to be mandatory.

E. Confidentiality

    As required under Rule 17Ad-22(e), the policies and procedures
developed pursuant to the rules above would be communicated, as
applicable, to the participants of each respondent clearing agency and
the public. A respondent clearing agency is also required to preserve
such policies and procedures in accordance with, and for the periods
specified in, 17 CFR 240.17a-1 and 240.17a-4(e)(7). To the extent that
the Commission receives confidential information pursuant to this
collection of information, such information would be kept confidential
subject to the provisions of applicable law.\161\
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    \161\ See, e.g., 5 U.S.C. 552. Exemption 4 of the Freedom of
Information Act provides an exemption for trade secrets and
commercial or financial information obtained from a person and
privileged or confidential. See 5 U.S.C. 552(b)(4). Exemption 8 of
the Freedom of Information Act provides an exemption for matters
that are contained in or related to examination, operating, or
condition reports prepared by, on behalf of, or for the use of an
agency responsible for the regulation or supervision of financial
institutions. See 5 U.S.C. 552(b)(8).
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V. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') requires the Commission,
in promulgating rules, to consider the impact of those rules on small
entities.\162\ Section 603(a) of the Administrative Procedure Act,\163\
as amended by the RFA, generally requires the Commission to undertake a
regulatory flexibility analysis of all proposed rules to determine the
impact of such rulemaking on ``small entities.'' \164\ The Commission
certified in the CCA Definition proposing release, pursuant to Section
605(b) of the RFA, that the proposed rules would not, if adopted, have
a significant impact on a substantial number of small entities.\165\
The Commission received no comments on this certification.
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    \162\ See 5 U.S.C. 601 et seq.
    \163\ 5 U.S.C. 603(a).
    \164\ Section 601(b) of the RFA permits agencies to formulate
their own definitions of ``small entities.'' See 5 U.S.C. 601(b).
The Commission has adopted definitions for the term ``small entity''
for the purposes of rulemaking in accordance with the RFA. These
definitions, as relevant to this rulemaking, are set forth in 17 CFR
240.0-10.
    \165\ See 5 U.S.C. 605(b).
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A. Registered Clearing Agencies

    The amendments to Rule 17Ad-22 apply to registered clearing
agencies that are CCPs and CSDs. For the purposes of Commission
rulemaking and as applicable to the amendments to Rule 17Ad-22, a small
entity includes, when used with reference to a clearing agency, a
clearing agency that (i) compared, cleared, and settled less than $500
million in securities transactions during the preceding fiscal year,
(ii) had less than $200 million of funds and securities in its custody
or control at all times during the preceding fiscal year (or at any
time that it has been in business, if shorter), and (iii) is not
affiliated with any person (other than a natural person) that is not a
small business or small organization.\166\
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    \166\ See 17 CFR 240.0-10(d).
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    Based on the Commission's existing information about the clearing
agencies currently registered with the Commission,\167\ the Commission

believes that all such registered clearing agencies exceed the
thresholds defining ``small entities'' set out above. While other
clearing agencies may emerge and seek to register as clearing agencies
with the Commission, the Commission does not believe that any such
entities would be ``small entities'' as defined in 17 CFR 240.0-
10(d).\168\ Accordingly, the Commission believes that any such
registered clearing agencies will exceed the thresholds for ``small
entities'' set forth in in 17 CFR 240.0-10.
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    \167\ In 2018, DTCC processed $1.854 quadrillion in financial
transactions. Within DTCC, DTC settled $122.6 trillion of securities
and held securities valued at $52.2 trillion, NSCC processed an
average daily value of $1269.7 billion in equity securities, and
FICC cleared $1.165 quadrillion of transactions in government
securities and $58.7 trillion of transactions in agency mortgage-
backed securities. DTCC, 2018 Annual Report, http://www.dtcc.com/annuals/2018/#/financial-performance. OCC cleared more than 5.2
billion contracts and held margin of $111.8 billion at the end of
2018. OCC, 2018 Annual Report, https://www.theocc.com/components/docs/about/annual-reports/occ-2018-annual-report.pdf. In addition,
Intercontinental Exchange (``ICE'') averaged daily trade volume of
over 6.2 million and revenues of $5 billion in 2018. See ICE at a
glance, https://www.theice.com/publicdocs/ICE_at_a_glance.pdf. LCH
SA cleared [euro]612 billion in 2018 with clearing fee revenue of
[euro]19.9 million. LCH SA, 2018 Financial Statements, https://www.lch.com/system/files/media_root/LCH%20Group%20Holdings%20Limited%20-%202018%20%20Financial%20Statements.pdf.
    \168\ The Commission based this determination on its review of
public sources of financial information about registered clearing
agencies. In addition, Parts III (Economic Analysis) and IV
(Paperwork Reduction Act) above discuss, among other things, the
economic impact, including the estimated compliance costs and
burdens, of the amended definition.
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B. Certification

    For the reasons described above, the Commission certifies that the
amendments to Rule 17Ad-22 will not have a significant economic impact
on a substantial number of small entities.

VI. Other Matters

    If any of the provisions of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application.
    Pursuant to the Congressional Review Act, the Office of Information
and Regulatory Affairs has designated these rules as not a major rule,
as defined by 5 U.S.C. 804(2).

VII. Statutory Authority

    Pursuant to the Exchange Act, particularly Section 17A thereof, 15
U.S.C. 78q-1, and Section 805 of the Clearing Supervision Act, 12
U.S.C. 5464, the Commission is adopting amendments to Rule 17Ad-22.

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of Amendment

    In accordance with the foregoing, title 17, chapter II of the Code
of Federal Regulations is amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read, in part, as
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20,
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et. seq., and