Rule 17Ad-22(b)(7) is successful in encouraging the broadening of
membership in CCPs that clear CDS, the Commission believes the
number of broker-dealers newly eligible for clearing membership that
become clearing members as a result of this change is likely to be
substantially less than 201.
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    The Commission carefully considered the tradeoffs of selecting a
lower or higher net capital threshold. A higher net capital requirement
may permit CCPs to exercise market power for the benefit of members by
limiting membership to an unduly small group of firms.\589\ This could
limit competition in the market for supplying dealer services as
dealers who are CCP members would have an advantage over other dealers.
It could also increase overall systemic risk by concentrating the
counterparty risk in relatively few participants. A less restrictive
capital requirement may also result in incentives for firms that are
not capable of participating in the default management process of a CPP
to effectively ``free ride'' on the default services provided by the
rest of the membership.\590\ The Commission believes that the $50
million capital requirement appropriately balances these concerns and
bridges the differences in current membership standards across
registered clearing agencies. At the same time, the Commission notes
that having a $50 million capital level does not create a right to
membership.
---------------------------------------------------------------------------

    \589\ See Craig Pirrong, The Economics of Central Clearing:
Theory and Practice (ISDA Discussion Papers Series, No. 1, May
2011), at 28.
    \590\ See id. at 28.
---------------------------------------------------------------------------

    In addition, we note that the $50 million requirement is the same
as the CFTC's capital requirement for DCO membership.\591\ Establishing
a different requirement than that adopted by the CFTC could create
opportunities for regulatory arbitrage and would in effect make one
regulator's standard irrelevant for dually registered clearing agencies
like CME, ICE Clear Credit and OCC. Furthermore, some of these
competing concerns are addressed by the flexibility contemplated by
Rule 17Ad-22(b)(7), as it permits each clearing agency to develop
scalable policies and procedures to limit the activities of
participants based on their level of net capital.\592\ For example, a
clearing agency can place limits on its potential exposure to
participants operating at certain net capital thresholds by restricting
the maximum size of the portfolio such participants are permitted to
maintain at the clearing agency. The Commission also believes that Rule
17Ad-22(b)(7) would facilitate sound risk management practices by
encouraging clearing agencies to examine and articulate the benefits of
higher net capital requirements as a result of having clearing agencies
develop scalable membership standards that link the nature and degree
of participation with the potential risks posed by the
participant.\593\
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    \591\ See supra note 38.
    \592\ The Commission notes that some clearing agencies currently
utilize capital-related requirements that differentiate among types
of participants. For instance, FICC has maintained a $50 million net
worth requirement and $10 million excess net capital requirement for
its Category 1 Dealer Netting Members and a $25 million net worth
requirement and $10 million excess net capital requirement for its
Category 2 Dealer Netting Members.
    \593\ See supra note 264.
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    The Commission believes that Rules 17Ad-22(b)(5), (6) and (7) will
create the potential for greater access to clearing services for, and
opportunities for competition among market participants, particularly
for credit default swaps. The Commission believes that greater access
to clearing should benefit market participants by allowing them to
provide equivalent access to CCP clearing services for security-based
swaps to their customers. Doing so should increase opportunities for
competition among clearing firms on both price and service which
should, in turn, reduce costs to the ultimate customers for the
financial services being offered.
    Rules 17Ad-22(b)(5), (6) and (7) may impose some costs on clearing
agencies due to the increased complexity of the policies and procedures
regulating access to the clearing agency. The Commission acknowledges
that lowering membership standards to increase the number of
participants may increase the likelihood of a participant default.
Nevertheless, broadening direct access will tend to reduce the
concentration of risk in any individual

direct clearing member. Further, while Rules 17Ad-22(b)(5), (6) and (7)
prohibit certain barriers to entry, these provisions nevertheless still
provide clearing agencies with the flexibility to develop membership
standards that maintain a robust risk management framework.
    Typically, dealers innovate and customize in new financial
contracts to address specific risk-management problems of their
clients. It is not uncommon for these contracts to become exchange-
traded, as the market for the product matures. Dealers, however, may
have an incentive to maintain wider bid-ask spreads associated with a
customized contract relative to the spreads that might apply if it were
a standardized product. Greater access to a CCP could promote greater
standardization because all CCP members could submit transactions to
the CCP based on the CCP's pre-established rules. Accordingly, the
Commission believes that expanded membership will promote the natural
evolution of customized contracts to standardized contracts with deeper
liquidity and reduced bid-asked spreads.
    In terms of comments received, one commenter believed that the
proposed rules are unnecessary and pointed to the existing requirement
in Section 17A(b)(3)(F) of the Exchange Act that a clearing agency
shall not be registered unless the Commission determines that the
clearing agency's rules are not designed to permit unfair
discrimination in the admission of participants or among participants
in the use of the clearing agency. The Commission believes Rules 17Ad-
22(b)(5)-(7) will guide registered CCPs to practices that support the
requirement to provide fair and open access.
    The Commission is mindful of the costs associated with the final
rules. In particular, the Commission recognizes that creating new
policies and procedures can impose costs even if those policies and
procedures largely codify current practice.
    As noted above, the standards contained in Rules 17Ad-22(b)(5)-(7)
would impose certain burdens and related costs on respondent clearing
agencies. As discussed in Section IV.C.3, based on policies and
procedures requirements for Regulation NMS, and based on staff
conversations with industry representatives, the Commission has
estimated the burdens and related costs of these requirements for
clearing agencies.
    The clearing agency standards in Rules 17Ad-22(b)(5)-(7) would
require respondent clearing agencies to create policies and procedures.
The standards contained in Rules 17Ad-22(b)(5)-(7) would also impose
ongoing costs on clearing agencies. For example, the clearing agency
standards in Rules 17Ad-22(b)(5)-(7) would collectively require
respondent clearing agencies to perform certain ongoing monitoring and
enforcement activities with respect to the policies and procedures the
clearing agency creates in response to the standard. The costs of
creating these policies and procedures, and performing ongoing
monitoring and enforcement activities were included, respectively, in
the $3.7 million startup costs and $10.1 million annual ongoing costs
discussed earlier. These provisions may also impose incremental costs
related to, for example, employee training, systems testing, and other
operational considerations designed to ensure both initial and
continued compliance with the clearing agency's participant access
policies and procedures.
6. Record of Financial Resources and Annual Audited Financial
Statements (Rules 17Ad-22(c)(1)-(2))
    Rule 17Ad-22(c)(1) provides that each fiscal quarter (based on
calculations made as of the last business day of the clearing agency's
fiscal quarter), or at any time upon Commission request, a CCP shall
calculate and maintain a record \594\ of the financial resources
necessary to meet its requirement in proposed Rule 17Ad-22(b)(3) and
sufficient documentation to explain the methodology it uses to compute
such financial resource requirement.
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    \594\ See Exchange Act Rule 17a-1 (17 CFR 240.17a-1). Clearing
agencies may destroy or otherwise dispose of records at the end of
five years consistent with Exchange Act Rule 17a-6 (17 CFR 240.17a-
6).
---------------------------------------------------------------------------

    Rule 17Ad-22(c)(2) requires a clearing agency, within 60 days after
the end of its fiscal year, to post on its Web site annual audited
financial statements. Such financial statements shall: (i) Include, for
the clearing agency and its subsidiaries, consolidated balance sheets
as of the end of the two most recent fiscal years and statements of
income, changes in stockholders' equity and other comprehensive income
\595\ and cash flows for each of the two most recent fiscal years; (ii)
be prepared in accordance with U.S. GAAP, except that for a clearing
agency that is a corporation or other organization incorporated or
organized under the laws of any foreign country the consolidated \596\
financial statements may be prepared in accordance with U.S. GAAP or
IFRS; (iii) be audited in accordance with standards of the Public
Company Accounting Oversight Board by a registered public accounting
firm that is qualified and independent in accordance with Rule 2-01 of
Regulation S-X (17 CFR 210.2-01); and (iv) include a report of the
registered public accounting firm that complies with paragraphs (a)
through (d) of Rule 2-02 of Regulation S-X (17 CFR 210.2-02).
---------------------------------------------------------------------------

    \595\ The added language, ``changes in stockholders' equity and
other comprehensive income,'' does not change the substance of the
rule as provided in the Proposing Release. This language has been
added in the final rule to clarify the scope of what is meant by
complete set of financial statements consistent with customary
industry accounting practices.
    \596\ The ``consolidation'' language does not change the
substance of the rule as provided in the Proposing Release, but has
been added to clarify that the financial statements requirement
pertains to that of the clearing agencies and its subsidiaries on a
consolidated basis.
---------------------------------------------------------------------------

    Rule 17Ad-22(c)(1) is, for the most part, identical to what is
described in the baseline section above, and thus, this rule will, for
the most part, codify an existing practice of clearing agencies. The
difference is that CCPs will now have to format and synthesize existing
information in a manner sufficient to explain the methodology the
clearing agency uses to meet the requirement of Rule 17Ad-22(b)(3).
    In addition, Rule 17Ad-22(c)(2) is substantially similar to what is
described in the baseline section above. Most clearing agencies report
financial statements in accordance with Rule 17Ad-22(c)(2) with one
exception.\597\ Accordingly, Rule 17Ad-22(c)(2) is largely consistent
with current practice and will impose minimal costs on registered
clearing agencies.\598\
---------------------------------------------------------------------------

    \597\ See supra note 549.
    \598\ Because BSECC and SCCP conduct no operations, we also
expect their respective costs to be minimal.
---------------------------------------------------------------------------

    As described above, these two rules, except where noted above,
codify current practice. To the extent that current practice is not
currently required by rule, the rules being adopted today allow for
greater enforceability of these disclosure practices, and as a result
ensure that CCPs continue to maintain an environment of transparency.
    Rule 17Ad-22(c)(1) ensures that the Commission continues to be able
to monitor whether CCPs maintain the financial resources necessary to
meet its requirement in proposed Rule 17Ad-22(b)(3). The requirement
that CCPs will have to format and synthesize existing information in a
manner sufficient to explain the methodology the clearing agency uses
to meet the requirement of Rule 17Ad-22(c)(1), facilitates the

Commission's access to this information in a format that is clear and
understandable, and ensures that the Commission can obtain sufficient
documentation to understand and evaluate the methodology used by the
CCP to compute such financial resource requirement.
    Rule 17Ad-22(c)(2) ensures that CCPs continue to provide
transparency to regulators and market participants. Transparency helps
to ensure that market participants in general have better information
about the stability of the system, and facilitates monitoring by the
Commission and other regulators, clearing members, investors, academics
and the public in general. Further, to the extent that CCPs are
systemically important institutions, regulators may also be monitoring
systemic risk when monitoring CCPs.
    Transparency is particularly important to clearing members, whose
capital is at risk if a clearing member fails. Clearing members can use
the information codified in this rule to assess risks related to their
participation in the CCP and manage those risks. The information
codified in this rule can also be used by clearing members in a way
that promotes competition. In situations where multiple CCPs clear the
same product, clearing members may base their decision on which CCP to
use on the financial information codified in Rule 17Ad-22(c)(2), which
requires that CCPs make their financial information available to the
public, even during times of market stress. It is possible that if the
financial position of the CCP deteriorates, clearing members and
investors may discontinue membership in or otherwise limit their use of
that CCP, therefore driving CCPs with substandard risk management
practices out of business.
    The Commission carefully considered alternatives to these
provisions. For example, an alternative to the requirements of Rule
17Ad-22(c)(2) would be to permit registered clearing agencies to post
audited financial statements prepared in accordance with the laws of
their country of origin, reconciled to U.S. GAAP. Indeed, one
registered clearing agency, ICE Clear Europe, currently posts on its
Web site audited financial statements prepared according to UK GAAP.
Having foreign CCPs prepare financial statements using more widely
applied bases of accounting such as U.S. GAAP or IFRS may offer greater
utility to market participants, regulators and other stakeholders of
clearing agencies. Therefore, we have limited the different bases of
accounting upon which the annual audited consolidated financial
statements may be prepared to IFRS and U.S. GAAP. The Commission
recognizes that there are costs associated with requiring that a
registered CCP comply with these reporting standards. However, to the
extent that the parent company of ICE Clear Europe already prepares
financial statements according to U.S. GAAP, we expect the costs of
this requirement to be less burdensome. The Commission also believes
that allowing CCPs to prepare financial statements in accordance with
the laws of their countries of origin and then reconcile the
differences to U.S. GAAP would add complexity associated with the
reconciliation that may offer less utility to market participants,
regulators and other stakeholders of clearing agencies because of the
burden of understanding and interpreting additional bases of accounting
would create for users.
    The Commission is mindful of the costs associated with the final
rule. The exact nature of the procedures a clearing agency will
establish to support this requirement is likely to vary between
clearing agencies. Nevertheless, clearing agencies already make this
type of information available to the Commission and/or on their Web
sites. Therefore, the incremental cost of this Rule is unlikely to be
significant.
    As noted above, the standards contained in Rules 17Ad-22 (c)(1) and
(2), would impose certain burdens and related costs on respondent
clearing agencies. As discussed in Section IV.C.4, based on policies
and procedures requirements for Regulation NMS, and based on staff
conversations with industry representatives, the Commission has
estimated the burdens and related costs of these requirements for
clearing agencies.
    The clearing agency standards in Rules 17Ad-22(c)(1) and (2) would
require respondent clearing agencies to create policies and procedures.
The requirements would impose one-time costs related to the adjustment
of systems. These costs are included in the $3.7 million in startup
costs discussed earlier.
    The standards contained in Rule 17Ad-22(c) would also impose
ongoing costs on clearing agencies. For example, the clearing agency
standards in Rules 17Ad-22 (c)(1) and (2) would collectively require
respondent clearing agencies to perform certain ongoing monitoring and
enforcement activities with respect to the policies and procedures the
clearing agency creates in response to the standard. These costs are
included in the $10.1 million in annual costs discussed earlier. These
rules may impose additional incremental costs related to, for example,
employee training, systems testing, and other operational
considerations designed to ensure both initial and continued compliance
with such policies and procedures.
    Rule 17Ad-22(c)(2) would require each clearing agency to post on
its Web site its annual audited financial statements. The audited
financial statements would have to (i) be a complete set of
consolidated financial statements of the clearing agency and its
subsidiaries for the most recent two fiscal years and be prepared in
accordance with U.S. GAAP, except that for a clearing agency that is a
corporation or other organization incorporated or organized under the
laws of any foreign country the consolidated financial statements may
be prepared according to U.S. GAAP or IFRS; (ii) be audited in
accordance with standards of the Public Company Accounting Oversight
Board by a registered public accounting firm that is qualified and
independent in accordance with Rule 2-01 of Regulation S-X (17 CFR
210.2-01); and (iii) include a report of the registered public
accounting firm that complies with paragraphs (a) through (d) of Rule
2-02 of Regulation S-X (17 CFR 210.2-02). This requirement would
necessitate work hours of compliance personnel and finance personnel at
the clearing agency to compile relevant data, organize and analyze that
data, and then post it to the clearing agency's Web site consistent
with the rule. The requirement would also require the services of a
registered public accounting firm. These costs are included in the
$10.1 million in annual costs discussed earlier.
7. Minimum Standards for All Clearing Agencies
    Rules 17Ad-22(d)(1)-(15) require certain minimum standards for
rules and procedures to be met by all clearing agencies. Rule 17Ad-
22(d)(1) requires that clearing agencies have rules and procedures that
are well-founded, transparent and enforceable for each aspect of their
activities in all relevant jurisdictions.\599\ Rules 17Ad-22(d)(2)-(15)
require that clearing agencies reasonably establish, implement,
maintain and enforce written policies and procedures reasonably
designed to:
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    \599\ A relevant jurisdiction would include, among others,
activities (i) In the United States, (ii) involving any means of
interstate commerce, or (iii) in respect to providing clearing
services to any U.S. person. Clearing agencies that operate in
multiple jurisdictions may need to resolve possible conflicts of
laws issues that they may encounter.

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

     Require participants to have sufficient financial
resources and robust operational capacity to meet obligations arising
from participation in the clearing agency,
     Hold assets in a manner whereby risk of loss or of delay
in access to them is minimized,
     Identify sources of operational risk and minimize these
risks through the development of appropriate systems, controls, and
procedures,
     Employ money settlement arrangements that eliminate or
strictly limit the clearing agency's settlement bank risks,
     Provide that their operations are cost-effective in
meeting the requirements of participants while maintaining the safety
and security of operations,
     Evaluate the potential sources of risks that can arise
when the clearing agency establishes links either cross-border or
domestically to clear or settle trades, and to ensure that these risks
are managed prudently on an ongoing basis,
     Have governance arrangements that are clear and
transparent to fulfil the public interest requirements in Section 17A
of Exchange Act applicable to clearing agencies,\600\ to support the
objectives of owners and participants, and to promote the effectiveness
of the clearing agency's risk management procedures,
---------------------------------------------------------------------------

    \600\ Section 17A(b)(3)(F) of the Exchange Act requires that the
rules of a clearing agency be designed to protect investors and the
public interest. 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

     Provide market participants with sufficient information
for them to identify and evaluate the risks and costs associated with
using clearing agencies' services,
     Immobilize or dematerialize securities certificates and
transfer them by book entry to the greatest extent possible when the
clearing agency provides CSD services,
     Make key aspects of their 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,
     Ensure that final settlement occurs no later than the end
of the settlement day and that intraday or real-time finality is
provided where necessary to reduce risks,
     Eliminate principal risk by linking securities transfers
to funds transfers to achieve delivery versus payment (DVP),\601\
---------------------------------------------------------------------------

    \601\ See supra note 422.
---------------------------------------------------------------------------

     Institute risk controls, including collateral requirements
and limits to cover the clearing agency's credit exposure to each
participant family exposure fully, that ensure timely settlement in the
event that the participant with the largest payment obligation is
unable to settle when the clearing agency provides CSD services \602\
and extends intraday credit to participants,
---------------------------------------------------------------------------

    \602\ See proposed Rule 17Ad-22(a)(2) for definition of
``central securities depository services.''
---------------------------------------------------------------------------

     Disclose to their participants the clearing agency's
obligations with respect to physical deliveries.\603\
---------------------------------------------------------------------------

    \603\ The proposed rule would provide clearing agencies with the
flexibility to determine the method by which the clearing agency
will state this information to its participants. However, the
clearing agencies should take care to develop an approach that
provides sufficient notice to its participants regarding the
clearing agency's obligations.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission identified potential costs
and benefits resulting from Rules 17Ad-22(d)(1)-(15), as proposed, and
requested comment on all aspects of the cost-benefit analysis,
including the identification and assessment of any costs and benefits
that were not discussed in the analysis. The Commission did not receive
any comments on the specific cost-benefit analysis contained in the
Proposing Release.
    Rules 17Ad-22(d)(1)-(15) are consistent with CPSS-IOSCO
Recommendations.\604\ As discussed below, Rules 17Ad-22(d)(1)-(15) for
the most part codify existing practices of clearing agencies registered
with the Commission. Adopting rules that reflect current practices has
the benefit of ensuring that future business practices are both
consistent with current practice and conform to international standards
without subjecting clearing agencies to significant costs. Accordingly,
the Commission believes that registered clearing agencies would not
need to build new infrastructure or modify operations to meet the
requirements of Rule 17Ad-22(d).\605\ The primary costs of implementing
such rules will be the incremental costs of enhancing and reviewing
existing policies and procedures for compliance and updating existing
policies and procedures where appropriate as discussed above in Section
IV.
---------------------------------------------------------------------------

    \604\ See table in Section V.B.2.d.
    \605\ See generally International Monetary Fund, Publication of
Financial Sector Assessment Program Documentation--Detailed
Assessment of Observance of the NSCC's Observance of the CPSS-IOSCO
Recommendations for Central Counterparties (2010), at 4-29,
available at http://www.imf.org/external/pubs/ft/scr/2010/cr10129.pdf; International Monetary Fund, Publication of Financial
Sector Assessment Program Documentation--Detailed Assessment of
Observance of the DTC's Observance of the CPSS-IOSCO Recommendations
for Securities Settlement Systems (2010), at 4-40, available at
http://www.imf.org/external/pubs/ft/scr/2010/cr10128.pdf.
---------------------------------------------------------------------------

    The requirements would impose one-time costs and ongoing costs to
perform certain ongoing monitoring and enforcement activities with
respect to the policies and procedures that are included in the $3.7
million in startup costs and $10.1 million in ongoing cost discussed
earlier.\606\ The Rules also may impose incremental costs related to,
for example, employee training, systems testing, and other operational
considerations designed to ensure both initial and continued compliance
with such policies and procedures.
---------------------------------------------------------------------------

    \606\ This number also reflects the costs of Rules 17Ad-
22(b)(1)-(3).
---------------------------------------------------------------------------

    As stated above, there are currently seven clearing agencies
registered with the Commission that provide CCP or CSD services. These
clearing agencies are SROs so the rules and procedures governing each
aspect of the clearance and settlement process are filed with the
Commission for notice and approval. Rule 17Ad-22(d)(1) will codify the
existing practices of registered clearing agencies of establishing a
rule book and developing policies and procedures to address each aspect
of their operations. Therefore, the SRO rule filing process should help
to ensure that such rules are well-founded, transparent, and provide an
enforceable legal framework for its activities.
    As described above, each registered clearing agency has established
membership criteria and has procedures in place to monitor the
sufficiency of its participants' financial resources. Rule 17Ad-
22(d)(2) will codify these existing practices. The operational and
financial stability of participants is subject to market forces and can
therefore change over time. Because participants collectively
contribute to the operational and financial stability of a registered
clearing agency, the Commission believes that the proposed requirement
to continue to monitor compliance with the registered clearing agency's
participation requirements supports the Exchange Act requirement that
clearing agencies are able to facilitate prompt and accurate clearance
and settlement.\607\
---------------------------------------------------------------------------

    \607\ 15 U.S.C 78q-1(b)(3)(A).
---------------------------------------------------------------------------

    In addition, clearing agencies would be required to have
participation requirements that are objective,\608\

publicly disclosed, and facilitate fair and open access.\609\ The
Commission believes this requirement would foster compliance with the
requirement under Section 17A of the Exchange Act that the rules of a
registered clearing agency must not be designed to permit unfair
discrimination in the admission of participants by requiring standards
that are designed to be measurable, open and fair.\610\
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    \608\ Objective criteria would generally include, but not be
limited to, criteria that are based on measureable facts such as
capital requirements.
    \609\ Having open access, in part, involves having a process for
admission of participants that does not unfairly discriminate. See
15 U.S.C. 78q-1(b)(3)(F) (``The rules of a registered clearing
agency * * * are not designed to permit unfair discrimination in the
admission of participants or among participants in the use of the
registered clearing agency''). In addition, the Dodd-Frank Act added
Section 3C to the Exchange Act which provides in relevant part that
the rules of a registered clearing agency described in paragraph (1)
shall prescribe that all security-based swaps submitted to the
registered clearing agency with the same terms and conditions are
economically equivalent within the registered clearing agency and
may be offset with each other within the registered clearing agency;
and provide for non-discriminatory clearing of a security-based swap
executed bilaterally or on or through the rules of an unaffiliated
national securities exchange or security-based swap execution
facility. Public Law 111-203 sec. 763(a) (adding Section 3C to the
Exchange Act).
    \610\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    During the clearance and settlement process, registered clearing
agencies are responsible for safeguarding assets that secure
participants' obligations. Registered clearing agencies currently seek
to minimize the risk of loss or delay in access by holding assets that
are highly-liquid (e.g., cash, U.S. Treasury securities or securities
issued by a U.S. government agency) and engaging banks to custody the
assets and facilitate settlement. The requirements of Rule 17Ad-
22(d)(3) are intended to codify existing practices and help ensure the
ability of the registered clearing agency to meet its settlement
obligations by reducing the likelihood that assets securing participant
obligations to the registered clearing agency would be unavailable or
insufficient when the registered clearing agency needs to draw on them.
    Pursuant to guidance provided by the Division's Automated Review
Policy Statement,\611\ and Interagency White Paper on Disaster
Recovery,\612\ all registered clearing agencies, among other things,
develop and maintain plans to assure the safeguarding of securities and
funds, the integrity of the automated data processing systems, and
recovery of securities, funds, or data under a variety of loss or
destruction scenarios. In addition, the rule requires that clearing
agencies have business continuity plans that allow for timely recovery
of operations and ensure the fulfillment of a registered clearing
agency's obligations. Rule 17Ad-22(d)(4) would codify existing practice
and strengthen the requirement in Section 17A(b)(3)(F) of the Exchange
Act, which requires that the rules of a registered clearing agency must
be designed to ensure the safeguarding of securities and funds in the
custody or control of the registered clearing agency or for which the
registered clearing agency is responsible.\613\ In this way, the
Commission believes the rule also would promote protection of the
financial market served by the registered clearing agency.
---------------------------------------------------------------------------

    \611\ See Automation Review Policy Statements, supra note 330.
The Automation Review Policy Statements are not rules, but rather
general statements of policy based on cooperation between the SROs
and the Commission.
    \612\ Sound Practices to Strengthen the Resilience of the U.S.
Financial System (Interagency Paper), Release No. 34-47638; File No.
S7-32-02 (Apr. 7, 2003).
    \613\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Registered clearing agencies use settlement banks to facilitate the
cash portion of the securities transaction. Failure by that bank to
effectuate timely and final settlement adversely affects the registered
clearing agency by exposing it to credit and liquidity pressures that
can adversely affect the registered clearing agency's ability to
facilitate prompt and accurate clearance and settlement. Rule 17Ad-
22(d)(5) is designed to reduce the risk that financial obligations
related to the activities of a registered clearing agency are not
settled in a timely manner or not discharged with finality. The
Commission also believes that the rule would assist a registered
clearing agency in meeting the requirement of Section 17A(b)(3)(F) of
the Exchange Act, which requires the rules of a registered clearing
agency to be designed to assure the safeguarding of securities and
funds which are in the custody or control of the registered clearing
agency or for which it is responsible.\614\
---------------------------------------------------------------------------

    \614\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Registered clearing agencies have procedures to control costs and
to regularly review pricing levels against operating costs. The
Commission believes that Rule 17Ad-22(d)(6) codifies this practice and
may help to reduce the fees a participant in a registered clearing
agency incurs for clearance and settlement services while also helping
to ensure that registered clearing agency maintains appropriate
operational standards. Having clearing agencies be mindful of the costs
that are incurred by their participants, while maintaining such
compliance, should help to reduce inefficiencies in the provision of
clearance and settlement services. Because there is often only a single
registered clearing agency per asset class per market, competitive
forces may not be sufficient by themselves in creating incentives to be
cost-effective in meeting the requirements of participants.
    Section 17A(a)(1)(D) of the Exchange Act states that the linking of
all clearance and settlement facilities and the development of uniform
standards and procedures for clearance and settlement will reduce
unnecessary costs and increase the protection of investors and persons
facilitating transactions by and acting on behalf of investors.\615\
Further, Section 17A(b)(3)(F) of the Exchange Act requires that the
rules of a registered clearing agency foster cooperation and
coordination with persons engaged in the clearance and settlement of
securities transactions.\616\ Each registered clearing agency is linked
to other clearing organizations, trading platforms, and service
providers. The Commission believes that in the clearance and settlement
process, links should help improve market liquidity and make it easier
for participants to trade in other markets.\617\ Rule 17Ad-22(d)(7)
promotes these statutory requirements under the Exchange Act and
establishes a requirement that links created between clearing agencies
are managed in a safe and prudent manner.
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    \615\ 15 U.S.C. 78q-1(a)(1)(D).
    \616\ 15 U.S.C. 78q-1(b)(3)(F).
    \617\ For example, DTC Canadian Link Service allows qualifying
DTC participants to clear and settle valued securities transactions
with participants of a Canadian securities depository. The link is
designed to facilitate cross-border transactions by allowing
participants to use a single depository interface for U.S. and
Canadian dollar transactions and eliminate the need for split
inventories. See Exchange Act Release Nos. 52784 (Nov. 16, 2005), 71
FR 70902 (Nov. 23, 2005) and 55239 (Feb. 5, 2007), 72 FR 6797 (Feb.
13, 2007) (File No. SR-DTC 2006-15).
---------------------------------------------------------------------------

    Each registered clearing agency has a board that governs the
operations of the entity and supervises its senior management. Rule
17Ad-22(d)(8) is designed enhance the board's governance of the
registered clearing agency and the ability of the registered clearing
agency to serve the interests of its various constituencies while
maintaining prudent risk management processes. Clear and transparent
governance arrangements promote accountability and reliability in the
decisions, rules and procedures of the registered clearing agency
because they provide interested parties (such as owners, participants,
and the general public) with information about how such decisions are
made and what the

rules and procedures are designed to accomplish.\618\
---------------------------------------------------------------------------

    \618\ The Exchange Act currently requires that certain aspects
of a registered clearing agency's governance arrangements be made
clear and transparent. Section 19(b) of the Exchange Act requires
that clearing agencies, as SROs, file with the Commission any
proposed rule or any proposed change in, addition to, or deletion
from the rules of the registered clearing agency, accompanied by a
concise general statement of the basis and purpose of the proposed
rule change. 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

    Governance arrangements have the potential to play an important
role in making sure that clearing agencies fulfill the Exchange Act
requirements that the rules of a registered clearing agency be designed
to protect investors and the public interest and to support the
objectives of owners and participants. Similarly, governance
arrangements may promote the effectiveness of a registered clearing
agency's risk management procedures by creating an oversight framework
that fosters a focus on the critical role that risk management plays in
promoting prompt and accurate clearance and settlement.\619\
---------------------------------------------------------------------------

    \619\ The role of governance arrangements in promoting effective
risk management has also been a focus of rules recently proposed by
the Commission to mitigate conflicts of interest at security-based
swap clearing agencies. See Exchange Act Release No. 63107, 75 FR
65882, supra note 231.
---------------------------------------------------------------------------

    Because clearing agencies are SROs, their rules are published by
the Commission and are available on each registered clearing agency's
Web site. In addition information regarding the operations and services
of each clearing agency can be found either on the clearing agency's
Web site or a Web site maintained by an affiliated entity of the
clearing agency. Rule 17Ad-22(d)(9) will maintain and enhance this
existing practice by requiring a registered clearing agency to disclose
information sufficient for participants to identify risks and costs
associated with using the registered clearing agency, thereby allowing
participants to make informed decisions about the use of the registered
clearing agency and to take appropriate actions to mitigate their risks
and costs associated with the use of the registered clearing agency.
    While U.S. markets have made great strides in achieving
immobilization and/or dematerialization for institutional and broker-
to-broker transactions, many industry representatives believe that the
small percentage of securities held in certificated form impose
unnecessary risk and expense to the industry and to investors. Rule
17Ad-22(d)(10) will codify the existing practice, and promote further
immobilization and dematerialization of securities and their transfer
by book entry. This would result in reduced costs and risks associated
with securities settlements and custody for both clearing agencies and
participants by removing the need to hold and transfer many, if not
most, physical certificates.\620\
---------------------------------------------------------------------------

    \620\ See Exchange Act Release No. 8398 (Mar. 11, 2004), 69 FR
12921 (Mar. 18, 2004).
---------------------------------------------------------------------------

    Each registered clearing agency makes public rules, policies or
procedures that set forth the actions the clearing agency may take in
the event of a participant default and each makes key aspects of their
default procedures publicly available, with the exception of certain of
their policies and procedures that are kept non-public to ensure their
integrity, such as those associated with the oversight of clearing
participants. Rule 17Ad-22(d)(11) codifies this existing practice. The
Commission believes that default procedures reduce the likelihood that
a default by a participant, or multiple participants, will disrupt the
operations of the clearing agency and have a cascading effect on the
viability of the other participants of the clearing agency. Default
procedures also allow a clearing agency to wind down positions in an
orderly way and continue to perform its obligations in the event of a
participant default, assuring continued functioning of the securities
market in times of stress and reducing systemic risk.
    The Commission believes that Rule 17Ad-22(d)(11) would increase the
probability that defaults by participants, should they occur, would
proceed in an orderly and transparent manner. This is the case because
the rule would help to ensure that all participants are aware of the
default process and are able to plan accordingly and that clearing
agencies would have sufficient time to take corrective actions to
mitigate potential losses. In addition, the transparency of default
procedures will increase the confidence of market participants as well
as members of the general public, that should a default occur, the
proper procedures would be followed, decreasing uncertainty and
lessening the likelihood of further market stress.
    Each registered clearing agency has rules, policies or procedures
that provide for the settlement of its respective securities
transactions no later than the end of a pre-defined settlement day.
Rule 17Ad-22(d)(12) codifies this existing practice. The Commission
believes that settlement finality should occur no later than the end of
the settlement day to limit the volume of outstanding obligations that
are subject to settlement at any one time and thereby reduce the
settlement risk exposure of participants and the registered clearing
agency. Intraday or real-time finality may be necessary to reduce risk
in circumstances where the lack of intraday or real-time finality may
impede the registered clearing agency's ability to facilitate prompt
and accurate clearance and settlement, cause the registered clearing
agency's participants to fail to meet their obligations, or cause
significant disruptions in the securities markets.\621\
---------------------------------------------------------------------------

    \621\ See FMI Report, Principle 8, supra note 32.
---------------------------------------------------------------------------

    Generally, Rules 17Ad-22(d)(13)-(15) would apply to registered
clearing agencies that provide CSD services. DTC currently is the only
registered clearing agency that is a CSD. DTC operates a Model 2 DVP
system which provides for gross settlements of securities transfers
during the day followed by an end of day net funds settlement.\622\
Rule 17Ad-22(d)(13) codifies this existing practice. Delivery versus
payment eliminates the risk that a buyer would lose the purchase price
of a security purchased from a defaulting seller (or that a seller
would lose the sold security without receiving payment for a security
acquired by a defaulting buyer), because payment is made only if
securities are delivered. While the use of this payment method
eliminates principal risk, DVP procedures do not eliminate the risk
that the failure of the defaulting participant could result in systemic
disruptions, because the failure of a participant could produce
substantial liquidity pressures and replacement costs.
---------------------------------------------------------------------------

    \622\ See DTC's Assessment of Compliance with the CPSS/IOSCO
Recommendations for Central Counterparties (Dec. 12, 2011),
available at http://www.dtcc.com/legal/compliance/DTC_Self-Assessment.pdf.
---------------------------------------------------------------------------

    As discussed above, DTC has policies and procedures in place to
ensure that timely settlement can be completed in the event of the
default participant with the largest settlement obligation. DTC
establishes setting limits (called net debit caps) for each
participant. The net debit cap ensures that the amount of cash that a
participant owes the clearing agency does not exceed this pre-defined
limit or cap. Rule 17Ad-22(d)(14) codifies this existing practice. The
Commission believes it is important for clearing agencies that provide
CSD services to institute risk controls, including collateral
requirements and limits to cover the registered clearing agency's
credit exposure to each participant exposure fully, that ensure timely
settlement in these circumstances to address the risk that the
participant may fail to settle after credit has been extended. The
Commission also believes that requiring the controls to be designed to
withstand

the inability of the participant with the largest payment obligation to
settle, in such circumstances, would reduce the likelihood of
disruptions at the registered clearing agency by having controls in
place to account for the largest possible loss from any individual
participant and thereby help the registered clearing agency to provide
prompt and accurate clearance and settlement during times of market
stress.
    A registered clearing agency faces both credit and liquidity risks
from the delivery process. At delivery, the entire principal value of a
transaction may be at risk, and this form of credit risk is often
termed principal risk. Liquidity risk arises because the registered
clearing agency, faced with a defaulting participant, must still make
payment to the non-defaulting party. The Commission believes that a
registered clearing agency should therefore ensure that its rules and
procedures provide clear risk management controls so that it can
identify and mitigate the credit and liquidity risks to which it is
exposed in the delivery process. These procedures should ensure that
the registered clearing agency will be able to adapt its risk
management framework as appropriate, as the steps necessary to mitigate
risks will depend on the obligations the registered clearing agency has
assumed, the mechanisms available for settlement, and the importance of
the risks from physical settlement to its overall operations.
    The Commission also believes that providing such information to
participants would promote a shared understanding regarding physical
delivery practices between the registered clearing agency and its
participants that could help reduce the potential for fails and thereby
facilitate prompt and accurate clearance and settlement.
    Registered clearing agencies have rules and procedures that
describe their obligations to its participants when they assume
deliveries of physical instruments. The Commission believes that Rule
17Ad-22(d)(15), by requiring a statement by the registered clearing
agency to its participants about the cleaning agency's obligations with
respect to physical deliveries, among other things, would ensure that
participants have information that is likely to enhance the
participants' understanding of their rights and responsibilities with
respect to using the clearance and settlement services of the
registered clearing agency. The Commission believes that ensuring
delivery of this information to participants about the clearing
agency's physical delivery obligations would promote a shared
understanding about physical delivery practices between the clearing
agency and its participants that would help mitigate misunderstandings
in the clearing agency's physical delivery operations and would
therefore facilitate prompt and accurate clearance and settlement.
    The Commission carefully considered alternatives to Rule 17Ad-
22(d), including a more prescriptive approach suggested by some of the
commenters, and has decided to adopt the rule, modeled after recognized
international standards, in the form proposed. The Commission believes
the final rule will have the effect of harmonizing the Commission's
regulatory requirements with such standards as are now contemplated by
the Exchange Act and the Clearing Supervision Act, as well as
international standards. In particular, the Commission believes Rule
17Ad-22(d) will help market participants compare the operations of U.S.
clearing agencies with non-U.S. clearing organizations. The
Commission's adoption of Rule 17Ad-22(d) may also reduce some of the
potential regulatory burden for CCPs and CSDs that may be dually-
regulated by the SEC and another domestic or foreign regulator because
it is modeled on standards already employed by other regulatory
authorities.

VI. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \623\ requires the
Commission, in promulgating rules, to consider the impact of those
rules on small entities. The Commission certified in the Proposing
Release, pursuant to Section 605(b) of the Regulatory Flexibility Act
of 1980 (``RFA''),\624\ that the proposed rule would not, if adopted,
have a significant impact on a substantial number of small entities. We
received no comments on this certification.
---------------------------------------------------------------------------

    \623\ 5 U.S.C. 601 et seq.
    \624\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

A. Registered Clearing Agencies

    Rule 17Ad-22 applies to all registered clearing agencies and sets
standards for such clearing agencies. For the purposes of Commission
rulemaking and as applicable to Rule 17Ad-22, a small entity includes,
when used with reference to a clearing agency, a clearing agency that
(i) Compared, cleared and settled less than $500 million in securities
transactions during the preceding fiscal year, (ii) had less than $200
million of funds and securities in its custody or control at all times
during the preceding fiscal year (or at any time that it has been in
business, if shorter) and (iii) is not affiliated with any person
(other than a natural person) that is not a small business or small
organization.\625\ Under the standards adopted by the Small Business
Administration, small entities in the finance industry include the
following: (i) For entities engaged in investment banking, securities
dealing and securities brokerage activities, entities with $6.5 million
or less in annual receipts; (ii) for entities engaged in trust,
fiduciary and custody activities, entities with $6.5 million or less in
annual receipts; and (iii) funds, trusts and other financial vehicles
with $6.5 million or less in annual receipts.\626\
---------------------------------------------------------------------------

    \625\ 17 CFR 240.0-10(d).
    \626\ 13 CFR 121.201, Sector 52.
---------------------------------------------------------------------------

    Based on the Commission's existing information about the clearing
agencies currently registered with the Commission, the Commission
believes that such entities exceed the thresholds defining ``small
entities'' set out above. While other clearing agencies may emerge and
become eligible to operate as registered clearing agencies and while
other security-based swap lifecycle event service providers may be
required to register as clearing agencies, the Commission does not
believe that any such entities would be ``small entities'' as defined
in Exchange Act Rule 0-10.\627\ Furthermore, we believe it is unlikely
that any registered clearing agencies, security-based swap clearing
agencies or security-based swap lifecycle event services providers
would have annual receipts of less than $6.5 million. Accordingly, the
Commission believes that any registered clearing agencies will exceed
the thresholds for ``small entities'' set forth in Exchange Act Rule 0-
10.
---------------------------------------------------------------------------

    \627\ See 17 CFR 240.0-10(d). The Commission based this
determination on its review of public sources of financial
information about existing CCPs serving the OTC derivatives market
and lifecycle event service providers.
---------------------------------------------------------------------------

B. Certification

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

VII. Statutory Authority and Text of Rule 17Ad-22

    Pursuant to the Exchange Act, particularly, Sections 17A(d)
thereof, 15 U.S.C. 78q-1(d), Sections 17A(i), 17A(j) and 3C(j) thereof,
15 U.S.C. 78q-1(i), 78q-1(j) and 78c-3(j), respectively, Pub. L. 111-
203, Sec.  763, 124 Stat. 1841 (2010), and Sections 30(b) and 30(c)
thereof, 15 U.S.C. 78dd(b)and (c), and Section

805(a)(2) of the Clearing Supervision Act, 12 U.S.C. 5464(a)(2), the
Commission adopts new Rule 17Ad-22 to govern clearing agencies.

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

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

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE

0
1. The authority citation for Part 240 is amended by revising the
general authority and adding an authority for Sec.  240.17Ad-22 in
numerical order to read as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20,
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq.; 12
U.S.C. 5221(e)(3), 15 U.S.C. 8302, and 18 U.S.C. 1350, unless
otherwise noted.
* * * * *
    Section 240.17Ad-22 is also issued under 12 U.S.C. 5464(a)(2).
* * * * *

0
2. Section 240.17Ad-22 is added to read as follows:

Sec.  240.17Ad-22  Standards for clearing agencies.

    (a) Definitions. For purposes of this section:
    (1) Central counterparty means a clearing agency that interposes
itself between the counterparties to securities transactions, acting
functionally as the buyer to every seller and the seller to every
buyer.
    (2) Central securities depository services means services of a
clearing agency that is a securities depository as described in Section
3(a)(23) of the Act (15 U.S.C. 78c(a)(23)(A)).
    (3) Participant family means that if a participant directly, or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, another participant then the
affiliated participants shall be collectively deemed to be a single
participant family for purposes of paragraphs (b)(3) and (d)(14) of
this section.
    (4) Normal market conditions as used in paragraphs (b)(1) and (2)
of this section means conditions in which the expected movement of the
price of cleared securities would produce changes in a clearing
agency's exposures to its participants that would be expected to breach
margin requirements or other risk control mechanisms only one percent
of the time.
    (5) Net capital as used in paragraph (b)(7) of this section means
net capital as defined in Sec.  240.15c3-1 for broker-dealers or any
similar risk adjusted capital calculation for all other prospective
clearing members.
    (b) A registered clearing agency that performs central counterparty
services shall establish, implement, maintain and enforce written
policies and procedures reasonably designed to:
    (1) Measure its credit exposures to its participants at least once
a day and limit its exposures to potential losses from defaults by its
participants under normal market conditions so that the operations of
the clearing agency would not be disrupted and non-defaulting
participants would not be exposed to losses that they cannot anticipate
or control.
    (2) Use margin requirements to limit its credit exposures to
participants under normal market conditions and use risk-based models
and parameters to set margin requirements and review such margin
requirements and the related risk-based models and parameters at least
monthly.
    (3) Maintain sufficient financial resources to withstand, at a
minimum, a default by the participant family to which it has the
largest exposure in extreme but plausible market conditions; provided
that a registered clearing agency acting as a central counterparty for
security-based swaps shall maintain additional financial resources
sufficient to withstand, at a minimum, a default by the two participant
families to which it has the largest exposures in extreme but plausible
market conditions, in its capacity as a central counterparty for
security-based swaps. Such policies and procedures may provide that the
additional financial resources may be maintained by the security-based
swap clearing agency generally or in separately maintained funds.
    (4) Provide for an annual model validation consisting of evaluating
the performance of the clearing agency's margin models and the related
parameters and assumptions associated with such models by a qualified
person who is free from influence from the persons responsible for the
development or operation of the models being validated.
    (5) Provide the opportunity for a person that does not perform any
dealer or security-based swap dealer services to obtain membership on
fair and reasonable terms at the clearing agency to clear securities
for itself or on behalf of other persons.
    (6) Have membership standards that do not require that participants
maintain a portfolio of any minimum size or that participants maintain
a minimum transaction volume.
    (7) Provide a person that maintains net capital equal to or greater
than $50 million with the ability to obtain membership at the clearing
agency, provided that such persons are able to comply with other
reasonable membership standards, with any net capital requirements
being scalable so that they are proportional to the risks posed by the
participant's activities to the clearing agency; provided, however,
that the clearing agency may provide for a higher net capital
requirement as a condition for membership at the clearing agency if the
clearing agency demonstrates to the Commission that such a requirement
is necessary to mitigate risks that could not otherwise be effectively
managed by other measures and the Commission approves the higher net
capital requirement as part of a rule filing or clearing agency
registration application.
    (c) Record of financial resources and annual audited financial
statements. (1) Each fiscal quarter (based on calculations made as of
the last business day of the clearing agency's fiscal quarter), or at
any time upon Commission request, a registered clearing agency that
performs central counterparty services shall calculate and maintain a
record, in accordance with Sec.  240.17a-1 of this chapter, of the
financial resources necessary to meet the requirements of paragraph
(b)(3) of this section, and sufficient documentation to explain the
methodology it uses to compute such financial resource requirement.
    (2) Within 60 days after the end of its fiscal year, each
registered clearing agency shall post on its Web site its annual
audited financial statements. Such financial statements shall:
    (i) Include, for the clearing agency and its subsidiaries,
consolidated balance sheets as of the end of the two most recent fiscal
years and statements of income, changes in stockholders' equity and
other comprehensive income and cash flows for each of the two most
recent fiscal years;
    (ii) Be prepared in accordance with U.S. generally accepted
accounting principles, except that for a clearing agency that is a
corporation or other organization incorporated or organized under the
laws of any foreign country the consolidated financial statements may
be prepared in accordance with

U.S. generally accepted accounting principles or International
Financial Reporting Standards as issued by the International Accounting
Standards Board;
    (iii) Be audited in accordance with standards of the Public Company
Accounting Oversight Board by a registered public accounting firm that
is qualified and independent in accordance with 17 CFR 210.2-01; and
    (iv) Include a report of the registered public accounting firm that
complies with paragraphs (a) through (d) of 17 CFR 210.2-02.
    (d) Each registered clearing agency shall establish, implement,
maintain and enforce written policies and procedures reasonably
designed to, as applicable:
    (1) Provide for a well-founded, transparent, and enforceable legal
framework for each aspect of its activities in all relevant
jurisdictions.
    (2) Require participants to have sufficient financial resources and
robust operational capacity to meet obligations arising from
participation in the clearing agency; have procedures in place to
monitor that participation requirements are met on an ongoing basis;
and have participation requirements that are objective and publicly
disclosed, and permit fair and open access.
    (3) Hold assets in a manner that minimizes risk of loss or of delay
in its access to them; and invest assets in instruments with minimal
credit, market and liquidity risks.
    (4) Identify sources of operational risk and minimize them through
the development of appropriate systems, controls, and procedures;
implement systems that are reliable, resilient and secure, and have
adequate, scalable capacity; and have business continuity plans that
allow for timely recovery of operations and fulfillment of a clearing
agency's obligations.
    (5) Employ money settlement arrangements that eliminate or strictly
limit the clearing agency's settlement bank risks, that is, its credit
and liquidity risks from the use of banks to effect money settlements
with its participants; and require funds transfers to the clearing
agency to be final when effected.
    (6) Be cost-effective in meeting the requirements of participants
while maintaining safe and secure operations.
    (7) Evaluate the potential sources of risks that can arise when the
clearing agency establishes links either cross-border or domestically
to clear or settle trades, and ensure that the risks are managed
prudently on an ongoing basis.
    (8) Have governance arrangements that are clear and transparent to
fulfill the public interest requirements in Section 17A of the Act (15
U.S.C. 78q-1) 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.
    (9) Provide market participants with sufficient information for
them to identify and evaluate the risks and costs associated with using
its services.
    (10) Immobilize or dematerialize securities certificates and
transfer them by book entry to the greatest extent possible when the
clearing agency provides central securities depository services.
    (11) 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.
    (12) Ensure that final settlement occurs no later than the end of
the settlement day; and require that intraday or real-time finality be
provided where necessary to reduce risks.
    (13) Eliminate principal risk by linking securities transfers to
funds transfers in a way that achieves delivery versus payment.
    (14) Institute risk controls, including collateral requirements and
limits to cover the clearing agency's credit exposure to each
participant family exposure fully, that ensure timely settlement in the
event that the participant with the largest payment obligation is
unable to settle when the clearing agency provides central securities
depository services and extends intraday credit to participants.
    (15) State to its participants the clearing agency's obligations
with respect to physical deliveries and identify and manage the risks
from these obligations.

    By the Commission.

    Dated: October 22, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-26407 Filed 11-1-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 61 (Monday, March 31, 2014)]
[Proposed Rules]
[Page 17947]
[FR Doc No: 2014-07046]

=======================================================================
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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Part 1

[Docket No. FDA-2011-N-0179]

Draft Guidance for Industry: Prior Notice of Imported Food
Questions and Answers (Edition 3); Availability

AGENCY: Food and Drug Administration, HHS.

ACTION: Notification of availability.

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

SUMMARY: The Food and Drug Administration (FDA or we) is announcing the
availability of a draft guidance entitled ``Guidance for Industry:
Prior Notice of Imported Food Questions and Answers (Edition 3).'' The
draft guidance addresses questions received since the publication of
the second edition of the guidance in May 2004 and includes information
related to the Food Safety Modernization Act (FSMA), which amended the
Federal Food, Drug, and Cosmetic Act, to require the name of any
country to which an article has been refused entry be reported in a
prior notice. The draft guidance is intended to help the food industry
and others comply with prior notice requirements.

DATES: Although you can comment on any guidance at any time (see 21 CFR
10.115(g)(5)), to ensure that the Agency considers your comment on this
draft guidance before it begins work on the final version of the
guidance, submit either electronic or written comments on the draft
guidance by May 30, 2014.

ADDRESSES: Submit written requests for single copies of the draft
guidance to the Office of Regulatory Affairs, Office of Food and Feed
Operations, Food and Drug Administration, 10903 New Hampshire Ave.,
Silver Spring, MD 20993. Send two self-addressed adhesive labels to
assist that office in processing your request. See the SUPPLEMENTARY
INFORMATION section for electronic access to the guidance.
    Submit electronic comments on the draft guidance to http://www.regulations.gov. Submit written comments to the Division of Dockets
Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane,
Rm. 1061, Rockville, MD 20852.

FOR FURTHER INFORMATION CONTACT: Anthony Taube, Office of Regulatory
Affairs, Office of Food and Feed Operations, Division of Food Defense
Targeting (HFC-180), Food and Drug Administration, 12420 Parklawn Dr.,
Rockville, MD 20857,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

I. Background

    We are announcing the availability of a draft guidance for industry
entitled ``Guidance for Industry: Prior Notice of Imported Food
Questions and Answers (Edition 3).'' In the Federal Register of May 3,
2004 (69 FR 24070), FDA issued a notice of availability of guidance
entitled ``Questions and Answers Regarding the Interim Final Rule on
Prior Notice of Imported Food (Edition 2).'' Since publication of
edition 2 of the guidance, we have issued a final rule requiring the
submission to FDA of prior notice of food, including animal feed,
imported or offered for import into the United States (73 FR 66294;
November 7, 2008) and, in accordance with section 304 of FSMA, a final
rule requiring the name of any country to which an article has been
refused entry be reported in prior notices (78 FR 32359; May 30, 2013).
FDA is issuing a third edition of its prior notice guidance to address
questions received since publication of the second edition, clarify
previous responses, update previous responses as appropriate to reflect
the 2008 and 2013 final rules, and include information about the new
prior notice information requirement created by FSMA.
    The Agency continues to believe that it is reasonable to maintain
responses to questions concerning prior notice of imported food in a
single document that is periodically updated in response to additional
questions and/or regulatory changes. As in the previous edition, the
following indicators are used to help users identify revisions: (1) The
guidance is identified as a revision of a previously issued document;
(2) the revision date appears on the cover of the guidance; (3) the
edition number of the guidance is included in its title; and (4)
revised or added questions and answers are identified as such in the
body of the guidance.
    This draft guidance is being issued consistent with our good
guidance practices regulation (21 CFR 10.115). The draft guidance, when
finalized, will represent our current thinking on this topic. It does
not create or confer any rights for or on any person and does not
operate to bind FDA or the public. An alternative approach may be used
if such approach satisfies the requirements of the applicable statutes
and regulations.

II. Comments

    Interested persons may submit either electronic comments regarding
the draft guidance to http://www.regulations.gov or written comments to
the Division of Dockets Management (see ADDRESSES). It is only
necessary to send one set of comments. Identify comments with the
docket number found in brackets in the heading of this document.
Received comments may be seen in the Division of Dockets Management
between 9 a.m. and 4 p.m., Monday through Friday, and will be posted to
the docket at http://www.regulations.gov.

III. Electronic Access

    Persons with access to the Internet may obtain the draft guidance
at either http://www.fda.gov/FoodGuidances or http://www.regulations.gov. Use the FDA Web site listed in the previous
sentence to find the most current version of the guidance.

    Dated: March 25, 2014.
Leslie Kux,
Assistant Commissioner for Policy.
[FR Doc. 2014-07046 Filed 3-28-14; 8:45 am]
BILLING CODE 4160-01-P