burdens, including burdens associated with disclosure requirements.
---------------------------------------------------------------------------

    \443\ In the case of Rule 17Ad-22(e)(23), registered clearing
agencies are subject to existing requirements for disclosure under
existing Rule 17Ad-22, but new requirements under the proposed rule
would impose greater burdens relative to other proposed rules that
have similar requirements to those under existing Rule 17Ad-22. See
supra Part 0 (discussing the requirements under proposed Rule 17Ad-
22(e)(23) and their relationship to requirements under existing Rule
17Ad-22(d)(9)).
---------------------------------------------------------------------------

    The Commission requests comment regarding the accuracy of the
estimates discussed below.
1. Proposed Rules 17Ad-22(e)(1) Through (3): General Organization
a. Proposed Rule 17Ad-22(e)(1)
    Proposed Rule 17Ad-22(e)(1) contains substantially the same
requirements as Rule 17Ad-22(d)(1).\444\ As a result, a respondent
clearing agency would already have written rules, policies, and
procedures substantially similar to the requirements that would be
imposed under the proposed rule. The PRA burden imposed by the proposed
rules would therefore be minimal and would likely be limited to the
review of current policies and procedures and updating existing
policies and procedures where appropriate in order to ensure compliance
with the proposed rule. Accordingly, based on the similar policies and
procedures requirements and the corresponding burden estimates
previously made by the Commission for Rule 17Ad-22(d)(1),\445\ the
Commission preliminarily believes that respondent clearing agencies
would incur an aggregate one-time burden of approximately 56 hours to
review and update existing policies and procedures.\446\
---------------------------------------------------------------------------

    \444\ See 17 CFR 240.17Ad-22(d)(1); proposed Rule 17Ad-22(e)(1),
infra Part 0; see also supra Part 0 (discussing the requirements
under the proposed rule).
    \445\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \446\ This figure was calculated as follows: ((Assistant General
Counsel for 2 hours) + (Compliance Attorney for 6 hours)) = 8 hours
x 7 respondent clearing agencies = 56 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(1) would also impose ongoing burdens on a
respondent clearing agency. The proposed rule would require ongoing
monitoring and compliance activities with respect to the written
policies and procedures created in response to the

proposed rule.\447\ Based on the Commission's previous estimates for
ongoing monitoring and compliance burdens with respect to existing Rule
17Ad-22,\448\ the Commission preliminarily estimates that the ongoing
activities required by proposed Rule 17Ad-22(e)(1) would impose an
aggregate annual burden on respondent clearing agencies of 21
hours.\449\
---------------------------------------------------------------------------

    \447\ Where the Commission refers to anticipated burdens related
to ``enforcement activities,'' the Commission notes that such
policies and procedures contemplate enforcement by the respondent
clearing agency itself. See Clearing Agency Standards Release, supra
note 5, at 66246 (stating that ``the clearing agency must be able to
enforce its policies and procedures that contemplate enforcement by
the clearing agency'').
    \448\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \449\ This figure was calculated as follows: (Compliance
Attorney for 3 hours) x 7 respondent clearing agencies = 21 hours.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(2)
    Proposed Rule 17Ad-22(e)(2) contains some provisions that are
similar to Rule 17Ad-22(d)(8), but also adds additional requirements
that do not appear in existing Rule 17Ad-22.\450\ As a result, a
respondent clearing agency is required to have some written rules,
policies, and procedures substantially similar to the requirements that
would be imposed under proposed Rule 17Ad-22(e)(2) and would need to
establish and implement a limited number of new policies and
procedures. The PRA burden imposed by the proposed rule would therefore
be associated with reviewing current policies and procedures and
updating those policies and procedures or establishing new policies and
procedures, where appropriate, in order to ensure compliance with the
proposed rule. Accordingly, based on the similar policies and
procedures requirements and the corresponding burden estimates
previously made by the Commission for Rule 17Ad-22(d)(8),\451\ the
Commission preliminarily believes that respondent clearing agencies
would incur an aggregate one-time burden of approximately 154 hours to
review and update existing policies and procedures and to create new
policies and procedures, as necessary.\452\
---------------------------------------------------------------------------

    \450\ See 17 CFR 240.17Ad-22(d)(8); proposed Rule 17Ad-22(e)(2),
infra Part 0; see also supra Part 0 (discussing the requirements
under the proposed rule).
    \451\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \452\ This figure was calculated as follows: ((Assistant General
Counsel for 24 hours) + (Compliance Attorney for 10 hours)) = 22
hours x 7 respondent clearing agencies = 154 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(2) would also impose ongoing burdens on a
respondent clearing agency. The proposed requirement would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule. Based on the Commission's previous estimates for ongoing
monitoring and compliance burdens with respect to existing Rule 17Ad-
22,\453\ the Commission preliminarily estimates that the ongoing
activities required by proposed Rule 17Ad-22(e)(2) would impose an
aggregate annual burden on respondent clearing agencies of 28
hours.\454\
---------------------------------------------------------------------------

    \453\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \454\ This figure was calculated as follows: (Compliance
Attorney for 4 hours) x 7 respondent clearing agencies = 28 hours.
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(3)
    Proposed Rule 17Ad-22(e)(3) would require a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for a sound risk management
framework.\455\ Under Rule 17Ad-22(d), registered clearing agencies are
required to have policies and procedures to manage certain risks faced
by these entities,\456\ but the proposed rule would require a
comprehensive framework for risk management that would require risk
management policies and procedures be designed holistically, be
consistent with each other, and work effectively together. Accordingly,
the proposed rule may impose a PRA burden that would require respondent
clearing agencies to update current policies and procedures in order to
develop a more comprehensive framework that would include a periodic
review thereof and a plan for orderly recovery and wind-down of the
covered clearing agency. As a result, the Commission preliminarily
estimates that respondent clearing agencies would incur an aggregate
one-time burden of 399 hours to review and update existing policies and
procedures and to create new policies and procedures, as
necessary.\457\
---------------------------------------------------------------------------

    \455\ See proposed Rule 17Ad-22(e)(3), infra Part 0.
    \456\ See 17 CFR 240.17Ad-22(d); see also Part 0 (discussing the
requirements under the proposed rule and their relationship to
existing requirements under Rule 17Ad-22).
    \457\ This figure was 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 x 7 respondent clearing agencies =
399 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(3) would also impose ongoing burdens on a
respondent clearing agency. The proposed requirement would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule and activities related to preparing documents facilitating a
periodic review of the risk management framework. Based on the
Commission's previous estimates for ongoing monitoring and compliance
burdens with respect to existing Rule 17Ad-22,\458\ the Commission
preliminarily estimates that the ongoing activities required by
proposed Rule 17Ad-22(e)(3) would impose an aggregate annual burden on
respondent clearing agencies of 343 hours.\459\ The Commission notes
that the estimated ongoing burden for Proposed Rule 17Ad-22(e)(3) is
similar to the initial one-time burden because the proposed rule
includes a specific requirement that policies and procedures for
comprehensive risk management include review on a specified periodic
basis and approval by the board of directors annually.
---------------------------------------------------------------------------

    \458\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \459\ This figure was calculated as follows: ((Compliance
Attorney for 8 hours) + (Administrative Assistant for 3 hours) +
(Senior Business Analyst for 5 hours) + (Risk Management Specialist
for 33 hours)) = 49 hours x 7 respondent clearing agencies = 343
hours.
---------------------------------------------------------------------------

2. Proposed Rules 17Ad-22(e)(4) Through (7): Financial Risk Management
a. Proposed Rule 17Ad-22(e)(4)
    The Commission preliminarily believes that the estimated PRA
burdens for proposed Rule 17Ad-22(e)(4) would be more significant, as
changes to existing policies and procedures would involve more than
adjustments and may require a respondent clearing agency to make
substantial changes to its policies and procedures.\460\ In addition,
proposed Rule 17Ad-22(e)(4) would require one-time systems adjustments
related to the capability to test the sufficiency of financial
resources and to perform an annual conforming model validation. As a
result, the Commission preliminarily estimates that respondent clearing
agencies would incur an aggregate one-time burden of 1,400 hours.\461\
---------------------------------------------------------------------------

    \460\ See proposed Rule 17Ad-22(e)(4), infra Part 0; see also
supra Part 0 (discussing the requirements under the proposed rule).
    \461\ This figure was calculated as follows: ((Assistant General
Counsel for 60 hours) + (Compliance Attorney for 40 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)) = 200 hours x 7 respondent
clearing agencies = 1,400 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(4) would also impose ongoing burdens on a
respondent clearing agency. The proposed rule would require ongoing
monitoring and compliance activities

with respect to the written policies and procedures created in response
to the proposed rule and ongoing activities with respect to testing the
sufficiency of financial resources and model validation. Based on the
Commission's previous estimates for ongoing monitoring and compliance
burdens with respect to existing Rule 17Ad-22,\462\ the Commission
preliminarily estimates that the ongoing activities required by
proposed Rule 17Ad-22(e)(4) would impose an aggregate annual burden on
respondent clearing agencies of 420 hours.\463\
---------------------------------------------------------------------------

    \462\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \463\ This figure was calculated as follows: ((Compliance
Attorney for 24 hours) + (Administrative Assistant for 3 hours) +
(Senior Business Analyst for 3 hours) + (Risk Management Specialist
for 30 hours)) = 60 hours x 7 respondent clearing agencies = 420
hours.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(5)
    Respondent clearing agencies that would be subject to proposed Rule
17Ad-22(e)(5) may already have some written policies and procedures
designed to address the collateral risks borne by these entities.\464\
As a result, the Commission preliminarily believes that a respondent
clearing agency may need to review and update existing policies and
procedures as necessary and may need to adopt new policies and
procedures with respect to an annual review of the sufficiency of
collateral haircuts and concentration limits. Accordingly, based on the
similar policies and procedures requirements in and the Commission's
previous corresponding burden estimates for existing Rule 17Ad-
22(d)(3),\465\ the Commission preliminarily believes that respondent
clearing agencies would incur an aggregate one-time burden of
approximately 294 hours to review and update existing policies and
procedures and to create new policies and procedures, as
necessary.\466\
---------------------------------------------------------------------------

    \464\ See 17 CFR 240.17Ad-22(d)(3); proposed Rule 17Ad-22(e)(5),
infra Part 0; see also supra Part 0 (discussing the requirements
under the proposed rule).
    \465\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \466\ This figure was 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 x 7 respondent clearing agencies =
294 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(5) would also impose ongoing burdens on a
respondent clearing agency. The proposed requirement would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule and would also result in an annual review of collateral haircuts
and concentration limits. Based on the Commission's previous estimates
for ongoing monitoring and compliance burdens with respect to existing
Rule 17Ad-22,\467\ the Commission preliminarily estimates that the
ongoing activities required by proposed Rule 17Ad-22(e)(5) would impose
an aggregate annual burden on respondent clearing agencies of 252
hours.\468\ The Commission notes that the estimated ongoing burden for
Proposed Rule 17Ad-22(e)(5) is similar to the initial one-time burden
because the proposed rule includes a specific requirement that policies
and procedures for collateral include a not-less-than-annual review of
the sufficiency of a covered clearing agency's collateral haircuts and
concentration limits.
---------------------------------------------------------------------------

    \467\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \468\ This figure was calculated as follows: ((Compliance
Attorney for 6 hours) + (Risk Management Specialist for 30 hours)) =
36 hours x 7 respondent clearing agencies = 252 hours.
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(6)
    The Commission preliminarily believes that the estimated PRA
burdens for proposed Rule 17Ad-22(e)(6) would be more significant and
may require a respondent clearing agency to make substantial changes to
its policies and procedures.\469\ In addition, proposed Rule 17Ad-
22(e)(6) would require one-time systems adjustments related to the
capability to perform daily backtesting and monthly (or more frequent
than monthly) conforming sensitivity analyses. As a result, the
Commission preliminarily estimates that respondent clearing agencies
would incur an aggregate one-time burden of 1,080 hours to review and
update existing policies and procedures.\470\
---------------------------------------------------------------------------

    \469\ See proposed Rule 17Ad-22(e)(6), infra Part 0; see also
supra Part 0 (discussing the requirements under the proposed rule,
including those that do not appear in existing Rule 17Ad-22).
    \470\ This figure was 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 x 6 respondent
clearing agencies = 1,080 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(6) would also impose ongoing burdens on a
respondent clearing agency. The proposed requirement would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule and activities associated with the daily backtesting and monthly
(or more frequent) sensitivity analysis requirements and annual model
validation. Based on the Commission's previous estimates for ongoing
monitoring and compliance burdens with respect to existing Rule 17Ad-
22,\471\ the Commission preliminarily estimates that the ongoing
activities required by proposed Rule 17Ad-22(e)(6) would impose an
aggregate annual burden on respondent clearing agencies of 360
hours.\472\
---------------------------------------------------------------------------

    \471\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \472\ This figure was calculated as follows: ((Compliance
Attorney for 24 hours) + (Administrative Assistant for 3 hours) +
(Senior Business Analyst for 3 hours) + (Risk Management Specialist
for 30 hours)) = 60 hours x 6 respondent clearing agencies = 360
hours.
---------------------------------------------------------------------------

d. Proposed Rule 17Ad-22(e)(7)
    The Commission preliminarily believes that the estimated PRA
burdens for proposed Rule 17Ad-22(e)(7) would be more significant and
may require a respondent clearing agency to make substantial changes to
its policies and procedures.\473\ In addition, proposed Rule 17Ad-
22(e)(7) would require one-time systems adjustments related to the
capability to perform an annual conforming model validation, the
testing of sufficiency of liquid resources and the testing of access to
liquidity providers. As a result, the Commission preliminarily
estimates that respondent clearing agencies would incur an aggregate
one-time burden of 2,310 hours to review and update existing policies
and procedures.\474\
---------------------------------------------------------------------------

    \473\ See proposed Rule 17Ad-22(e)(7), infra Part 0; see also
supra Part 0 (discussing the requirements under the proposed rule).
    \474\ This figure was 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 x 7 respondent
clearing agencies = 2,310 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(7) would also impose ongoing burdens on a
respondent clearing agency. The proposed requirement would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule as well as activities related to the testing of sufficiency of
liquidity resources and the testing of access to liquidity providers.
Based on the Commission's previous estimates for ongoing monitoring and
compliance burdens with respect to existing Rule 17Ad-22,\475\ the
Commission preliminarily estimates that the ongoing activities required
by proposed Rule 17Ad-

22(e)(7) would impose an aggregate annual burden on respondent clearing
agencies of 896 hours.\476\
---------------------------------------------------------------------------

    \475\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \476\ This figure was calculated as follows: ((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 x 7 respondent clearing agencies = 896 hours.
---------------------------------------------------------------------------

3. Proposed Rules 17Ad-22(e)(8) Through (10): Settlement
a. Proposed Rule 17Ad-22(e)(8)
    Proposed Rule 17Ad-22(e)(8) contains substantially similar
provisions to Rule 17Ad-22(d)(12).\477\ As a result, a respondent
clearing agency would already have written rules, policies, and
procedures substantially similar to the requirements that would be
imposed under the proposed rule. In this regard, the Commission
preliminarily believes that respondent clearing agencies would incur
the incremental burdens of reviewing and updating existing policies and
procedures as necessary. Accordingly, based on the similar policies and
procedures requirements and the corresponding burden estimates
previously made by the Commission for Rule 17Ad-22(d)(12),\478\ the
Commission preliminarily believes that respondent clearing agencies
would incur an aggregate one-time burden of approximately 84 hours to
review and update existing policies and procedures.\479\
---------------------------------------------------------------------------

    \477\ See 17 CFR 240.17Ad-22(d)(12); proposed Rule 17Ad-
22(e)(8), infra Part 0; see also supra Part 0 (discussing the
requirements under the proposed rule).
    \478\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \479\ This figure was 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 x 7 respondent clearing agencies = 84 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(8) would also impose ongoing burdens on a
respondent clearing agency. The proposed requirements would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rules. Based on the Commission's previous estimates for ongoing
monitoring and compliance burdens with respect to existing Rule 17Ad-
22,\480\ the Commission preliminarily estimates that the ongoing
activities required by proposed Rule 17Ad-22(e)(8) would impose an
aggregate annual burden on respondent clearing agencies of
approximately 35 hours.\481\
---------------------------------------------------------------------------

    \480\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \481\ This figure was calculated as follows: (Compliance
Attorney for 5 hours) x 7 respondent clearing agencies = 35 hours.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(9)
    Proposed Rule 17Ad-22(e)(9) contains substantially similar
provisions to Rule 17Ad-22(d)(5).\482\ As a result, a respondent
clearing agency would already have written rules, policies, and
procedures substantially similar to the requirements that would be
imposed under the proposed rule. In this regard, the Commission
preliminarily believes that respondent clearing agencies would incur
the incremental burdens of reviewing and updating existing policies and
procedures as necessary. Accordingly, based on the similar policies and
procedures requirements and the corresponding burden estimates
previously made by the Commission for Rule 17Ad-22(d)(5),\483\ the
Commission preliminarily believes that respondent clearing agencies
would incur an aggregate one-time burden of approximately 84 hours to
review and update existing policies and procedures.\484\
---------------------------------------------------------------------------

    \482\ See 17 CFR 240.17Ad-22(d)(5); proposed Rule 17Ad-22(e)(9),
infra Part 0; see also supra Part 0 (discussing the requirements
under the proposed rule).
    \483\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \484\ This figure was 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 x 7 respondent clearing agencies = 84 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(9) would also impose ongoing burdens on a
respondent clearing agency. The proposed requirement would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule. Based on the Commission's previous estimates for ongoing
monitoring and compliance burdens with respect to existing Rule 17Ad-
22,\485\ the Commission preliminarily estimates that the ongoing
activities required by proposed Rule 17Ad-22(e)(9) would impose an
aggregate annual burden on respondent clearing agencies of
approximately 35 hours.\486\
---------------------------------------------------------------------------

    \485\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \486\ This figure was calculated as follows: (Compliance
Attorney for 5 hours) x 7 respondent clearing agencies = 35 hours.
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(10)
    Proposed Rule 17Ad-22(e)(10) contains substantially similar
provisions to Rule 17Ad-22(d)(15).\487\ As a result, a respondent
clearing agency would already have written rules, policies, and
procedures substantially similar to the requirements that would be
imposed under the proposed rule. In this regard, the Commission
preliminarily believes that a respondent clearing agency would incur
the incremental burdens of reviewing and updating existing policies and
procedures as necessary. Accordingly, based on the similar policies and
procedures requirements and the corresponding burden estimates
previously made by the Commission for Rule 17Ad-22(d)(15),\488\ the
Commission preliminarily believes that respondent clearing agencies
would incur an aggregate one-time burden of approximately 84 hours to
review and update existing policies and procedures.\489\
---------------------------------------------------------------------------

    \487\ See 17 CFR 240.17Ad-22(d)(15); proposed Rule 17Ad-
22(e)(10), infra Part 0; see also supra Part 0 (discussing the
requirements under the proposed rule).
    \488\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \489\ This figure was 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 x 7 respondent clearing agencies = 84 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(10) would also impose ongoing burdens on a
respondent clearing agency. The proposed requirement would require
ongoing monitoring and compliance activities with respect to the
written policies and procedures created in response to the proposed
rule. Based on the Commission's previous estimates for ongoing
monitoring and compliance burdens with respect to existing Rule 17Ad-
22,\490\ the Commission preliminarily estimates that the ongoing
activities required by proposed Rule 17Ad-22(e)(10) would impose an
aggregate annual burden on respondent clearing agencies of
approximately 35 hours.\491\
---------------------------------------------------------------------------

    \490\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \491\ This figure was calculated as follows: (Compliance
Attorney for 5 hours) x 7 respondent clearing agencies = 35 hours.
---------------------------------------------------------------------------

4. Proposed Rules 17Ad-22(e)(11) Through (12): CSDs and Exchange-of-
Value Settlement Systems
a. Proposed Rule 17Ad-22(e)(11)
    Proposed Rule 17Ad-22(e)(11) contains similar provisions to Rule
17Ad-22(d)(10).\492\ As a result, a respondent clearing agency
providing CSD services would already have written rules, policies, and
procedures similar to the requirements that would

be imposed under the proposed rule but also imposes additional
requirements that do not appear in existing Rule 17Ad-22,\493\ and
accordingly a covered clearing agency providing CSD services may need
to update or amend existing policies and procedures, as necessary, to
satisfy the proposed requirements and may need to create new policies
and procedures. Based on the similar policies and procedures
requirements and the corresponding burden estimates previously made by
the Commission for Rule 17Ad-22(d)(10),\494\ the Commission
preliminarily believes that the respondent clearing agency would incur
a one-time burden of approximately 55 hours to review and update
existing policies and procedures and to create new policies and
procedures, as necessary.\495\
---------------------------------------------------------------------------

    \492\ See 17 CFR 240.17Ad-22(d)(10); proposed Rule 17Ad-
22(e)(11), infra Part 0.
    \493\ See supra Part 0 (discussing the requirements under the
proposed rule and their relationship to existing requirements under
Rule 17Ad-22(d)(10)).
    \494\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \495\ This figure was calculated as follows: ((Assistant General
Counsel for 20 hours) + (Compliance Attorney for 10 hours) +
(Intermediate Accountant for 15 hours) + (Senior Business Analyst
for 5 hours) + (Computer Operations Manager for 5 hours)) = 55 hours
x 1 respondent clearing agency = 55 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(11) would also impose ongoing burdens on
the respondent clearing agency providing CSD services. The proposed
requirement would require ongoing monitoring and compliance activities
with respect to the written policies and procedures created in response
to the proposed rule. Based on the Commission's previous estimates for
ongoing monitoring and compliance burdens with respect to existing Rule
17Ad-22,\496\ the Commission preliminarily estimates that the ongoing
activities required by proposed Rules 17Ad-22(e)(11) would impose a
total annual burden on the respondent clearing agency of approximately
8 hours.\497\
---------------------------------------------------------------------------

    \496\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \497\ This figure was calculated as follows: (Compliance
Attorney for 8 hours) x 1 respondent clearing agency = 8 hours.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(12)
    Proposed Rule 17Ad-22(e)(12) contains substantially similar
provisions to Rule 17Ad-22(d)(13).\498\ As a result, a respondent
clearing agency would already have written rules, policies, and
procedures substantially similar to the requirements that would be
imposed under the proposed rule. In this regard, the Commission
preliminarily believes that a respondent clearing agency would incur
the incremental burdens of reviewing and updating existing policies and
procedures as necessary. Accordingly, based on the similar policies and
procedures requirements and the corresponding burden estimates
previously made by the Commission for Rule 17Ad-22(d)(13),\499\ the
Commission preliminarily believes that respondent clearing agencies
would incur an aggregate one-time burden of approximately 84 hours to
review and update existing policies and procedures.\500\
---------------------------------------------------------------------------

    \498\ See 17 CFR 240.17Ad-22(d)(13); proposed Rule 17Ad-
22(e)(12), infra Part 0; see also supra Part 0 (discussing the
requirements under the proposed rule).
    \499\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \500\ This figure was 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 x 7 respondent clearing agencies = 84 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(12) would also impose ongoing burdens on a
covered clearing agency. The proposed requirement would require ongoing
monitoring and compliance activities with respect to the written
policies and procedures created in response to the proposed rule. Based
on the Commission's previous estimates for ongoing monitoring and
compliance burdens with respect to existing Rule 17Ad-22,\501\ the
Commission preliminarily estimates that the ongoing activities required
by proposed Rule 17Ad-22(e)(12) would impose an aggregate annual burden
on respondent clearing agencies of approximately 35 hours.\502\
---------------------------------------------------------------------------

    \501\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \502\ This figure was calculated as follows: (Compliance
Attorney for 5 hours) x 7 respondent clearing agencies = 35 hours.
---------------------------------------------------------------------------

5. Proposed Rules 17Ad-22(e)(13) Through (14): Default Management
a. Proposed Rule 17Ad-22(e)(13)
    Proposed Rule 17Ad-22(e)(13) would require a respondent clearing
agency to have written policies and procedures reasonably designed to
address participant default and ensure that the clearing agency can
contain losses and liquidity demands and continue to meet its
obligations. Proposed Rule 17Ad-22(e)(13) contains similar provisions
to Rule 17Ad-22(d)(11) but would also impose additional requirements
that do not appear in existing Rule 17Ad-22.\503\ As a result, the
Commission preliminarily believes that a respondent clearing agency
would incur burdens of reviewing and updating existing policies and
procedures in order to comply with the provisions of proposed Rule
17Ad-22(e)(13) and, in some cases, may need to create new policies and
procedures. Accordingly, based on the similar policies and procedures
requirements and the corresponding burden estimates previously made by
the Commission for Rule 17Ad-22(d)(11),\504\ the Commission
preliminarily believes that respondent clearing agencies would incur an
aggregate one-time burden of approximately 420 hours to review and
update existing policies and procedures and to create new policies and
procedures, as necessary.\505\
---------------------------------------------------------------------------

    \503\ See 17 CFR 240.17Ad-22(d)(11); proposed Rule 17Ad-
22(e)(13), infra Part 0; see also supra Part 0 (discussing the
requirements under the proposed rule and their relationship to
existing Rule 17Ad-22(d)(11).
    \504\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \505\ This figure was calculated as follows: ((Assistant General
Counsel for 20 hours) + (Compliance Attorney for 16 hours) + (Senior
Business Analyst for 12 hours) + (Computer Operations Manager for 12
hours)) = 60 hours x 7 respondent clearing agencies = 420 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(13) would also impose ongoing burdens on a
respondent clearing agency. Specifically, the proposed rule would
require annual review and testing of a clearing agency's default
policies and procedures. Based on the Commission's previous estimates
for ongoing monitoring and compliance burdens with respect to existing
Rule 17Ad-22,\506\ the Commission preliminarily believes that the
ongoing activities required by proposed Rule 17Ad-22(e)(13) would
impose an aggregate annual burden on respondent clearing agencies of
approximately 63 hours.\507\
---------------------------------------------------------------------------

    \506\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \507\ This figure was calculated as follows: (Compliance
Attorney for 9 hours) x 7 respondent clearing agencies = 63 hours.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(14)
    Registered clearing agencies that provide CCP services for
security-based swaps generally have written policies and procedures
regarding the segregation and portability of customer positions and
collateral as a result of applicable regulations but not existing Rule
17Ad-22.\508\ As a result, respondent clearing agencies providing CCP
services for security-based swaps would incur burdens of reviewing and
updating existing policies and

procedures as necessary in order to comply with the proposed rule. The
Commission preliminarily estimates that Rule 17Ad-22(e)(14) would
impose on respondent clearing agencies an aggregate one-time burden of
72 hours to review and update existing policies and procedures.\509\
---------------------------------------------------------------------------

    \508\ See, e.g., 77 FR 6336 (Feb. 7, 2012) (CFTC adopting rules
imposing LSOC on DCOs for cleared swaps); see also supra Part 0, in
particular note 297 and accompanying text. Because the affected
clearing agencies are subject to the CFTC's segregation and
portability requirements with respect to cleared swaps under LSOC,
the Commission preliminarily believes the burden imposed by proposed
Rule 17Ad-22(e)(14) would be limited.
    \509\ This figure was 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 x 2 respondent clearing agency that
provide, or would potentially provide, CCP services with respect to
security-based swaps = 72 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(14) would also impose ongoing burdens on a
respondent clearing agency that provides CCP services for security-
based swaps. Based on the Commission's previous estimates for ongoing
monitoring and compliance burdens with respect to existing Rule 17Ad-
22,\510\ the Commission preliminarily believes that the ongoing
activities required by proposed Rule 17Ad-22(e)(14) would impose an
aggregate annual burden on respondent clearing agencies of
approximately 12 hours.\511\
---------------------------------------------------------------------------

    \510\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \511\ This figure was calculated as follows: (Compliance
Attorney for 6 hours) x 2 respondent clearing agencies = 12 hours
---------------------------------------------------------------------------

6. Proposed Rules 17Ad-22(e)(15) Through (17): General Business and
Operational Risk Management
a. Proposed Rule 17Ad-22(e)(15)
    Respondent clearing agencies would be required to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to identify and manage general business risks borne
by the clearing agency. Policies and procedures governing the
identification and mitigation of general business risk are not
currently required under existing Rule 17Ad-22 and, as a result, the
Commission preliminarily believes that the estimated PRA burdens for
proposed Rule 17Ad-22(e)(15) would be more significant and may require
a respondent clearing agency to make substantial changes to its
policies and procedures.\512\ The Commission preliminarily estimates
that proposed Rule 17Ad-22(e)(15) would impose an aggregate one-time
burden on respondent covered clearing agencies of 1,470 hours to review
and update existing policies and procedures and to create new policies
and procedures, as necessary.\513\
---------------------------------------------------------------------------

    \512\ See proposed Rule 17Ad-22(e)(15), infra Part 0; see also
supra Part 0 (discussing the requirements under the proposed rule).
    \513\ This figure was 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 x 7 respondent clearing
agencies = 1,470 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(15) would also imposed ongoing burdens on
a respondent clearing agency. Proposed Rule 17Ad-22(e)(15) would
require a respondent clearing agency to establish, implement, maintain
and enforce written policies and procedures reasonably designed to
maintain a viable plan, approved by its board of directors and updated
at least annually, for raising additional equity in the event that the
covered clearing agency's liquid net assets fall below the level
required by the proposed rule. Based on the Commission's previous
estimates for ongoing monitoring and compliance burdens with respect to
existing Rule 17Ad-22,\514\ the Commission preliminarily estimates that
the ongoing activities required by proposed Rule 17Ad-22(e)(15) would
impose an aggregate annual burden on respondent clearing agencies of
336 hours.\515\
---------------------------------------------------------------------------

    \514\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \515\ This figure was calculated as follows: ((Compliance
Attorney for 42 hours) + (Administrative Assistant for 3 hours) +
(Senior Business Analyst for 3 hours)) = 48 hours x 7 respondents
clearing agencies = 336 hours.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(16)
    A registered clearing agency is currently required to have written
policies and procedures reasonably designed to address, in large part,
the safeguarding of assets of its assets and those of its participants
under Rule 17Ad-22(d)(3).\516\ Proposed Rule 17Ad-22(e)(16) contains
substantially similar provisions. As a result, the Commission
preliminarily believes that a respondent clearing agency would be
required to conduct a review of current policies and procedures and
update these existing policies and procedures where appropriate in
order to ensure compliance with the proposed rule and that the PRA
burden imposed by the proposed rule would be limited. Accordingly,
based on the similar policies and procedures requirements and the
corresponding burden estimates previously made by the Commission for
Rule 17Ad-22(d)(3),\517\ the Commission preliminarily estimates that
all respondent clearing agencies would incur an aggregate one-time
burden of approximately 140 hours to review and update existing
policies and procedures.\518\
---------------------------------------------------------------------------

    \516\ See 17 CFR 240.17Ad-22(d)(3); proposed Rule 17Ad-
22(e)(16), infra Part 0; see also supra Part 0 (discussing the
requirements under the proposed rule).
    \517\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \518\ This figure was 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 x 7 respondent clearing agencies = 140 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(16) would also impose ongoing burdens on a
respondent clearing agency. It would require ongoing monitoring and
compliance activities with respect to the policies and procedures
implemented in response to the requirements of the proposed rule. Based
on the Commission's previous estimates for ongoing monitoring and
compliance burdens with respect to existing Rule 17Ad-22,\519\ the
Commission preliminarily estimates that the ongoing activities required
by proposed Rule 17Ad-22(e)(16) would impose an aggregate annual burden
on respondent clearing agencies of 42 hours.\520\
---------------------------------------------------------------------------

    \519\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \520\ This figure was calculated as follows: (Compliance
Attorney for 6 hours) x 7 respondent clearing agencies = 42 hours.
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(17)
    Proposed Rule 17Ad-22(e)(17) contains similar requirements to those
under Rule 17Ad-22(d)(4) but would also impose additional requirements
that do not appear in existing Rule 17Ad-22.\521\ As a result, a
respondent clearing agency is currently required to have some written
rules, policies and procedures containing provisions similar to the
requirements that would be imposed under the proposed rule, but it
would also need to review and update existing policies and procedures,
where necessary, and may need to create policies and procedures to
address the additional requirements. Accordingly, based on the similar
policies and procedures requirements and the corresponding burden
estimates previously made by the Commission for Rule 17Ad-
22(d)(4),\522\ the Commission preliminarily estimates that respondent
clearing agencies would incur an aggregate one-time burden of 196 hours
to review and update existing policies and procedures and to create new
policies and procedures, as necessary.\523\
---------------------------------------------------------------------------

    \521\ See 17 CFR 240.17Ad-22(d)(4); proposed Rule 17Ad-
22(e)(17), infra Part 0; see also supra Part 0 (discussing the
requirements under the proposed rule).
    \522\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \523\ This figure was 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 x 7 respondent clearing agency = 196 hours.

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

    Proposed Rule 17Ad-22(e)(17) would also impose ongoing burdens on a
respondent clearing agency. Specifically, the proposed rule would
require ongoing monitoring and compliance activities with respect to
the written policies and procedures created in response to the rule.
Based on the Commission's previous estimates for ongoing monitoring and
compliance burdens with respect to existing Rule 17Ad-22,\524\ the
Commission preliminarily estimates that the ongoing activities required
by proposed Rule 17Ad-22(e)(17) would impose an aggregate annual burden
on respondent clearing agencies of 112 hours.\525\
---------------------------------------------------------------------------

    \524\ See Clearing Agency Standards Release, supra note 5, at
66260-63.
    \525\ This figure was calculated as follows: (Compliance
Attorney for 6 hours) x 7 respondent clearing agencies = 42 hours.
---------------------------------------------------------------------------

7. Proposed Rules 17Ad-22(e)(18) Through (20): Access
a. Proposed Rule 17Ad-22(e)(18)
    Proposed Rule 17Ad-22(e)(18) contains similar requirements to those
in existing Rules 17Ad-22(b)(5) through (7) and (d)(2).\526\ As a
result, a respondent clearing agency is currently required to have
written rules, policies, and procedures containing provisions similar
to the requirements that would be imposed under the proposed rule.
Thus, for certain portions of proposed Rule 17Ad-22(e)(18), the
Commission preliminarily believes that a respondent clearing agency
would need to review and update existing policies and procedures where
necessary. Because proposed Rule 17Ad-22(e)(18) also imposes additional
requirements that do not appear in existing Rule 17Ad-22, however,\527\
a respondent clearing agency may be required to create policies and
procedures to address these additional requirements. Accordingly, based
on the similar policies and procedures requirements and the
corresponding burden estimates previously made by the Commission for
Rules 17Ad-22(b)(5) through (7) and (d)(2),\528\ the Commission
preliminarily estimates that respondent clearing agencies would incur
an aggregate one-time burden of 308 hours to review and update existing
policies and procedures and to create new policies and procedures, as
necessary.\529\
---------------------------------------------------------------------------

    \526\ See 17 CFR 240.17Ad-22(b)(5) through (7) and (d)(2).
    \527\ See proposed Rule 17Ad-22(e)(18), infra Part 0; see also
supra Part 0 (discussing the requirements under the proposed rule).
    \528\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \529\ This figure was 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 x 7 respondent clearing agencies = 308
hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(18) would also impose ongoing burdens on a
respondent clearing agency. Specifically, the proposed rule would
require ongoing monitoring and compliance activities with respect to
the written policies and procedures created in response to the rule.
Based on the Commission's previous estimates for ongoing monitoring and
compliance burdens with respect to existing Rule 17Ad-22,\530\ the
Commission preliminarily estimates that the ongoing activities required
by the proposed rule would impose an aggregate annual burden on
respondent clearing agencies of 49 hours.\531\
---------------------------------------------------------------------------

    \530\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \531\ This figure was calculated as follows: (Compliance
Attorney for 7 hours) x 7 respondent clearing agencies = 49 hours.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(19)
    Respondent clearing agencies would be required to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to address material risks associated from tiered
participation arrangements as required by proposed Rule 17Ad-22(e)(19).
Tiered participation arrangements are not addressed in existing Rule
17Ad-22. To the extent that a respondent clearing agency has not
addressed tiered participation arrangements in its policies and
procedures, the Commission preliminarily believes that the respondent
clearing agency would need to create policies and procedures to address
these proposed requirements. In this regard, the PRA burden for
proposed Rule 17Ad-22(e)(19) would impose one-time initial burdens to
create policies and procedures. The Commission preliminarily estimates
that proposed Rule 17Ad-22(e)(19) would impose an aggregate one-time
burden on respondent clearing agencies of 308 hours to create said
policies and procedures.\532\
---------------------------------------------------------------------------

    \532\ This figure was 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 x 7 respondent clearing
agencies = 308 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(19) would also impose ongoing burdens on a
respondent clearing agency. Specifically, the proposed rule would
require ongoing monitoring and compliance activities with respect to
the written policies and procedures created in response to the rule.
Based on the Commission's previous estimates for ongoing monitoring and
compliance burdens with respect to existing Rule 17Ad-22,\533\ the
Commission preliminarily estimates that the ongoing activities required
by the proposed rule would impose an annual aggregate burden on
respondent clearing agencies of 49 hours.\534\
---------------------------------------------------------------------------

    \533\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \534\ This figure was calculated as follows: (Compliance
Attorney for 7 hours) x 7 respondent clearing agencies = 49 hours.
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(20)
    Registered clearing agencies are currently required to have written
policies and procedures reasonably designed to manage risks related to
links between the clearing agency and others under Rule 17Ad-22(d)(7).
Proposed Rule 17Ad-22(e)(20) contains similar requirements, but also
imposes additional requirements.\535\ As a result, a respondent
clearing agency may need to review and update existing policies and
procedures or establish new policies and procedures, as necessary, to
satisfy the proposed requirement. Accordingly, based on the similar
policies and procedures requirements and the corresponding burden
estimates previously made by the Commission for Rule 17Ad-
22(d)(7),\536\ the Commission preliminarily believes that respondent
clearing agencies would incur an aggregate one-time burden of
approximately 308 hours to review and update existing policies and
procedures.\537\
---------------------------------------------------------------------------

    \535\ See 17 CFR 240.17 Ad-22(d)(7); proposed Rule 17Ad-
22(e)(20), infra Part 0; see also supra Part 0 (discussing the
requirements under the proposed rule).
    \536\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \537\ This figure was calculated as follows: ((Assistant General
Counsel for 10 hours) + (Compliance Attorney for 7 hours) + (Senior
Business Analyst for 5 hours) + (Computer Operations Manager for 15
hours) + (Chief Compliance Officer for 5 hours) + (Senior Programmer
for 2 hours) = 44 hours x 7 respondent clearing agencies = 308
hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(20) would also impose ongoing burdens on a
respondent clearing agency. Specifically, the proposed rule would
require ongoing monitoring and compliance activities with respect to
the written policies and procedures created in response to the rule.
Based on the Commission's previous estimates for ongoing monitoring and
compliance

burdens with respect to existing Rule 17Ad-22,\538\ the Commission
preliminarily estimates that the ongoing activities required by the
proposed rule would impose an aggregate annual burden on respondent
clearing agencies of 49 hours.\539\
---------------------------------------------------------------------------

    \538\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \539\ This figure was calculated as follows: (Compliance
Attorney for 7 hours) x 7 respondent clearing agencies = 49 hours.
---------------------------------------------------------------------------

8. Proposed Rules 17Ad-22(e)(21) Through (22): Efficiency
a. Proposed Rule 17Ad-22(e)(21)
    Registered clearing agencies are currently required to have written
policies and procedures requiring the clearing agency to be cost
effective with respect to meeting the requirements of its participants
and the markets it serves under Rule 17Ad-22(d)(6), and proposed Rule
17Ad-22(e)(21) contains similar requirements but also imposes new
requirements.\540\ As a result, a respondent clearing agency would
likely incur the burdens of reviewing and updating existing policies
and procedures and may need to create new policies and procedures to
satisfy the proposed rule, as necessary. Accordingly, based on the
similar policies and procedures requirements and the corresponding
burden estimates previously made by the Commission for Rule 17Ad-
22(d)(6),\541\ the Commission preliminarily estimates that that
respondent clearing agencies would incur an aggregate one-time burden
of approximately 224 hours to review and update existing policies and
procedures.\542\
---------------------------------------------------------------------------

    \540\ See 17 CFR 240.17Ad-22(d)(6).
    \541\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \542\ This figure was calculated as follows: ((Assistant General
Counsel for 10 hours) + (Compliance Attorney for 7 hours) + (Senior
Business Analyst for 5 hours) + (Computer Operations Manager for 10
hours)) = 32 hours x 7 respondent clearing agencies = 224 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(21) would also impose ongoing burdens on a
respondent clearing agency. The proposed rule would require ongoing
monitoring and compliance activities with respect to the written
policies and procedures required under the proposed rule. Based on the
Commission's previous estimates for ongoing monitoring and compliance
burdens with respect to existing Rule 17Ad-22,\543\ the Commission
preliminarily estimates that the ongoing activities required by
proposed Rule 17Ad-22(e)(21) would impose an aggregate annual burden on
respondent clearing agencies of 77 hours.\544\
---------------------------------------------------------------------------

    \543\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \544\ This figure was calculated as follows: ((Compliance
Attorney for 5 hours) + (Administrative Assistant for 3 hours) +
(Senior Business Analyst for 3 hours) = 11 hours x 7 respondent
clearing agencies = 77 hours.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(22)
    Respondent clearing agencies would be required to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to implement the requirements of proposed Rule
17Ad-22(e)(22) with respect to the use of relevant internationally
accepted communication procedures and standards. Although registered
clearing agencies are not subject to an existing similar requirement
under Rule 17Ad-22, the Commission understands that covered clearing
agencies currently use the relevant internationally accepted
communication procedures and standards and expects a covered clearing
agency would need to make only limited changes to satisfy the
requirements under the proposed rule.\545\ Accordingly, the Commission
preliminarily estimates that proposed Rule 17Ad-22(e)(22) would impose
an aggregate one-time burden on respondent clearing agencies of 168
hours to review and update existing policies and procedures.\546\
---------------------------------------------------------------------------

    \545\ See supra note 441.
    \546\ This figure was 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 x 7 respondent clearing agencies = 168
hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(22) would also impose ongoing burdens on a
respondent clearing agency. Specifically, the proposed rule would
require ongoing monitoring and compliance activities with respect to
the written policies and procedures created in response to the rule.
Based on the Commission's previous estimates for ongoing monitoring and
compliance burdens with respect to existing Rule 17Ad-22,\547\ the
Commission preliminarily estimates that the ongoing activities required
by proposed Rule 17Ad-22(e)(22) would impose an aggregate annual burden
on respondent clearing agencies of 35 hours.\548\
---------------------------------------------------------------------------

    \547\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \548\ This figure was calculated as follows: (Compliance
Attorney for 5 hours) x 7 respondent clearing agencies = 35 hours.
---------------------------------------------------------------------------

9. Proposed Rule 17Ad-22(e)(23): Disclosure
    Proposed Rule 17Ad-22(e)(23) contains similar requirements to Rule
17Ad-22(d)(9) but also imposes substantial new requirements.\549\ As a
result, although a respondent clearing agency is already required to
have written rules, policies and procedures containing provisions
similar to some of the requirements in the proposed rule, for some
provisions of proposed Rule 17Ad-22(e)(23), a respondent clearing
agency would be required to establish policies and procedures to
address the additional requirements. Accordingly, based on the similar
policies and procedures requirements and the corresponding burden
estimates previously made by the Commission for Rule 17Ad-
22(d)(9),\550\ the Commission preliminarily estimates that respondent
clearing agencies would incur an aggregate one-time burden of 966 hours
to review and update existing policies and procedures and to create
policies and procedures, as necessary.\551\
---------------------------------------------------------------------------

    \549\ See 17 CFR 240.17Ad-22(d)(9); proposed Rule 17Ad-
22(e)(23), infra Part 0; see also supra Part 0 (discussing the
requirements under the proposed rule).
    \550\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \551\ This figure was 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 x 7 respondent clearing
agencies = 966 hours.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(23) would also impose ongoing burdens on a
respondent clearing agency. Specifically, the proposed rule would
require ongoing monitoring and compliance activities with respect to
the written policies and procedures created in response to the rule.
Based on the Commission's previous estimates for ongoing monitoring and
compliance burdens with respect to existing Rule 17Ad-22,\552\ the
Commission preliminarily estimates that the ongoing activities required
by proposed Rule 17Ad-22(e)(23) would impose an aggregate annual burden
on respondent clearing agencies of 238 hours.\553\
---------------------------------------------------------------------------

    \552\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \553\ This figure was calculated as follows: (Compliance
Attorney for 34 hours) x 7 respondent clearing agencies = 238 hours.
---------------------------------------------------------------------------

10. Total Burden for Proposed Rule 17Ad-22(e)
    The aggregate initial burden for respondent clearing agencies under
proposed Rule 17Ad-22(e) would be 10,664 hours. The aggregate ongoing
burden for respondent clearing agencies under proposed Rule 17Ad-22(e)
would be 3,460 hours.

E. Total Annual Reporting and Recordkeeping Burden for Proposed Rule
17Ab2-2

    Proposed Rule 17Ab2-2 would govern Commission determinations as to
whether a registered clearing agency is a covered clearing agency and
whether a covered clearing agency is either involved in activities with
a more complex risk profile or systemically important in multiple
jurisdictions.\554\ Because such determinations may be made upon
request of a clearing agency or its members, the respondents would have
the burdens of preparing such requests for submission to the
Commission. The Commission preliminarily notes that, to the extent such
determinations are carried out by the Commission on its own initiative
pursuant to proposed Rule 17Ab2-2, the PRA burdens on the respondents
would be limited. Accordingly, based on the Commission's previous
estimates for ongoing monitoring and compliance burdens with respect to
existing Rule 17Ad-22,\555\ the Commission preliminarily believes that
respondent clearing agencies would incur an aggregate one-time burden
of approximately 24 hours to draft and review a determination request
to the Commission.\556\
---------------------------------------------------------------------------

    \554\ See infra Part 0 (further discussing the purpose, scope,
and application of proposed Rule 17Ab2-2) and Part 0 (proposed text
of Rule 17Ab2-2).
    \555\ See Clearing Agency Standards Release, supra note 5, at
66260.
    \556\ This figure was calculated as follows: ((Assistant General
Counsel for 2 hours) + (Staff Attorney for 4 hours) + (Outside
Counsel for 6 hours)) = 12 hours x 2 respondent clearing agencies =
24 hours.
---------------------------------------------------------------------------

F. Collection of Information Is Mandatory

    The collection of information relating to proposed Rules 17Ad-
22(e)(1) through (3), 17Ad-22(e)(4)(ii) through (v), 17Ad-22(e)(7)(i)
through (ix), and 17Ad-22(e)(8) through (23) would be mandatory for all
respondent clearing agencies. The collection of information requirement
relating to proposed Rule 17Ad-22(e)(4)(i) and 17Ad-22(e)(7)(x) would
be mandatory for a respondent clearing agency that provides CCP
services and that is designated by the Commission either as
systemically important in multiple jurisdictions or as a complex risk
profile clearing agency. The collection of information requirement
relating to proposed Rule 17Ad-22(e)(6) would be mandatory for a
respondent clearing agency that provides CCP services.
    The collection of information requirement relating to proposed Rule
17Ab2-2 is voluntary.

G. Confidentiality

    The Commission preliminarily expects that the written policies and
procedures generated pursuant to proposed Rule 17Ad-22(e) would be
communicated to the members, subscribers, and employees (as applicable)
of all entities covered by the proposed rule and the public (as
applicable). To the extent that this information is made available to
the Commission, it would not be kept confidential. Such policies and
procedures would be required to be preserved in accordance with, and
for periods specified in, Exchange Act Rules 17a-1\557\ and 17a-
4(e)(7).\558\ 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.\559\
---------------------------------------------------------------------------

    \557\ 17 CFR 240.17a-1.
    \558\ 17 CFR 240.17a-4(e)(7).
    \559\ 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).
---------------------------------------------------------------------------

    To the extent that the Commission receives confidential information
pursuant to the collection of information under proposed Rule 17Ab2-2,
the Commission preliminarily expects such information would be kept
confidential subject to the provisions of applicable law.\560\
---------------------------------------------------------------------------

    \560\ See id.
---------------------------------------------------------------------------

H. Request for Comments

    The Commission invites comments on all of the above estimates.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission requests comment in
order to (a) evaluate whether the collection of information is
necessary for the proper performance of our functions, including
whether the information will have practical utility; (b) evaluate the
accuracy of our estimates of the burden of the collection of
information; (c) determine whether there are ways to enhance the
quality, utility, and clarity of the information to be collected; (d)
evaluate whether there are ways to minimize the burden of the
collection of information on those who respond, including through the
use of automated collection techniques or other forms of information
technology; and (e) determine whether there are cost savings associated
with the collection of information that have not been identified in
this proposal.
    Persons submitting comments on the collection of information
requirements should direct them to the Office of Management and Budget,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Washington, DC 20503, and
should also send a copy of their comments to Kevin M. O'Neill, Deputy
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090, with reference to File No. S7-03-14.
Requests for materials submitted to OMB by the Commission with regard
to this collection of information should be in writing, with reference
to File No. S7-03-14, and be submitted to the Securities and Exchange
Commission, Office of Investor Education and Advocacy, 100 F Street
NE., Washington, DC 20549-0213. As OMB is required to make a decision
concerning the collections of information between 30 and 60 days after
publication, a comment to OMB is best assured of having its full effect
if OMB receives it by April 25, 2014.

IV. Economic Analysis

A. Introduction

    The purpose of the proposed amendments to Rule 17Ad-22 and of
proposed Rule 17Ab2-2 is to establish requirements for the operation
and governance of registered clearing agencies that meet the definition
of a ``covered clearing agency.'' Registered clearing agencies have
become an essential part of the infrastructure of the U.S. securities
markets. Many securities transactions are centrally cleared and
settled, and central clearing and settlement is becoming more prevalent
in the security-based swap markets. For example, DTCC reported
processing $1.6 quadrillion in transactions in 2012.\561\ For the same
period, Intercontinental Exchange, Inc. reported $10.2 trillion in
gross notional CDS cleared and settled.\562\ While clearing

agencies generally benefit the markets they serve, such entities can
pose substantial risk to the financial system as a whole, due in part
to the fact that clearing agencies concentrate risk. Disruption to a
clearing agency's operations, or failure on the part of a clearing
agency to meet its obligations, could serve as a potential source of
contagion, resulting in significant costs not only to the clearing
agency and its members but also the broader economy and market
participants.\563\ As a result, proper management of the risks
associated with central clearing and settlement is necessary to ensure
the stability of U.S. securities markets.
---------------------------------------------------------------------------

    \561\ See DTCC, 2012 Annual Report, available at http://www.dtcc.com/about/annual-report.aspx.
    \562\ See Intercontinental Exchange, Inc., 2012 Annual Report,
at 66, available at https://materials.proxyvote.com/Approved/45865V/20130319/AR_159922/. Intercontinental Exchange, Inc. is the parent
company of ICE and ICEEU.
    ICE began clearing corporate single-name CDS in December 2009,
and as of February 1, 2013, had cleared $1.9 trillion gross notional
of single-name CDS on 153 North American corporate reference
entities. See Exchange Act Release No. 34-61662 (Mar. 5, 2010), 75
FR 11589, 11591 (Mar. 11, 2010) (discussing ICE's credit default
swap clearing activities as of March 2010); ICE, Volume of ICE CDS
Clearing, available at https://www.theice.com/clear_credit.jhtml.
    ICEEU began clearing CDS on single-name corporate reference
entities in December 2009, and, as of February 1, 2013, had cleared
[euro]1.6 trillion in gross notional of single-name CDS on 121
European corporate reference entities. See Exchange Act Release No.
61973 (Apr. 23, 2010), 75 FR 22656, 22657 (Apr. 29, 2010)
(discussing ICEEU's credit default swap clearing activity as of
April 2010); ICEEU, Volume of ICE CDS Clearing, available at https://www.theice.com/clear_credit.jhtml.
    \563\ See generally Darrell Duffie, Ada Li & Theo Lubke, Policy
Perspectives on OTC Derivatives Market Infrastructure, at 9 (Fed.
Reserve Bank N.Y. Staff Reps., Mar. 2010), available at 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.''); Pirrong, The Inefficiency of Clearing Mandates,
Policy Analysis, No. 655, at 11-14, 16-17, 24-26 (2010), available
at http://www.cato.org/pubs/pas/PA665.pdf, at 11-14, 16-17, 24-26
(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
clearinghouses have failed or come close to failing in the past,
including in connection with the 1987 market break); Manmohan Singh,
Making OTC Derivatives Safe--A Fresh Look, at 5-11 (IMF Working
Paper, Mar. 2011), available at 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).
---------------------------------------------------------------------------

    The mandated central clearing and settlement of security-based
swaps wherever possible and appropriate, a core component of Title VII,
reinforces this need.\564\ Where a clearing agency provides CCP
services, clearing and settlement of security-based swap contracts
replaces bilateral counterparty exposures with exposures against the
clearing agency providing CCP services. Consequently, a move from
voluntary central clearing and settlement of security-based swap
contracts to mandatory clearing of security-based swap contracts,
holding the volume of security-based swap transactions constant, will
increase economic exposures against CCPs that clear security-based
swaps. Increased exposures in turn raise the possibility that these
CCPs may serve as a transmission mechanism for systemic events.
---------------------------------------------------------------------------

    \564\ See supra Part 0.
---------------------------------------------------------------------------

    Clearing agencies have several incentives to implement
comprehensive risk management programs. First, the ongoing viability of
a clearing agency depends on its reputation and the confidence that
market participants have in its services. Clearing agencies therefore
have an incentive to minimize the likelihood that a member default or
operational outage would disrupt settlement. Second, some clearing
agencies, including those that mutualize default risks, contribute a
portion of their own capital as part of their contingent resources.
Clearing agencies with such capital contributions to their contingent
resources thus have an economic interest in sound risk management.
Registered clearing agencies are SROs that enforce applicable rules and
requirements under Commission oversight and are also in certain
instances subject to CFTC oversight.\565\ Registered clearing agencies
consequently also face a legal requirement that their rules be designed
to protect the public interest in the process of clearing securities or
derivatives.\566\
---------------------------------------------------------------------------

    \565\ See supra Part 0 and note 96 (describing the Commission's
framework for regulation of SROs and the SRO rule filing process);
see also supra note 53 (describing regulations adopted by the CFTC
for DCOs).
    \566\ See 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Nevertheless, clearing agencies' incentives for sound risk
management may be tempered by pressures to reduce costs and maximize
profits that are distinct from the public interest goals set forth in
governing statutes, such as financial stability, and may result in
clearing agencies choosing tradeoffs between the costs and benefits of
risk management that are not socially efficient. Because the current
market for clearing services is characterized by high barriers to entry
and limited competition,\567\ the market power exercised by clearing
agencies in the markets they serve may blunt incentives to invest in
risk management systems.\568\ Further, even if clearing agencies do
internalize costs that they impose on their clearing members, they may
fail to internalize the consequences of their risk management decisions
on other financial entities that are connected to them through
relationships with clearing members.\569\ Such a failure represents a
financial network externality imposed by clearing agencies on the
broader financial markets and suggests that financial stability, as a
public good, may be under-produced in equilibrium.
---------------------------------------------------------------------------

    \567\ See Clearing Agency Standards Release, supra note 5, at
66263.
    \568\ See infra Part 0.
    \569\ See Daron Acemoglu, Asuman Ozdaglar & Alireza Tahbaz-
Salehi, Systemic Risk and Stability in Financial Networks (NBER
Working Paper No. 18727, Jan. 2013), available at http://www.nber.org/papers/w18727.
---------------------------------------------------------------------------

    As discussed in more detail below, the proposed amendments to Rule
17Ad-22 represent a strengthening of the Commission's regulation of
registered clearing agencies. The Commission preliminarily believes
that the more specific requirements imposed by the proposed amendments
will further mitigate potential moral hazard associated with risk
management at covered clearing agencies. For instance, in the absence
of policies and procedures that require periodic stress-testing and
validation of credit and liquidity risk models, clearing agencies could
potentially choose to recalibrate models in periods of low volatility
and avoid recalibration in periods of high volatility, causing them to
underestimate the risks they face.
    The Commission also preliminarily believes that the additional
specificity of proposed Rule 17Ad-22(e), along with proposed testing
requirements, would be more effective at mitigating these particular
manifestations of incentive misalignments than existing Rule 17Ad-22.
The Commission preliminarily believes, as a result, that a general
benefit of the proposed amendments would be reductions in the
likelihood of CCP failure that result from improved safeguards. This
general benefit would be realized to the extent that clearing agencies
do not already conform to new requirements under the proposed
amendments. Despite the potential incentive problems noted above and
perhaps in anticipation of regulatory efforts, some registered clearing
agencies have taken steps to update their policies and procedures in
accordance with the standards contained in the proposed rules. The
Commission notes that in some instances the proposed rules establish as
a minimum regulatory requirement

certain current practices at some registered clearing agencies. In
these cases, the Commission preliminarily believes that imposing the
proposed requirements on covered clearing agencies will have the effect
of imposing consistent, higher minimum risk management standards across
covered clearing agencies.
    In analyzing the economic consequences and effects of the rules
proposed in this release, the Commission has been guided by the
objectives of Section 17A of the Exchange Act to have due regard for
the public interest, the protection of investors, the safeguarding of
securities and funds, the maintenance of fair competition, and to
otherwise further the purposes of the Exchange Act through the
registration and regulation of clearing agencies.\570\ It has also been
guided by the objectives of the Dodd-Frank Act to mitigate risks to the
U.S. financial system, promote counterparty protection, increase market
transparency for OTC derivatives, and facilitate financial
stability.\571\ The Commission has also taken into account the
importance of maintaining a well-functioning security-based swap market
and the objectives of the Clearing Supervision Act to establish an
enhanced supervisory and risk control system for systemically important
clearing agencies and other FMUs.\572\ In addition, as directed by the
Clearing Supervision Act, the Commission makes this proposal after
giving careful consideration to the standards set forth in the PFMI
Report as the relevant international standard. Proposing rules that
maintain consistency with the standards set forth in the PFMI Report
may reduce the likelihood that market participants, including members
of covered clearing agencies, would restructure in an effort to operate
in less-regulated markets.
---------------------------------------------------------------------------

    \570\ See supra note 2 and accompanying text (noting the
requirements of Section 17A of the Exchange Act).
    \571\ See supra note 13 and accompanying text (noting the
purpose of the Dodd-Frank Act to, among other things, promote
financial stability); supra note 14 and accompanying text (noting
the purpose of the Dodd-Frank Act to, among other things, create a
regulatory framework for the OTC derivatives markets).
    \572\ See supra Part 0 (describing the regulatory framework for
FMUs set forth in the Clearing Supervision Act).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments
to Rule 17Ad-22 and proposed Rule 17Ab2-2 are consistent with the goals
of Section 17A of the Exchange Act, to promote the prompt and accurate
clearing and settlement of transactions in securities, of the Clearing
Supervision Act, to enhance the supervision and oversight of clearing
entities, and of Title VII, to create a robust regulatory structure for
security-based swaps. In proposing these rules, the Commission is also
mindful of the benefits that would accrue through maintaining
consistency with regulations adopted by the Board and the CFTC.
    The Commission is sensitive to the economic consequences and
effects of the proposed rules, including their benefits and costs. In
proposing these rules, the Commission has been mindful of the economic
consequences of the decisions it makes regarding the scope of applying
the proposed rules to covered clearing agencies. Moreover, the
Commission acknowledges that, since many of the proposed rules require
a covered clearing agency to adopt new policies and procedures, the
economic effects and consequences of the proposed rules include those
flowing from the substantive results of those new policies and
procedures. 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.\573\ Further, as noted above, Section 17A of the
Exchange Act directs the Commission 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 when using its
authority to facilitate the establishment of a national system for
clearance and settlement transactions in securities.\574\ In addition,
Section 23(a)(2) of the Exchange Act requires the Commission, when
making rules under the Exchange Act, to consider the impact such rules
would have on competition.\575\ Section 23(a)(2) 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.\576\
---------------------------------------------------------------------------

    \573\ See 15 U.S.C. 78c(f).
    \574\ See supra note 2 and accompanying text (noting the
requirements of Section 17A).
    \575\ See 15 U.S.C. 78w(a)(2).
    \576\ See id.
---------------------------------------------------------------------------

    The Commission has attempted, where possible, to quantify the
benefits and costs anticipated to flow from the proposed rules. In some
cases, as indicated below, data to quantify the benefits and costs
associated with the proposed rules are unavailable. For example,
implementing policies and procedures that require stress testing of
financial resources available to a covered clearing agency at least
once each day may require additional investment in infrastructure, but
the particular infrastructure requirements will depend on existing
systems and a covered clearing agency's choice of modeling techniques.
In other cases, quantification depends heavily on factors outside the
control of the Commission, particularly with regard to the number of
potential new entrants affected by the proposed rules that in the
future may be designated systemically important by the FSOC.
    Overall, the Commission preliminarily believes that the proposed
rules represent improvements in risk management, be it systemic, legal,
credit, liquidity, general business, custody, investment, or
operational risk, in keeping with the requirements of Section 17A of
the Exchange Act and the Dodd-Frank Act. The Commission preliminarily
believes that the proposed rules will result in an increase in
financial stability insofar as they result in minimum standards at
covered clearing agencies that are higher than those standards implied
by current practices at covered clearing agencies. In particular cases,
such as new requirements related to management of liquidity risk and
general business risk, stability may arise as a result of higher risk
management standards at covered clearing agencies that effectively
lower the probability that either covered clearing agencies or their
members default. As explained in Part IV.C.2, reduced default
probabilities for covered clearing agencies may, in turn, improve
efficiency and capital formation.
    Request for Comments. The Commission requests comment on all
aspects of the economic analysis of the proposed rules, including their
benefits and costs, as well as any effect these proposed rules may have
on competition, efficiency, and capital formation. Acknowledging the
data limitations noted above, the Commission encourages commenters to
provide data and analysis to help further quantify or estimate the
potential benefits and costs of the proposed rules.

B. Economic Baseline

1. Overview
    To assess the economic effects of the proposed rules, including
possible

effects on efficiency, competition, and capital formation, the
Commission is using a baseline composed of (1) the current regulatory
framework under which registered clearing agencies operate,\577\ and
(2) the current practices of registered clearing agencies as they
relate to the rules being proposed today.
---------------------------------------------------------------------------

    \577\ A brief summary of the regulatory framework appears in
Part 0. For a more detailed summary of the current regulatory
framework, see Part 0.
---------------------------------------------------------------------------

    More specifically, the baseline includes existing legal
requirements applicable to registered clearing agencies providing CCP
or CSD services as they exist at the time of this proposal, including
applicable rules adopted by the Commission. Rule 17Ad-22 established a
regulatory framework for registered clearing agencies, including
security-based swap clearing agencies deemed registered pursuant to the
Dodd-Frank Act.\578\ Section 17A of the Exchange Act generally
regulates the national system for clearance and settlement, while
Section 19 of the Exchange Act describes the registration,
responsibilities, and oversight of SROs. Further, clearing agencies are
subject to new requirements related to security-based swaps under the
Dodd-Frank Act.
---------------------------------------------------------------------------

    \578\ See Clearing Agency Standards Release, supra note 5; see
also supra note 25 and accompanying text (discussing the deemed
registered provision).
---------------------------------------------------------------------------

    In terms of current practice, registered clearing agencies are
required to operate in compliance with the requirements set forth in
Rule 17Ad-22, though they may vary in the particular ways they meet
these requirements. Some variation in practices across clearing
agencies derives from the products they clear and the markets they
serve. Additionally, the Commission understands that certain registered
clearing agencies have already adopted practices consistent with
several of the standards set forth in the PFMI Report. Accordingly,
because proposed Rule 17Ad-22(e) and proposed Rule 17Ab2-2 result in
general consistency with the standards set forth in the PFMI Report,
the Commission preliminarily believes the resulting benefits and costs
to covered clearing agencies would, in some cases, be incremental
because of the relationship between existing requirements applicable to
registered clearing agencies,\579\ the anticipation of new requirements
consistent with the standards set forth in the PFMI Report,\580\ and
the CPSS-IOSCO Recommendations that preceded the PFMI Report.\581\ In
certain other cases, such as management of liquidity risk and general
business risk, registered clearing agencies that are covered clearing
agencies would be required to make changes to current policies and
procedures, so the resulting costs, benefits and economic effects may
be significant.
---------------------------------------------------------------------------

    \579\ See supra Part 0 (discussing existing requirements under
Rule 17Ad-22).
    \580\ See supra note 49.
    \581\ See supra note 50 and accompanying text.
---------------------------------------------------------------------------

    In order to consider the broader implications of these proposed
rules on market activity, including possible effects on efficiency,
competition, and capital formation, the baseline also considers the
current state of clearing and settlement services, including the number
of registered clearing agencies, the distribution of members across
these clearing agencies, and the volume of transactions these clearing
agencies process. There are currently six registered clearing agencies
that provide CCP services and one registered clearing agency that
provides CSD services. As shown in Table 1, membership rates vary
across these clearing agencies. Together, registered clearing agencies
processed over $2 quadrillion in financial market transactions in
2012.\582\
---------------------------------------------------------------------------

    \582\ See, e.g., CME Group, 2012 Annual Report, at 2, available
at http://www.cmegroup.com/investor-relations/annual-review/2012/downloads/cme-group-2012-annual-report.pdf (indicating $806 trillion
notional in trading volume); DTCC, 2012 Annual Report, available at
http://www.dtcc.com/about/annual-report.aspx (indicating $1.6
quadrillion in transactions cleared).

  Table 1--Membership Statistics for Registered Clearing Agencies \583\
------------------------------------------------------------------------
                                                                 Number
------------------------------------------------------------------------
CME Total Members.............................................        72
    --Of which clear CDS......................................        14
DTC Full Service Members......................................       272
FICC GSD Members..............................................       107
    MBSD Members..............................................        76
ICE Clear Credit Members......................................        28
    Clear Europe Members......................................        79
        --Clear Europe Members that clear CDS.................        18
NSCC Full Service Members.....................................       175
OCC Total Members.............................................       117
------------------------------------------------------------------------

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

    \583\ Membership statistics are taken from the Web sites of each
of the listed clearing agencies and are current, for CME and ICE, as
of October 2013; for FICC, including the Government Securities
Division (``GSD'') and the Mortgage-Backed Securities Division
(``MBSD''), as of September 2013; for OCC as of January 2014; and
for DTC and NSCC as of December 6, 2013.
---------------------------------------------------------------------------

    Registered clearing agencies are currently characterized by
specialization and limited competition. Clearing and settlement
services exhibit high barriers to entry and economies of scale. These
features of the existing market, and the resulting concentration of
clearing and settlement within a handful of entities, informs our
examination of effects of the proposed amendments and rules on
competition, efficiency, and capital formation.\584\
---------------------------------------------------------------------------

    \584\ See infra Part 0 (discussing the effect of the proposed
rules on competition, efficiency, and capital formation).
---------------------------------------------------------------------------

2. Current Regulatory Framework for Clearing Agencies
    The proposed amendments to Rule 17Ad-22 and proposed Rule 17Ab2-2
fit within the Commission's broad approach to regulation of the
national system for clearance and settlement that comprises the
baseline for the Commission's economic analysis. Key elements of the
current regulatory framework for registered clearing agencies are
Section 17A of the Exchange Act,\585\ Titles VII and VIII of the Dodd-
Frank Act, and existing Rule 17Ad-22. Section 17A of the Exchange Act
directs the Commission to facilitate the establishment of a national
system for the prompt and accurate clearance and settlement of
securities transactions, having due regard for the public interest, the
protection of investors, the safeguarding of securities and funds, and
the maintenance of fair competition among brokers and dealers, clearing
agencies, and transfer agents.\586\
---------------------------------------------------------------------------

    \585\ See 15 U.S.C. 78q-1. For a more detailed discussion of the
regulatory framework for registered clearing agencies under Section
17A of the Exchange Act, see Part 0.
    \586\ See supra note 2 and accompanying text (noting the
requirements of Section 17A of the Exchange Act).
---------------------------------------------------------------------------

    Title VII, in response to the 2008 financial crisis, provides the
Commission and the CFTC with authority to regulate the mandatory
exchange trading and central clearing and settlement of swaps that
formerly may have been OTC derivatives.\587\ Title VII amended Section
17A of the Exchange Act by adding new paragraphs (g) through (j)
requiring the registration of clearing agencies serving the security-
based swap market, giving the Commission authority to adopt rules
governing security-based swap clearing agencies, and requiring
compliance by registered clearing agencies with said rules. New Section
17A(i) of the Exchange Act provides that the Commission may conform
standards for and oversight of clearing agencies to reflect evolving
international standards.
---------------------------------------------------------------------------

    \587\ See Dodd-Frank Act, 124 Stat. at 1641-1802. For a more
detailed discussion of the regulatory framework for registered
clearing agencies under Title VII, see Part 0.
---------------------------------------------------------------------------

    The Clearing Supervision Act, adopted in Title VIII, provides for
enhanced regulation of FMUs, such as clearing agencies, and for
enhanced coordination between the Commission, the CFTC, and the Board
by facilitating

examinations and information sharing.\588\ It also requires the
Commission and the CFTC to coordinate with the Board to develop risk
management supervision programs for clearing agencies designated
systemically important. Section 805(a) of the Clearing Supervision Act
further provides that the Commission, considering relevant
international standards and existing prudential requirements, may
prescribe regulations that contain risk management standards for
designated clearing agencies or the conduct of designated activities by
a financial institution.
---------------------------------------------------------------------------

    \588\ See 12 U.S.C. 5461 et seq. For a more detailed discussion
of the regulatory framework for registered clearing agencies under
Title VIII, see Part 0.
---------------------------------------------------------------------------

    Rule 17Ad-22 under the Exchange Act, adopted in 2012, requires a
registered clearing agency to establish, implement, maintain and
enforce written policies and procedures that are reasonably designed to
meet certain minimum requirements for their operations and risk
management practices on an ongoing basis. These requirements are
designed to work in tandem with the SRO rule filing process and the
requirement in Section 17A that the Commission must make certain
determinations regarding a clearing agency's rules and operations for
purposes of initial and ongoing registration.\589\ In its economic
analysis of the rule, the Commission noted that the economic
characteristics of clearing agencies, including economies of scale,
barriers to entry, and the particulars of their legal mandates, may
limit competition and confer market power on such clearing agencies,
which may lead to lower levels of service, higher prices, or under-
investment in risk management systems.\590\ To address these potential
market failures, Rule 17Ad-22 was adopted to strengthen the substantive
regulation of clearing agencies, promote the safe and reliable
operation of clearing agencies, improve efficiency, transparency, and
access to clearing agencies, and promote consistency with international
standards.\591\ Part IV.B.3 discusses current practices at registered
clearing agencies related to the requirements under Rule 17Ad-22.
---------------------------------------------------------------------------

    \589\ See Clearing Agency Standards Release, supra note 5. For a
more detailed discussion of the regulatory framework for registered
clearing agencies under Rule 17Ad-22, see Part 0. For a comparison
of the requirements under proposed Rule 17Ad-22(e) and existing
requirements under Rule 17Ad-22, see Part 0. For further discussion
of current industry practices subject to the requirements in Rule
17Ad-22, see Part 0.
    \590\ See id.
    \591\ See Clearing Agency Standards Release, supra note 5, at
66225, 66263-64.
---------------------------------------------------------------------------

a. Basel III Capital Requirements
    In addition to requirements under the Exchange Act, the Dodd-Frank
Act, and Rule 17Ad-22, other regulatory efforts are relevant to our
analysis of the economic effects of proposed Rule 17Ad-22(e). In July
2012, the BCBS published the Basel III capital requirements, which set
forth interim rules governing the capital charges arising from bank
exposures to CCPs related to OTC derivatives, exchange-traded
derivatives, and securities financing transactions.\592\ Once in
effect, the Basel III capital requirements will create incentives for
banks to clear derivatives and securities financing transactions with
CCPs licensed in a jurisdiction where the relevant regulator has
adopted rules or regulations consistent with the standards set forth in
the PFMI Report. Specifically, the Basel III capital requirements
introduce new capital charges based on counterparty risk for banks
conducting derivatives transactions or securities financing
transactions through a CCP.\593\
---------------------------------------------------------------------------

    \592\ See supra note 48 (discussing the Basel III capital
requirements). For a more detailed discussion of the Basel III
framework, see Part 0.
    \593\ Since the Basel III framework applies lower capital
requirements only to bank exposures related to OTC and exchange-
traded derivatives activity and securities financing transactions,
the Commission currently expects that, among all registered clearing
agencies, FICC, ICEEU, and OCC would be those affected by the Basel
III capital requirements. Each would meet the proposed definition of
``covered clearing agency.''
---------------------------------------------------------------------------

    New capital charges under the Basel III framework relate to a
bank's trade exposure and default fund exposure to a CCP and are a
function of multiplying these exposures by a corresponding risk weight.
Historically, these exposures have carried a risk weight of zero. As
banking regulators adopt rules consistent with the Basel III capital
requirements, however, these weights will increase. The risk weight
assigned under the Basel III capital requirements varies depending on
whether the counterparty is a QCCP. For example, risk weights for trade
exposures to a CCP generally would vary between 20% and 100% depending
on the CCP's credit quality, while trade exposures to a QCCP would
carry only a 2% risk weight.\594\ In addition, bank exposures to CCP
default funds would carry a risk weight of 1250%. While bank exposures
to QCCP default funds will also carry a 1250% risk weight at low
levels, under the Basel III framework, default fund exposures'
contribution to a bank's risk weighed assets will be limited to at most
18% of the bank's trade exposures to a given QCCP.
---------------------------------------------------------------------------

    \594\ The Basel III framework and rules adopted by the Board and
the Office of the Comptroller of the Currency consistent with that
framework apply lower risk weights of 2% or 4% to indirect exposures
of banks to QCCPs. See Basel III capital requirements, supra note
59, paras. 114-15; Regulatory Capital Rules, supra note 53, at
62103.
---------------------------------------------------------------------------

    In some jurisdictions, banking regulators have already adopted
rules that implement many requirements under the Basel III framework.
For example, in its Capital Requirements Directive IV, which went into
effect on July 17, 2013, the E.U. incorporated into its own legal
framework the Basel III framework. Article 301 contains rules governing
bank exposures to CCPs that are consistent with the Basel III
framework. Similarly, the BCBS reports that the Basel III capital
requirements, with the exception of capital conservation buffers and
countercyclical buffers, are currently in force for Japanese
banks.\595\ Canada and Switzerland also have risk-based capital rules
in place.\596\
---------------------------------------------------------------------------

    \595\ See BCBS, Progress Report on Implementation of the Basel
Regulatory Framework (Oct. 2013), available at http://www.bis.org/bcbs/implementation/bprl1.htm.
    \596\ See id.
---------------------------------------------------------------------------

    In the United States, on July 9, 2013, the Board and the Office of
the Comptroller of the Currency jointly issued regulatory capital rules
for U.S. banks consistent with the Basel III framework. Upon its
effective date of January 1, 2014, the Regulatory Capital Rules subject
bank exposures to CCPs and QCCPs to increased risk weights as specified
in the Basel III framework.\597\ In addition to specifying risk
weights, the rules define the term QCCP for banks supervised by the
Board and the Office of the Comptroller of the Currency.\598\ According
to these rules, QCCP status applies to any CCP that is a designated
FMU. Further, any CCP that (i) requires full collateralization of
contracts on a daily basis, and (ii), as demonstrated to the
satisfaction of its supervisory regulator, is in sound financial
condition, is subject to supervision by the Commission, and meets or
exceeds the risk management standards established by the Commission
under Titles VII and VIII of the Dodd-Frank Act, is a QCCP. Based on
this definition, for banks regulated by the Board and the Office of the
Comptroller of the Currency, all covered clearing agencies, with the
exception of ICEEU,\599\ will be considered QCCPs for

purposes of calculating risk weights for trade exposures and default
fund exposures.
---------------------------------------------------------------------------

    \597\ See Regulatory Capital Rules, supra note 53.
    \598\ See id.
    \599\ Although ICEEU would not be subject to QCCP treatment as a
designated FMU, it would nonetheless be considered a QCCP because it
is subject to regulation by the Commission. See Regulatory Capital
Rules, supra note 53, at 62166 (defining ``Qualifying Central
Counterparty'' at 1.iii(B)(2)).
---------------------------------------------------------------------------

    In Europe, under EMIR, legal persons incorporated under the law of
an E.U. member state will only be able to use non-E.U. CCPs if those
CCPs have been recognized under EMIR. Further, only non-E.U. CCPs
recognized under EMIR will meet the conditions necessary to be
considered a QCCP for E.U. purposes. Article 25 of EMIR outlines a
recognition procedure for non-E.U. CCPs and Article 89 provides a
timeline for recognition.\600\ FICC, NSCC, and OCC applied for
recognition under EMIR prior to a September 15, 2013 deadline.\601\ As
a result of applying for recognition, these covered clearing agencies
will be permitted to continue to offer clearing services to existing
E.U. clearing members until their applications are accepted or
rejected.
---------------------------------------------------------------------------

    \600\ See Eur. Comm'n, Practical Implementation of the EMIR
Framework to Non-EU Central Counterparties (CCPs) (May 13, 2013),
available at http://ec.europa.eu/internal_market/financial-markets/docs/derivatives/130513_equivalence-procedure_en.pdf.
    \601\ These three clearing agencies agreed to have their names
publicly disclosed and do not necessarily represent the full set of
registered clearing agencies that applied for recognition under
EMIR. See ESMA, List of Central Counterparties (CCPs) Established in
Non-EEA Countries Which Have Applied for Recognition Under Article
25 of Regulation (EU) No 648/2012 of the European Parliament and of
the Council of 4 July 2012 on OTC Derivatives, CCPs and Trade
Repositories (TRs) (EMIR) (Dec. 16, 2013), available at http://www.esma.europa.eu/system/files/2013-1581_list_of_applicants_tc-ccps_version_16_december_2013.pdf.
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    Additionally, the Basel III capital requirements, as adopted by the
Board, the Office of the Comptroller of the Currency, and banking
regulators in other jurisdictions, impose new capital requirements
related to unconditionally cancellable commitments and other off-
balance sheet exposures. For example, the Board and the Office of the
Comptroller of the Currency will require banks to include 10% of the
notional amount of unconditionally cancellable commitments in their
calculation of total leverage exposure.\602\ The rules cap the ratio of
tier one capital to total leverage exposure at 3% for banks subject to
advanced approaches risk-based capital rules.\603\ To the extent that
clearing agencies rely on financial resources from banks as part of
their risk management activities, new constraints on off-balance sheet
exposures could raise the cost of these activities.
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    \602\ See Regulatory Capital Rules, supra note 53, at 62169.
    \603\ See id. at 62284. The Regulatory Capital Rules require
compliance by banks no later than 2018.
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b. Other Regulatory Efforts
    Efforts by the Board and the CFTC to adopt rules that are
consistent with the standards set forth in the PFMI Report are also
relevant to the economic analysis of the proposed rules.\604\ In 2012,
the Board adopted Regulation HH setting forth risk management standards
for designated FMUs, and, on January 10, 2014, the Board proposed
amendments to Regulation HH and its PSR Policy based upon the standards
set forth in the PFMI Report.\605\ Similarly, the CFTC has published
final rules intended to be consistent with the standards set forth in
the PFMI Report.\606\
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    \604\ For a more detailed discussion of the regulatory efforts
undertaken by the Board and the CFTC, see note 53.
    \605\ See id.
    \606\ See id.
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    In proposing the amendments to Rule 17Ad-22 and new Rule 17Ab2-2,
the Commission is mindful of these regulations proposed by the Board
and adopted by the CFTC, which seek to establish standards for
designated FMUs and establish standards for certain DCOs,
respectively.\607\ Section 712(a)(2) of Title VII requires the
Commission, before commencing any rulemaking regarding, among other
things, security-based swap clearing agencies, to consult and
coordinate to the extent possible with the CFTC and prudential
regulators for the purposes of assuring regulatory consistency and
comparability where possible.\608\ In addition, as directed by the
Clearing Supervision Act, the Commission is proposing these amendments
to Rule 17Ad-22 and Rule 17Ab2-2 after giving careful consideration to
the PFMI Report as the relevant international standard.
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    \607\ See id. (discussing efforts by the Board and the CFTC to
adopt rules consistent with the standards set forth in the PFMI
Report).
    \608\ See Dodd-Frank Act, Sec. 712(a)(2), Public Law 111-203,
124 Stat. 1376, 1641-42 (2010).
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3. Current Practices
    Current industry practices are a critical element of the economic
baseline for registered clearing agencies. Registered clearing agencies
are required to operate in compliance with existing Rule 17Ad-22 and,
the Commission understands, have begun implementing some of the
standards set forth in the PFMI Report. Because proposed Rule 17Ad-
22(e) is consistent with those standards and furthers the objectives of
Section 17A of the Exchange Act, the Clearing Supervision Act, and
Title VII of the Dodd-Frank Act, the Commission preliminarily believes
that the proposed rule represents, where it imposes higher minimum
standards on covered clearing agencies, an additional step towards
improved risk management.
    An overview of current practices is set forth below and includes
discussion of covered clearing agency policies and procedures regarding
general organization and risk management, including the management of
legal, credit, liquidity, business, custody, investment, and
operational risk. This discussion is based on the Commission's general
understanding of current practices as of the date of this proposal,
reflects the Commission's experience supervising registered clearing
agencies, and is intended solely for the purpose of analyzing the
economic effects of the Commission's proposal. The Commission notes
that in each case, as SROs, registered clearing agencies are required
to submit any proposed rule or any proposed change in, addition to, or
deletion from the rules of the clearing agency to the Commission for
review.\609\ The Exchange Act also requires a registered clearing
agency to enforce its rules, subject to Commission oversight, and
empowers the Commission to enforce the rules of a registered clearing
agency.\610\
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    \609\ See supra Part 0 and note 95 (describing the Commission's
framework for regulation of SROs and the SRO rule filing process).
    \610\ See supra Part 0, in particular notes 8-10 (describing the
requirements applicable to registered clearing agencies under the
Exchange Act and the supervisory and enforcement tools available to
the Commission to facilitate compliance with those requirements
under the Exchange Act).
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a. General Organization
i. Legal Risk
    Legal risk is the risk that a registered clearing agency's rules,
policies, or procedures may not be enforceable and concerns, among
other things, its contracts, the rights of members, netting
arrangements, discharge of obligations, and settlement finality. Cross-
border activities of a registered clearing agency may also present
elements of legal risk.
    Rule 17Ad-22(d)(1) requires a registered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for a well-founded,
transparent, and enforceable legal framework for each aspect of its
activities in all relevant jurisdictions.\611\ Each registered clearing
agency makes a large portion of these

policies and procedures available to members and participants. In
addition, each also publishes their rule books and other key procedures
publicly in order to promote the transparency of their legal
framework.\612\
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    \611\ See 17 CFR 240.17Ad-22(d)(1); Clearing Agency Standards
Release, supra note 5, at 66245-46.
    \612\ The rule book of each registered clearing agency, as well
as select policies and procedures, are publically available on each
registered clearing agency's Web site.
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ii. Governance
    Rule 17Ad-22(d)(8) requires a registered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to have governance arrangements that are
clear and transparent to fulfill the public interest requirements in
Section 17A of the Exchange Act applicable to clearing agencies, to
support the objectives of owners and participants, and to promote the
effectiveness of the clearing agency's risk management procedures.\613\
Important elements of a registered clearing agency's governance
arrangements include its ownership structure; its charter, bylaws, and
charters for committees of its board and management committees; its
rules, policies, and procedures; the composition and role of its board,
including the structure and role of board committees; reporting lines
between management and the board; and the processes that provide for
management accountability with respect to the registered clearing
agency's performance.
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    \613\ See 17 CFR 240.17Ad-22(d)(8); see also Clearing Agency
Standards Release, supra note 5, at 66251-52.
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    Each registered clearing agency has a board that governs its
operations and supervises senior management. Each registered clearing
agency also has an independent audit committee of the board and has
established a board committee or committee of members tasked with
overseeing the clearing agency's risk management functions. The boards
of registered clearing agencies that would be subject to proposed Rule
17Ad-22(e) as covered clearing agencies currently include non-
management members.
iii. Framework for the Comprehensive Management of Risks
    Rules 17Ad-22(b) and (d) require registered clearing agencies to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to measure and mitigate credit
exposures, identify operational risks, evaluate risks arising in
connection with cross-border and domestic links for the purpose of
clearing or settling trades, achieve DVP settlement, and implement risk
controls to cover the clearing agency's credit exposures to
participants.\614\ Rule 17Ad-22(d)(4) requires a registered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to establish business continuity
plans setting forth procedures for the recovery of operations in the
event of a disruption.\615\ Rule 17Ad-22(d)(11) further requires a
registered clearing agency to establish, implement, maintain and
enforce written policies and procedures reasonably designed to make key
aspects of the clearing agency's default procedures publicly available
and establish default procedures that ensure that the clearing agency
can take timely action to contain losses and liquidity pressures and to
continue meeting its obligations in the event of a participant
default.\616\
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    \614\ See 17 CFR 240.17Ad-22(b) and (d); see also Clearing
Agency Standards Release, supra note 5.
    \615\ See 17 CFR 240.17Ad-22(d)(4); see also Clearing Agency
Standards Release, supra note 5, at 66248-49.
    \616\ See 17 CFR 240.17Ad-22(d)(11).
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    In addition to meeting these requirements, the Commission
understands that registered clearing agencies also specify actions to
be taken when their resources are insufficient to cover losses faced by
the registered clearing agency.\617\ These actions may include
assessment rights on clearing members, forced allocation, and contract
termination.
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    \617\ See David Elliot, Central Counterparty Loss-Allocation
Rules, at tbl. 1A (Bank of England Financial Stability Paper No. 20,
Apr. 2013), available at http://www.bankofengland.co.uk/research/Documents/fspapers/fs_paper20.pdf (noting the loss-allocation rules
applied at the end of a clearing agency waterfall).
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b. Financial Risk Management
    Registered clearing agencies that provide CCP services have a
variety of options available to mitigate the financial risks to which
they are exposed. While the manner in which a CCP chooses to mitigate
these financial risks depends on the precise nature of the CCP's
obligations, a common set of procedures have been implemented by many
CCPs to manage credit and liquidity risks. Broadly, these procedures
enable CCPs to manage their risks by reducing the likelihood of member
defaults, limiting potential losses and liquidity pressure in the event
of a member default, implementing mechanisms that allocate losses
across members, and providing adequate resources to cover losses and
meet payment obligations as required.
    Registered clearing agencies that provide CCP services must be able
to effectively measure their credit exposures in order to properly
manage those exposures. A CCP faces the risk that its exposure to a
member can change as a result of a change in prices, positions, or
both. CCPs can ascertain current credit exposures to each member by, in
some cases, marking each member's outstanding contracts to current
market prices and, to the extent permitted by their rules and supported
by law, by netting any gains against any losses. Rule 17Ad-22 includes
certain requirements related to financial risk management by CCPs,
including requirements to measure credit exposures to members and to
use margin requirements to limit these exposures. These requirements
are general in nature and provide registered clearing agencies
flexibility to measure credit risk and set margin. Within the bounds of
Rule 17Ad-22, CCPs may employ models and choose parameters that they
conclude are appropriate to the markets they serve.
    The current practices of registered clearing agencies that provide
CCP services generally include the following procedures: (1) Measuring
credit exposures at least once a day; (2) setting margin coverage at a
99% confidence level over some set period; (3) using risk-based models;
(4) establishing a fund that mutualizes losses of defaults by one or
more participants that exceed margin coverage; (5) maintaining
sufficient financial resources to withstand the default of at least the
largest participant family,\618\ and (6), in

the case of security-based swap transactions, maintaining enough
financial resources to be able to withstand the default of their two
largest participant families.\619\
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    \618\ See, e.g., IMF, Publication of Financial Sector Assessment
Program Documentation--Detailed Assessment of Observance of the
National Securities Clearing Corporation's Observance of the CPSS-
IOSCO Recommendations for Central Counterparties, at 10 (May 2010),
available at http://www.imf.org/external/pubs/ft/scr/2010/cr10129.pdf (assessing NSCC's observance of Recommendation 5 from
the RCCP that a CCP should maintain sufficient financial resources
to withstand, at a minimum, the default of a participant to which it
has the largest exposure in extreme but plausible market conditions;
also noting that NSCC began evaluating itself against this standard
in 2009 and has backtesting results to support that it maintained
sufficient liquidity to cover the failure of the largest affiliated
family 99.98% of the time during the period from January through
April 2009); IMF, Publication of Financial Sector Assessment Program
Documentation--Detailed Assessment of Observance of the Fixed Income
Clearing Corporation--Government Securities Division's Observance of
the CPSS-IOSCO Recommendations for Central Counterparties, at 9-10
(2010), available at http://www.imf.org/external/pubs/ft/scr/2010/cr10130.pdf (finding that FICC's Government Securities Division
observed the requirement to maintain enough financial resources to
meet the default of its largest participant in extreme but plausible
market conditions).
    \619\ See, e.g., CFTC-SEC Staff Roundtable on Clearing of Credit
Default Swaps, at 123 (Oct. 2010), available at<EMAIL_ADDRESS>(Stan Ivanov of ICE stating, ``[A]t ICE we look
at two simultaneous defaults of the two biggest losers upon extreme
conditions . . . .''); see also ICE, CDS Client Clearing Overview,
at 8 (Aug. 2013), available at https://www.theice.com/publicdocs/clear_credit/ICE_Clear_Credit_Client_Clearing_Overview.pdf
(noting that the guaranty fund covers the simultaneous default of
the two largest clearing members); CME Rulebook, Ch. 8H, Rule 8H07,
available at http://www.cmegroup.com/rulebook/CME/I/8H/8H.pdf.
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i. Credit Risk
    Rule 17Ad-22(b)(1) requires a registered clearing agency that
provides CCP services to establish, implement, maintain and enforce
written policies and procedures reasonably designed to measure their
credit exposures at least once per day.\620\ Several CCPs have policies
and procedures designed to require measuring credit exposures multiple
times per day.
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    \620\ See 17 CFR 240.17Ad-22(b)(1).
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    Rule 17Ad-22(b)(3) requires a registered clearing agency that
provides CCP services to establish, implement, maintain and enforce
written policies and procedures reasonably designed to maintain
sufficient financial resources to withstand, at a minimum, a default by