22(d)(2)(i), regarding policies and procedures requiring
participants to have financial resources and robust operational
capacity to meet obligations arising from participation are also
reflected in other proposed rules, including Rules 17Ad-22(e)(4) and
(17). See supra Parts 0 (requiring under proposed Rule 17Ad-22(e)(4)
policies and procedures for testing the sufficiency of financial
resources) and 0 (requiring under proposed Rule 17Ad-22(e)(17)
policies and procedures for operational risk management).
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    Appropriate minimum operational, legal, and capital requirements
for membership that are maintained and enforced through the supervisory
practices of a clearing agency help to ensure all members will be
reasonably capable of meeting their various obligations to the clearing
agency in stressed market conditions and upon member default. Member
defaults challenge the safe functioning of a clearing agency by
creating credit and liquidity risks, which impede a clearing agency's
ability to settle securities transactions in a timely manner. Ensuring
that clearing members meet objective levels of operational and
financial soundness helps to counterbalance the potential for cascading
effects on other participants and limit the potential of a systemic
disruption in the U.S. securities markets. Fair and open access to all
parties meeting the objective criteria for participation similarly
helps to ensure wide participation and thereby increase beneficial risk
mitigating effects.
    Accordingly, the Commission preliminarily believes Rule 17Ad-
22(e)(18) is appropriate because it would promote membership standards
at covered clearing agencies that are likely to limit the potential for
member defaults and, as a result, losses to non-defaulting members in
the event of a member default. The proposed rule has similar
requirements to those applied to registered clearing agencies under
Rule 17Ad-22(d)(2) but would also explicitly require a covered clearing
agency's policies and procedures to establish publicly disclosed
criteria for participation, which permit fair and open access by direct
and, where relevant, indirect participants and other FMUs, and also
require that the criteria be risk-based, in addition to objective.\334\
The Commission preliminarily believes the requirement that policies and
procedures for publicly disclosed criteria for participation that
specify fair and open access by both direct and indirect participants
and other FMUs is appropriate because of the size and reach of covered
clearing agencies, which are likely to transact or link with many
participants, both direct and indirect, as well as other FMUs. The
Commission also preliminarily believes that the requirement for risk-
based criteria helps protect investors and facilitates prompt and
accurate clearance and settlement by helping to ensure that covered
clearing agencies accept participants that are less prone to default.
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    \334\ The Commission is proposing Rule 17Ad-22(e)(18) as part of
a comprehensive set of rules for regulating covered clearing
agencies that is consistent with and comparable to other domestic
and international standards for FMIs. Because of the similarity
between the existing requirement in Rule 17Ad-22(d)(2)(iii) and
these requirements under proposed Rule 17Ad-22(e)(18), the
Commission anticipates that covered clearing agencies may need to
make only limited changes to update their policies and procedures to
comply with these requirements under the proposed rule. See supra
Part 0.
---------------------------------------------------------------------------

    In addition, the Commission is proposing a requirement that covered
clearing agencies establish, implement, maintain and enforce written
policies and procedures reasonably designed to require participants to
have sufficient financial resources and robust operational capacity to
meet obligations arising from participation in the clearing agency and
to monitor compliance with participation requirements on an ongoing
basis. Rule 17Ad-22(d)(2)(i) and (ii) also require a registered
clearing agencies to establish, implement, maintain and enforce written
policies and procedures reasonably designed to have procedures in place
to require participants to have sufficient financial resources and
robust operational capacity to meet obligations arising from
participation in the clearing agency and to monitor that participation
requirements are met on an ongoing basis.\335\ Because these other
requirements in proposed Rule 17Ad-22(e)(18) are the same as those for
registered clearing agencies more generally under existing Rule 17Ad-
22(d)(2), the Commission anticipates that covered clearing agencies may
need to make only limited changes to update their policies and
procedures.\336\ As with Rule 17Ad-22(d)(2), the Commission believes
these requirements are appropriate because they would further support
membership standards at covered clearing agencies that are likely to
limit the potential for member defaults and, as a result, losses

to non-defaulting members in the event of a member default.
---------------------------------------------------------------------------

    \335\ See supra note 333 and accompanying text.
    \336\ See supra Part 0 (noting the anticipated effect of the
proposed rule) and infra Part 0 (describing the current practices at
registered clearing agencies regarding settlement).
---------------------------------------------------------------------------

    Request for Comments. The Commission generally requests comments on
all aspects of proposed Rule 17Ad-22(e)(18). In addition, the
Commission requests comments on the following specific issues:
     Should the Commission require a covered clearing agency's
policies and procedures to monitor compliance with its participation
requirements on an ongoing basis? Why or why not? Would a more specific
monitoring requirement be appropriate? For example, should this
requirement specify a frequency of review? Why or why not? If so, what
would be the appropriate frequency of review? Please explain.
     Would it be appropriate for the Commission to require a
covered clearing agency's policies and procedures to provide for
different categories of participation? If so, please explain in detail
what these different categories would be and why they would be
appropriate.
16. Proposed Rule 17Ad-22(e)(19): Tiered Participation Agreements
    Proposed Rule 17Ad-22(e)(19) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to identify, monitor, and manage the
material risks to the covered clearing agency arising from arrangements
in which firms that are indirect participants in the covered clearing
agency rely on the services provided by direct participants in the
covered clearing agency to access the covered clearing agency's
payment, clearing, or settlement facilities (hereinafter ``tiered
participation arrangements'').\337\ The Commission preliminarily
believes the proposed rule is appropriate due to the associated
dependencies and risk exposures that tiered participation arrangements
create, as discussed above. Such risks, including credit, liquidity,
and operational risks, can undermine the operations of a covered
clearing agency and pose risks to the operations of a clearing agency's
participants, both direct and indirect, and to the broader securities
markets as well.
---------------------------------------------------------------------------

    \337\ See proposed Rule 17Ad-22(e)(19), infra Part 0. Because
proposed Rule 17Ad-22(e)(19) only addresses the situation where a
covered clearing agency relies on direct participants, the proposed
rule does not apply to a broker-dealer that is a member of a CSD and
maintains accounts for retail customers.
---------------------------------------------------------------------------

    Registered clearing agencies are currently not subject to rules
regarding tiered participation arrangements under existing Rule 17Ad-
22. The Commission preliminarily believes the proposed rule is
appropriate for covered clearing agencies, given the risks that a
covered clearing agency's size, operation, and importance pose to the
U.S. securities markets, and is consistent with the requirements of the
Exchange Act discussed above.\338\
---------------------------------------------------------------------------

    \338\ See notes 54-56 and accompanying text; see also Parts 0
and 0 (generally discussing the regulatory framework under Section
17A of the Exchange Act, as amended by the Dodd-Frank Act).
---------------------------------------------------------------------------

    The Commission has previously noted that, in situations where
direct access to clearing agencies is limited by reasonable
participation standards, firms that do not meet these standards may
still be able to access clearing agencies through correspondent
clearing arrangements with direct participants.\339\ Such a process
would involve the non-participant entering into a correspondent
clearing arrangement with a participant so that the transaction may be
submitted by the participant to the clearing agency. The dependencies
and risk exposures, including credit, liquidity, and operational risks,
inherent in tiered participation arrangements present risks to a
clearing agency and its functioning, in addition to the direct
participant. A covered clearing agency with direct participants that
clear transactions on behalf of indirect participants with large values
or volumes faces the risk of default by both the indirect participant
itself and the direct participant through which those transactions are
routed. Accordingly the Commission is proposing Rule 17Ad-22(e)(19) to
promote the ongoing management of risks associated with such tiered
participation arrangements.
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    \339\ See Exchange Act Release No. 34-63107 (Oct. 14, 2010), 75
FR 65882 (Oct. 26, 2010) (proposing ownership limitations and
governance requirements for security-based swap clearing agencies,
security-based swap execution facilities, and national securities
exchanges with respect to security-based swaps under Regulation MC).
---------------------------------------------------------------------------

    In addition, the Commission is proposing to require that a covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to regularly review the
material risks to the covered clearing agency arising from such tiered
participation arrangements.\340\ The Commission preliminarily believes
the proposed requirement is appropriate due to the ongoing dependencies
and risk exposures that tiered arrangements present to the operation of
a covered clearing agency and to the operation of a covered clearing
agency's participants. Registered clearing agencies are currently not
subject to a similar requirement under existing Rule 17Ad-22, and that
the proposed rule is appropriate for covered clearing agencies, given
the risks that a covered clearing agency's size, operation, and
importance pose to the U.S. securities markets, and is consistent with
the requirements of the Exchange Act discussed above.\341\
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    \340\ See proposed Rule 17Ad-22(e)(19), infra Part 0.
    \341\ See notes 54-56 and accompanying text; see also Parts 0
and 0 (generally discussing the regulatory framework under Section
17A of the Exchange Act, as amended by the Dodd-Frank Act).
---------------------------------------------------------------------------

    The operational, financial, and other interconnections between
direct and indirect participants to tiered participation arrangements
are subject to market forces and can therefore change over time.
Because direct and indirect participants collectively contribute to the
operational and financial stability of a covered clearing agency, the
Commission preliminarily believes that the requirement to regularly
review a covered clearing agency's tiered participation arrangements
supports the Exchange Act requirements that clearing agencies be able
to facilitate prompt and accurate clearance and settlement, protect
investors and the public interest, and ensure the safeguarding of
securities and funds in the custody or control of the clearing agency
or for which the clearing agency is responsible.\342\
---------------------------------------------------------------------------

    \342\ See 15 U.S.C. 78q-1(b)(3)(A).
---------------------------------------------------------------------------

    Request for Comments. The Commission generally requests comments on
all aspects of proposed Rule 17Ad-22(e)(19). In addition, the
Commission requests comments on the following specific issues:
     Should the Commission require a covered clearing agency's
policies and procedures to identify, monitor and manage the material
risks to the covered clearing agency arising from arrangements in which
firms that are indirect participants in the covered clearing agency
rely on the services provided by direct participants to access the
covered clearing agency's payment, clearing, or settlement facilities?
Why or why not?
     Has the Commission provided sufficient guidance regarding
who would be ``indirect participants'' and ``direct participants''? Why
or why not?
17. Proposed Rule 17Ad-22(e)(20): Links
    Proposed Rule 17Ad-22(e)(20) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to identify, monitor, and manage
risks related to any link with one or more other clearing

agencies, FMUs, or trading markets.\343\ Rule 17Ad-22(d)(7) requires
registered clearing agencies to have policies and procedures for
evaluating the potential sources of risks that can arise from
links.\344\ For the purposes of Rule 17Ad-22(e)(20), however, the
Commission would further define ``link'' in proposed Rule 17Ad-
22(a)(10) to mean any set of contractual and operational arrangements
between a covered clearing agency and one or more other clearing
agencies, FMUs, or trading venues that connect them directly or
indirectly for the purposes of participating in settlement, cross
margining, expanding its services to additional instruments and
participants, or for any other purposes material to their
business.\345\ The Commission preliminarily believes this expanded and
more prescriptive approach to defining a link is appropriate for
covered clearing agencies given their size, global operation, and
importance to the U.S. securities markets.
---------------------------------------------------------------------------

    \343\ See proposed Rule 17Ad-22(e)(20), infra Part 0.
    \344\ Rule 17Ad-22(d)(7) requires a registered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to 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. See
17 CFR 240.17Ad-22(d)(7); see also Clearing Agency Standards
Release, supra note 5, at 66250-51.
    \345\ See proposed Rule 17Ad-22(a)(10), infra Part 0.
---------------------------------------------------------------------------

    In addition to the requirements discussed above,\346\ Section 17A
of the Exchange Act directs the Commission to facilitate the
establishment of linked or coordinated facilities for clearance and
settlement.\347\ Links between clearing agencies, FMUs, and trading
markets develop in several circumstances for different reasons. A CCP
may establish a link with another CCP to enable a participant in the
first CCP to clear trades with a participant in the second CCP.
Similarly, a CSD may establish a link with another CSD to enable its
participants to access services provided by the other CSD. Clearing
agencies may also generally establish links with trade repositories and
trading markets to fulfill regulatory obligations.
---------------------------------------------------------------------------

    \346\ See notes 54-56 and accompanying text; see also Parts 0
and 0 (generally discussing the regulatory framework under Section
17A of the Exchange Act, as amended by the Dodd-Frank Act).
    \347\ See 15 U.S.C. 78q-1(a)(2)(A)(ii); see also 15 U.S.C. 78q-
1(a)(1)(D) (Congress finding 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).
---------------------------------------------------------------------------

    Accordingly, the Commission is proposing Rule 17Ad-22(e)(20) to
ensure that covered clearing agencies identify and assess the potential
sources of risk arising from a link arrangement and incorporate that
analysis into its risk management policies and procedures. In certain
cases, the creation of a link may raise risks similar to those raised
by tiered participation arrangements and participant requirements,
discussed above: Namely, the interconnections between the clearing
agency and the other entity may increase the risks to the clearing
agency stemming from, among other things, the risks of participant
default, credit losses, or liquidity shortfalls arising through the
linked entity rather than the clearing agency's own operations.\348\
The range of implicated risks is broad; a clearing agency that operates
links may increase its exposure to legal, operational, custody,
settlement, credit, and liquidity risk depending on the nature and
extent of the link involved.
---------------------------------------------------------------------------

    \348\ See supra Parts 0 and 0 (discussing the access and
participation requirements in proposed Rule 17Ad-22(e)(18) and
requirements for tiered participation arrangements in proposed Rule
17Ad-22(e)(19)).
---------------------------------------------------------------------------

    Request for Comments. The Commission generally requests comments on
all aspects of proposed Rule 17Ad-22(e)(20) and 17Ad-22(a)(10). In
addition, the Commission requests comments on the following specific
issue:
     Should the Commission require a covered clearing agency's
policies and procedures to identify, monitor, and manage risks related
to any link the covered clearing agency establishes with one or more
other clearing agencies, FMUs, or trading markets? Why or why not?
     Is the definition of ``link'' in proposed Rule 17Ad-
22(a)(10) appropriate and sufficiently clear in light of the proposed
requirements? Why or why not? Is there an alternative definition that
the Commission should consider?
18. Proposed Rule 17Ad-22(e)(21): Efficiency and Effectiveness
    Proposed Rule 17Ad-22(e)(21) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to ensure that it is efficient and
effective in meeting the requirements of its participants and the
markets it serves.\349\ Rule 17Ad-22(d)(6) similarly requires
registered clearing agencies to have policies and procedures designed
to be cost-effective in meeting the requirements of participants while
maintaining safe and secure operations.\350\
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    \349\ See proposed Rule 17Ad-22(e)(21), infra Part 0.
    \350\ Rule 17Ad-22(d)(6) requires a registered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to be cost-effective in meeting the
requirements of participants while maintaining safe and secure
operations. See 17 CFR 240.17Ad-22(d)(6); see also Clearing Agency
Standards Release, supra note 5, at 66250.
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(21) would further require a covered
clearing agency's management to regularly review the efficiency and
effectiveness of its (i) clearing and settlement arrangements; (ii)
operating structure, including risk management policies, procedures,
and systems; (iii) scope of products cleared, settled, or recorded; and
(iv) use of technology and communication procedures.\351\ The
Commission preliminarily believes this requirement for regular review
is appropriate for covered clearing agencies given the risks that a
covered clearing agency's size, global operation, and importance pose
to the U.S. securities markets.\352\
---------------------------------------------------------------------------

    \351\ See proposed Rule 17Ad-22(e)(21), infra Part 0.
    \352\ See notes 54-56 and accompanying text; see also Parts 0
and 0 (generally discussing the regulatory framework under Section
17A of the Exchange Act, as amended by the Dodd-Frank Act).
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    For purposes of the proposed rule, efficiency refers generally to
the efficient use of resources by a clearing agency to perform its
functions, and effectiveness refers to its ability to meet its intended
goals and objectives. A covered clearing agency that operates
inefficiently or functions ineffectively may distort financial activity
and market structure, increasing not only the risks borne by its
members, but also the risks of indirect participants, such as the
customers of participants or other buyers and sellers of securities. If
a covered clearing agency is inefficient, a participant may choose not
to trade or may choose to settle bilaterally, which could potentially
result in greater risks to the U.S. financial system than would
otherwise occur in the presence of a more efficiently functioning
covered clearing agency.
    In addition to the requirements discussed above,\353\ Section 17A
of the Exchange Act requires that registered clearing agencies have
rules designed to promote the prompt and accurate clearance and
settlement of securities transactions,\354\ following a finding by
Congress that inefficient procedures for clearance and settlement
impose

unnecessary costs on investors and persons facilitating transactions by
and acting on behalf of investors.\355\ The Commission preliminarily
believes that proposed Rule 17Ad-22(e)(21) is appropriate because a
covered clearing agency must be designed and operated to meet the needs
of its participants and the markets it serves, while remaining
sufficiently flexible to respond to changing demand and new
technologies.
---------------------------------------------------------------------------

    \353\ See notes 54-56 and accompanying text; see also Parts 0
and 0 (generally discussing the regulatory framework under Section
17A of the Exchange Act, as amended by the Dodd-Frank Act).
    \354\ See 15 U.S.C. 78q-1(b)(3)(F).
    \355\ See 15 U.S.C. 78q-1(a)(1)(B); see also 15 U.S.C. 78q-
1(a)(1)(C) (Congress finding that new data processing and
communications techniques create the opportunity for more efficient,
effective, and safe procedures for clearance and settlement).
---------------------------------------------------------------------------

    The Commission is also proposing to require that a covered clearing
agency regularly review the items identified in Rule 17Ad-22(e)(21)(i)
through (iv) because the Commission preliminarily believes that they
are reflective of key aspects of a clearing agency's business necessary
for efficient and effective operation. Moreover, because technology,
sound practices, market forces, and the number and characteristics of
participants may change over time, the Commission preliminarily
believes that measures of efficiency and effectiveness must be subject
to policies and procedures for regular review.
    Request for Comments. The Commission generally requests comments on
all aspects of proposed Rule 17Ad-22(e)(21). In addition, the
Commission requests comments on the following specific issues:
     Has the Commission provided sufficient guidance on what
policies and procedures would be necessary to ensure that a covered
clearing agency is ``efficient and effective'' in meeting the
requirements of the proposed rule? Why or why not?
     Is the proposed requirement for a covered clearing
agency's policies and procedures to regularly review the following
aspects of its business and operations appropriate: Clearing and
settlement arrangements; operating structure, including risk management
policies, procedures, and systems; the scope of products cleared,
settled, or recorded; and the use of technology and communication
procedures? Why or why not? Should the Commission require that other
aspects of a covered clearing agency's business and operations be
subject to regular review?
19. Proposed Rule 17Ad-22(e)(22): Communication Procedures and
Standards
    Proposed Rule 17Ad-22(e)(22) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to ensure that it uses, or at a
minimum accommodates, relevant internationally accepted communication
procedures and standards in order to facilitate efficient payment,
clearing, and settlement.\356\ No comparable requirement exists for
registered clearing agencies under Rule 17Ad-22(d). The Commission
preliminarily believes this proposed requirement is appropriate for
covered clearing agencies given a covered clearing agency's size and
global operation. The Commission understands that covered clearing
agencies currently use the relevant internationally accepted
communication procedures and standards,\357\ so the Commission expects
only limited changes may be necessary to satisfy the requirements of
the proposed rule.
---------------------------------------------------------------------------

    \356\ See proposed Rule 17Ad-22(e)(22), infra Part 0.
    \357\ See generally Finacle, Messaging Standards in Financial
Industry, (Infosys Thought Paper, 2012), available at http://www.infosys.com/finacle/solutions/thought-papers/Documents/messaging-standards-financial-industry.pdf (describing messaging
standards such as SWIFT, FIX, and Fpml).
---------------------------------------------------------------------------

    The ability of participants to communicate with a covered clearing
agency in a timely, reliable, and accurate manner is important to
achieving prompt and accurate clearance and settlement. The Commission
preliminarily believes that requiring policies and procedures in line
with internationally accepted communication procedures and standards is
appropriate for a covered clearing agency for two reasons. First,
internationally accepted communication procedures and standards,
because they are widely accepted and adopted standards, reduce the
likelihood of errors and technical complexity in the clearance and
settlement process, thereby reducing risks and costs, improving
efficiency, and reducing barriers to entry. Such procedures and
standards would include standardized protocols for exchanging messages
and reference data for identifying financial instruments and
counterparties.
    Second, internationally accepted communication procedures and
standards ensure effective communication with direct and indirect
participants, which the Commission preliminarily believes is important
for covered clearing agencies, given the global nature of their
businesses. Securities markets in the United States are among the
largest and most actively traded in the world, with direct and indirect
participants from numerous other countries that necessitate the
development and use of internationally accepted communication
procedures and standards. Accordingly, the Commission preliminarily
believes that covered clearing agencies are likely to be engaged in
transactions across borders, where standardized communications
protocols and mechanisms are essential to ensure prompt and accurate
clearance and settlement.
    Request for Comments. The Commission generally requests comments on
all aspects of proposed Rule 17Ad-22(e)(22). In addition, the
Commission requests comments on the following specific issues:
     Should the Commission require a covered clearing agency's
policies and procedures to use, or at a minimum accommodate, relevant
internationally accepted communication procedures and standards in
order to facilitate efficient payment, clearing, and settlement? Why or
why not?
     Is the Commission's assumption that covered clearing
agencies are already using internationally accepted communication
procedures correct? Why or why not?
     Has the Commission provided sufficient guidance on what
``relevant internationally accepted communication procedures and
standards'' would be appropriate under the proposed policies and
procedures requirement? Why or why not?
20. Proposed Rule 17Ad-22(e)(23): Disclosure of Rules, Key Procedures,
and Market Data
    Proposed Rule 17Ad-22(e)(23) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to maintain clear and comprehensive
rules and procedures that provide for the specific disclosures
enumerated in the rule, as discussed below.\358\ The proposed rule
would require such policies and procedures to specifically require a
covered clearing agency to (i) publicly disclose all relevant rules and
material procedures, including key aspects of its

default rules and procedures; (ii) provide sufficient information to
enable participants to identify and evaluate the risks, fees, and other
material costs they incur by participating in the covered clearing
agency; and (iii) publicly disclose relevant basic data on transaction
volume and values.\359\ As with public disclosures contemplated under
proposed Rule 17Ad-22(a)(20), a covered clearing agency could comply
with the proposed requirement by posting the relevant documentation to
its Web site. The Commission preliminarily believes the proposed rule
is appropriate to promote continued transparency at covered clearing
agencies and thereby continue to facilitate prompt and accurate
clearance and settlement.
---------------------------------------------------------------------------

    \358\ See proposed Rule 17Ad-22(e)(23), infra Part 0; see also
Parts 0 and 0 (discussing the specific disclosures enumerated in the
proposed rule).
    The Commission is proposing Rule 17Ad-22(e)(23) as part of a
comprehensive set of rules for regulating covered clearing agencies
that is consistent with and comparable to other domestic and
international standards for FMIs.
    The Commission notes that Rule 17Ad-22(c)(2) currently requires
a registered clearing agency, within 60 days after the end of its
fiscal year, to post on its Web site its annual audited financial
statements. See 17 CFR 240.17Ad-22(c)(2); see also Clearing Agency
Standards Release, supra note 5, at 66244.
    \359\ In full, Rule 17Ad-22(d)(9) requires registered clearing
agencies to establish, implement, maintain and enforce written
policies and procedures reasonably designed to provide market
participants with sufficient information for them to identify and
evaluate the risks and costs associated with using its services. See
17 CFR 240.17Ad-22(d)(9); see also Clearing Agency Standards
Release, supra note 5, at 66252-53.
---------------------------------------------------------------------------

    Rule 17Ad-22(d)(9) currently requires registered clearing agencies
to have policies and procedures to facilitate disclosures similar to
proposed Rule 17Ad-22(e)(23)(ii), but does not require policies and
procedures similar to proposed Rules 17Ad-22(e)(23)(i) and (iii). The
Commission preliminarily believes these additional requirements are
appropriate for a covered clearing agency given the risks that a
covered clearing agency's size, operation, and importance pose to the
U.S. securities markets because these disclosures provide the relevant
authorities with information that further facilitates supervision of
the covered clearing agency, including information that may allow the
relevant authorities to better assess the covered clearing agency's
observance of risk management requirements and better identify possible
risks posed by the covered clearing agency, and provide relevant
stakeholders with information regarding risks associated with
participation in a covered clearing agency.
    In addition to the Exchange Act requirements described above,\360\
Section 17A of the Exchange Act requires registered clearing agencies
to have rules designed to foster cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions.\361\ The Commission preliminarily believes that requiring
a covered clearing agency to have policies and procedures reasonably
designed to disclose sufficient information so that participants can
identify risks and costs associated with using the covered clearing
agency would allow participants to make informed decisions about the
use of the covered clearing agency and to take appropriate actions to
mitigate their risks and to better understand the costs associated with
their use of the covered clearing agency. Similarly, the Commission
preliminarily believes that requiring a covered clearing agency to
publicly disclose relevant basic data on transaction volume and values
would allow regulators, market participants, and market observers to
make informed decisions about the activities of the covered clearing
agency and to take appropriate action, if necessary, in response.
---------------------------------------------------------------------------

    \360\ See notes 54-56 and accompanying text; see also Parts 0
and 0 (generally discussing the regulatory framework under Section
17A of the Exchange Act, as amended by the Dodd-Frank Act).
    \361\ See 15 U.S.C. 78q-1(b)(3)(F).
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    Pursuant to existing Commission regulations, changes to the rules
of an SRO, including clearing agencies, are required to be available on
the SRO's Web site and are published by the Commission.\362\ The
Commission's proposed rule is designed to promote understanding among
market participants of the policies and procedures of covered clearing
agencies, and the Commission believes the proposed rule is consistent
with existing requirements for SROs. Continued and improved
understanding of the risks and costs associated with using a covered
clearing agency's services should promote confidence generally in the
covered clearing agency's ability to set and manage appropriately risks
and costs, such as margin requirements, restrictions on or limitations
of the covered clearing agency's obligations, and conditions used by
the covered clearing agency to test the adequacy of its financial
resources. The Commission preliminarily believes these requirements are
especially important for covered clearing agencies given their size and
importance.
---------------------------------------------------------------------------

    \362\ See 17 CFR 240.19b-4(l) (requiring an SRO to post each
proposed rule change, and any amendments thereto, on its Web site
within two business days of filing with the Commission); 17 CFR
240.19b-4(i) (requiring SROs to retain for public inspection and
copying all filings made pursuant to this section and all
correspondence and other communications reduced to writing,
including comment letters, to and from such SRO concerning any such
filing).
---------------------------------------------------------------------------

    The Commission notes that these policies and procedures
requirements are intended in part to codify disclosure practices
currently undertaken by some registered clearing agencies on an
elective basis.\363\
---------------------------------------------------------------------------

    \363\ See, e.g., DTC, Assessment of Compliance with
Recommendations for Securities Settlement Systems (Dec. 2011),
available at http://dtcc.com/legal/policy-and-compliance.aspx.
---------------------------------------------------------------------------

    Below is a discussion of the specific disclosures required under
the proposed rule, which are not similarly required of registered
clearing agencies under Rule 17Ad-22(d)(9). The Commission
preliminarily believes that these additions to a covered clearing
agency's disclosure practices are important to ensure clearing members
and the public have access to up-to-date information about the covered
clearing agency's activities, policies, and procedures, which would
promote confidence in its operations and thereby contribute to the
prompt and accurate clearance and settlement of securities
transactions.\364\
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    \364\ As noted above, the Commission preliminarily believes that
the proposed requirement for a comprehensive public disclosure is
consistent with the requirements of the Exchange Act, Rule 19b-4,
and the current practices of some clearing agencies that would be
covered clearing agencies. See supra notes 362-363 and accompanying
text; see also Part 0 (discussing the current practices of
registered clearing agencies with respect to transparency and
disclosure).
---------------------------------------------------------------------------

a. Comprehensive Public Disclosure
    Proposed Rule 17Ad-22(e)(23)(iv) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to maintain clear and comprehensive
rules and procedures that provide for a comprehensive public disclosure
of its material rules, policies, and procedures regarding governance
arrangements and legal, financial, and operational risk management,
accurate in all material respects at the time of publication, including
(i) a general background of the covered clearing agency, including its
function and the market it serves, basic data and performance
statistics on its services and operations, such as basic volume and
value statistics by product type, average aggregate intraday exposures
to its participants, and statistics on the covered clearing agency's
operational reliability, and a description of its general organization,
legal and regulatory framework, and system design and operations; (ii)
a standard-by-standard summary narrative for each applicable standard
set forth in proposed Rules 17Ad-22(e)(1) through (22) with sufficient
detail and context to enable the reader to understand its approach to
controlling the risks and addressing the requirements in each standard;
(iii) a summary of material changes since the last update of the
disclosure; and (iv) an

executive summary of the key points regarding each.\365\ The Commission
is proposing to require that the comprehensive public disclosure
provide basic data and performance statistics, such as statistics on
the covered clearing agency's operational reliability so that the
relevant stakeholders and the general public have data regarding, for
example, performance targets for systems and the actual performance of
systems over specified periods and targets for recovery. The Commission
is also proposing to require that the comprehensive public disclosure
include a standard-by-standard summary narrative to elicit a summary
discussion of a covered clearing agency's implementation of policies
and procedures requirements that would need to be established,
implemented, maintained and enforced by a covered clearing agency in
response to proposed Rules 17Ad-22(e)(1) through (23). In addition, the
Commission is proposing to require a summary of material changes and
would expect that a covered clearing agency should consider its
particular circumstances, such as, for example, changes in the scope of
services provided by the covered clearing agency, in satisfying this
requirement.
---------------------------------------------------------------------------

    \365\ See proposed Rule 17Ad-22(e)(23)(iv), infra Part VI.
---------------------------------------------------------------------------

    The Commission preliminarily believes that disclosure of the above
required information will provide participants with the information
necessary to, at a minimum, identify and evaluate the risks and costs
associated with use of the covered clearing agency, thereby promoting
transparency and enhancing competition and market discipline. The
Commission preliminarily believes it would also provide other
stakeholders, including regulators and the public, with information
that facilitates informed oversight and decision-making regarding
covered clearing agencies.

b. Updates to the Comprehensive Public Disclosure

    Proposed Rule 17Ad-22(e)(23)(v) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to ensure the comprehensive public
disclosure required under proposed Rule 17Ad-22(e)(23)(iv) is updated
not less than every two years, or more frequently following changes to
its system or the environment in which it operates to the extent
necessary, to ensure statements previously provided remain accurate in
all material respects.\366\ The Commission preliminarily believes that
ensuring statements previously provided remain accurate would require a
covered clearing agency's comprehensive public disclosure to provide
statements that would provide a market participant with an accurate
representation of the risks and costs of participating in the covered
clearing agency.
---------------------------------------------------------------------------

    \366\ See proposed Rule 17Ad-22(e)(23)(v), infra Part VI.
---------------------------------------------------------------------------

    The Commission preliminarily believes that this requirement would
help provide participants, regulators, other stakeholders, and the
public with disclosures that are current, accurate, and comprehensive,
thereby promoting transparency and enhancing competition and market
discipline. The Commission preliminarily believes it would also provide
other stakeholders, including regulators and the public, with timely
information that facilitates informed oversight and decision-making
regarding covered clearing agencies, thereby promoting the clearing
agency obligations required under Section 17A of the Exchange Act.\367\
---------------------------------------------------------------------------

    \367\ See 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

c. Request for Comments
    The Commission generally requests comments on all aspects of
proposed Rule 17Ad-22(e)(23). In addition, the Commission requests
comments on the following specific issues:
     Should the Commission require a covered clearing agency's
policies and procedures to maintain clear and comprehensive rules and
procedures that provide for the specific disclosures proposed under
Rule 17Ad-22(e)(23)? Why or why not? Are there rules and procedures
that should not be fully disclosed to participants? Please explain in
detail what such rules and procedures would be and why they should not
be disclosed to participants.
     In imposing certain minimum requirements for policies and
procedures regarding the comprehensive public disclosure, has the
Commission provided sufficient guidance regarding what elements must
appear in the disclosure? Should different elements appear? Should the
Commission require policies and procedures to update the comprehensive
public disclosure every two years, as proposed? Should the Commission
require policies and procedures to update the comprehensive public
disclosure more frequently following changes to its system or the
environment in which it operates to the extent necessary to ensure the
statements provided remain accurate in all material respects? Why or
why not?
     Are certain ways that covered clearing agencies
communicate information to market participants more effective than
others? For example, does including information in a covered clearing
agency's rulebook or published interpretive materials provide adequate
notice of the risks and costs of being a participant to persons that
are not currently participants in the covered clearing agency? Why or
why not?
     Should the types of information that a covered clearing
agency discloses under the proposed rule be generally available to the
public? Should any categories of the information required to be
disclosed under the proposed rule be restricted to certain parties
only, such as clearing members or the Commission itself? Why or why
not?
     Should the Commission require covered clearing agencies to
make public disclosures of information contained in their audited
financial statements that would provide a discussion and analysis of
the covered clearing agency's financial condition, in particular with
respect to liquidity, capital resources, and results of operations,
similar to the Management's Discussion and Analysis of Financial
Condition and Results of Operations disclosure required under Items
303(a)(1) through (3) of Regulation S-K?
     Should the Commission require that policies and procedures
pursuant to proposed Rule 17Ad-22(e)(23) specify a certain form for the
disclosures (e.g., using tagged or structured data)? Why or why not?
What form should the proposed disclosures take? Please explain.

C. Proposed Rule 17Ab2-2

    The Commission is proposing Rule 17Ab2-2 to establish procedures
for the Commission to make determinations affecting covered clearing
agencies.\368\ Under the proposed rule, the Commission would make
determinations in three cases, as discussed below. In each case, under
proposed Rule 17Ab2-2(d), the Commission would publish notice of its
intention to consider such determinations, together with a brief
statement of the grounds under consideration, and provide at least a
30-day public comment period prior to any determination.\369\ The
Commission may provide the clearing agency subject to the proposed
determination opportunity for hearing regarding the proposed

determination. Under proposed Rule 17Ab2-2(e), notice of determinations
in each case would be given by prompt publication thereof, together
with a statement of written reasons supporting the determination.\370\
---------------------------------------------------------------------------

    \368\ See proposed Rule 17Ab2-2, infra Part 0.
    \369\ See proposed Rule 17Ab2-2(d), infra Part 0.
    \370\ See proposed Rule 17Ab2-2(e), infra Part 0.
---------------------------------------------------------------------------

    The Commission notes that under proposed Rule 17Ad-22(e), five
active registered clearing agencies would meet the definition of a
covered clearing agency without action under proposed Rule 17Ab2-2 by
the Commission.\371\ Because the two dormant registered clearing
agencies would not meet the definition of a covered clearing agency, if
they elected to begin providing clearance and settlement services, they
could potentially be subject to a determination under Rule 17Ab2-
2.\372\ In addition, the Commission notes that it would consider, upon
receiving an application for registration as a clearing agency, either
making a determination regarding a registrant's status as a covered
clearing agency as part of the registration process, if the Commission
believes the clearing agency already meets the definition of a covered
clearing agency, or after registration, if the Commission determines
that the clearing agency does not meet the definition of a covered
clearing agency upon registration but does so at a later date, as
either market conditions or the characteristics of the clearing agency
itself change, pursuant to proposed Rule 17Ab2-2.\373\
---------------------------------------------------------------------------

    \371\ See supra notes 82-87 and accompanying text. As noted, the
CFTC has been designated the supervisory agency for two registered
clearing agencies, CME and ICE, which have been designated as
systemically important by the FSOC pursuant to the Clearing
Supervision Act, and accordingly they would not be covered clearing
agencies under proposed Rules 17Ad-22(e) and 17Ab2-2.
    \372\ See supra note 88 and accompanying text.
    \373\ See supra note 9 and accompanying text (discussing the
requirements for registration as a clearing agency pursuant to
Section 17A of the Exchange Act).
---------------------------------------------------------------------------

1. Determination That a Registered Clearing Agency is a Covered
Clearing Agency
    Under proposed Rule 17Ab2-2(a), the Commission may, if it deems
appropriate, upon application by any registered clearing agency or
member thereof, or on its own initiative, determine whether a
registered clearing agency should be considered a covered clearing
agency.\374\ In determining whether a registered clearing agency should
be considered a covered clearing agency, the Commission may consider
characteristics such as the clearing of financial instruments that are
characterized by discrete jump-to-default price changes or that are
highly correlated with potential participant defaults or other such
factors as it deems appropriate in the circumstances. The Commission
preliminarily believes it should reserve the right to make a
determination on its own initiative in the event that it independently
determines that a registered clearing agency meets the definition of a
covered clearing agency, as either market conditions or the
characteristics of the clearing agency itself change. The Commission
preliminarily believes that the clearing of financial instruments that
are characterized by discrete jump-to-default price changes or that are
highly correlated with potential participant defaults are two factors
that indicate a registered clearing agency may raise systemic risk
concerns supporting application of the requirements under proposed Rule
17Ad-22(e).\375\
---------------------------------------------------------------------------

    \374\ See proposed Rule 17Ab2-2(a), infra Part 0.
    \375\ See Clearing Agency Standards Release, supra note 5, at
66234 n.162 (describing the risks that arise from financial
instruments that are characterized by discrete jump-to-default price
changes or that are highly correlated with potential participant
defaults).
---------------------------------------------------------------------------

    The Commission preliminarily believes that proposed Rule 17Ab2-2(a)
would provide the Commission with the flexibility necessary to achieve
the goals of Section 17A of the Exchange Act,\376\ Title VII of the
Dodd-Frank Act,\377\ and the Clearing Supervision Act,\378\ given the
ever-changing nature of the U.S. securities markets, including the
nature and character of participants in the market and the products
required to be cleared and settled in practice. The Commission
preliminarily believes that Rule 17Ab2-2(a) is necessary to ensure that
a registered clearing agency not otherwise meeting the definition of
either a designated clearing agency or a complex risk profile clearing
agency can nonetheless be subject to the requirements for covered
clearing agencies in proposed Rule 17Ad-22(e) upon a determination made
by the Commission. The Commission preliminarily believes this is
necessary to ensure that the Commission is appropriately able to
respond to registered clearing agencies that raise systemic risk
concerns supporting application of the requirements under proposed Rule
17Ad-22(e).
---------------------------------------------------------------------------

    \376\ See supra Part 0.
    \377\ See supra Part 0.
    \378\ See supra Part 0.
---------------------------------------------------------------------------

2. Determination That a Covered Clearing Agency Is Systemically
Important in Multiple Jurisdictions
    Under proposed Rule 17Ab2-2(b), the Commission may, if it deems
appropriate, upon application by any clearing agency or member thereof,
or on its own initiative, determine whether a covered clearing agency
meets the definition of ``systemically important in multiple
jurisdictions.'' \379\ In determining whether a covered clearing agency
is systemically important in multiple jurisdictions, the Commission may
consider (i) whether the covered clearing agency is a designated
clearing agency; (ii) whether the clearing agency has been determined
to be systemically important by one or more jurisdictions other than
the United States through a process that includes consideration of
whether the foreseeable effects of a failure or disruption of the
designated clearing agency could threaten the stability of each
relevant jurisdiction's financial system; \380\ or (iii) such other
factors as the Commission may deem appropriate in the circumstances.
---------------------------------------------------------------------------

    \379\ See proposed Rule 17Ab2-2(b), infra Part 0.
    \380\ The Commission notes that this provision of proposed Rule
17Ab2-2(b) parallels the definition of systemic importance in
Section 803(9) of the Clearing Supervision Act, which states that
systemic importance means a situation where the failure of or a
disruption to the functioning of an FMU could create, or increase,
the risk of significant liquidity or credit problems spreading among
financial institutions or markets and thereby threaten the stability
of the financial system of the United States. See 12 U.S.C. 5462(9).
---------------------------------------------------------------------------

    The Commission preliminarily believes that it should propose the
procedures set forth in Rule 17Ab2-2(b) for designating a covered
clearing agency as systemically important in multiple jurisdictions.
Accordingly, the Commission is proposing Rule 17Ab2-2(b) to provide
procedures for determining when a clearing agency has become
systemically important in multiple jurisdictions. In this regard, the
Commission preliminarily believes that proposed Rule 17Ab2-2(b)(ii) is
consistent with Section 804(a)(2)(D) of the Clearing Supervision
Act.\381\ The Commission is also proposing that it may consider
additional factors in determining whether a covered clearing agency is
systemically important in multiple jurisdictions, in addition to
whether the foreseeable effects of a failure or disruption of the
designated clearing agency could threaten the stability of multiple
jurisdictions' financial systems. Such analysis could

include whether foreign regulatory authorities have designated the
covered clearing agency as systemically important and whether any
findings were made in anticipation of that designation.
---------------------------------------------------------------------------

    \381\ See 12 U.S.C. 5463(a)(2)(D) (listing, as one of the
systemic importance criteria for the FSOC to consider, the effect
that the failure of or a disruption to the FMU or PCS activity would
have on critical markets, financial institutions, or the broader
financial system).
---------------------------------------------------------------------------

3. Determination That a Clearing Agency Has a More Complex Risk Profile
    Under proposed Rule 17Ab2-2(c), the Commission may, if it deems
appropriate, determine whether any of the activities of a clearing
agency providing central counterparty services, in addition to clearing
agencies registered with the Commission for the purpose of clearing
security-based swaps, have a more complex risk profile.\382\ In
determining whether a clearing agency's activity has a more complex
risk profile, the Commission may consider (i) characteristics such as
the clearing of financial instruments that are characterized by
discrete jump-to-default price changes or that are highly correlated
with potential participant defaults; and (ii) such other
characteristics as it deems appropriate in the circumstances. The
Commission preliminarily believes that the clearing of financial
instruments that are characterized by discrete jump-to-default price
changes or that are highly correlated with potential participant
defaults are two factors that indicate a registered clearing agency
raises systemic risk concerns supporting application of the
requirements under proposed Rule 17Ad-22(e).\383\
---------------------------------------------------------------------------

    \382\ See proposed Rule 17Ab2-2(c), infra Part 0.
    \383\ See supra note 375 and accompanying text.
---------------------------------------------------------------------------

    The Commission preliminarily believes that proposed Rule 17Ab2-2(c)
would provide the Commission with the flexibility necessary to achieve
the goals of Section 17A of the Exchange Act,\384\ Title VII of the
Dodd-Frank Act,\385\ and the Clearing Supervision Act,\386\ given the
dynamic nature of the U.S. securities markets, including the nature and
character of participants in the market and the products required to be
cleared and settled in practice, by permitting the Commission to
determine that certain registered clearing agencies are complex risk
profile clearing agencies. The Commission also preliminarily believes
that activities involving a more complex risk profile, because they may
involve the clearing of financial instruments that are characterized by
discrete jump-to-default price changes or that are highly correlated
with potential participant defaults, implicate systemic risk concerns
supporting application of the requirements under proposed Rule 17Ad-
22(e).\387\
---------------------------------------------------------------------------

    \384\ See supra Part 0.
    \385\ See supra Part 0.
    \386\ See supra Part 0.
    \387\ See supra note 375 and accompanying text.
---------------------------------------------------------------------------

4. Request for Comments
    The Commission generally requests comments on all aspects of
proposed Rule 17Ab2-2. In addition, the Commission requests comments on
the following specific issues:
     Should the Commission establish procedures for making
determinations affecting covered clearing agencies? Why or why not?
     In determining whether a clearing agency should be
considered a covered clearing agency, should the Commission consider
characteristics such as the clearing of financial instruments that are
characterized by discrete jump-to-default price changes or that are
highly correlated with potential participant defaults, as proposed? Why
or why not? Are there particular other characteristics that the
Commission should consider? If so, please explain the relevance of
those characteristics in detail.
     Does the proposed rule sufficiently describe the types of
factors that would be considered when the Commission considers a
determination that a registered clearing agency is a covered clearing
agency? What factors should be considered?
     Should the Commission, if it deems appropriate, determine
whether a covered clearing agency is systemically important in multiple
jurisdictions? Why or why not? If not, what alternative approach should
the Commission use to assess whether a covered clearing agency is
systemically important in multiple jurisdictions? For instance, what
weight should the Commission give to determinations by other
jurisdictions or regulators regarding the systemic importance in
multiple jurisdictions of a covered clearing agency? Is it appropriate
for the Commission to assess whether such determination was made
through a process that includes consideration of whether the
foreseeable effects of a failure or disruption of the designated
clearing agency could threaten the stability of each relevant
jurisdiction's financial system, as proposed? Please explain. Are there
particular other factors that the Commission should consider? If so,
please explain the relevance of those characteristics in detail.
     Does the proposed rule sufficiently describe the types of
factors that would be considered when the Commission considers a
determination that a covered clearing agency is systemically important
in multiple jurisdictions? What factors should be considered?
     In determining whether any of the activities of a clearing
agency providing CCP services have a more complex risk profile, should
the Commission consider characteristics such as the clearing of
financial instruments that are characterized by discrete jump-to-
default price changes or that are highly correlated with potential
participant defaults, as proposed? Why or why not? Are there particular
other characteristics that the Commission should consider? If so,
please explain the relevance of those characteristics in detail.
     Does the proposed rule sufficiently describe the types of
factors that would be considered when the Commission considers a
determination that a clearing agency is a complex risk profile clearing
agency? What factors should be considered?
     Does the proposed process for determinations under Rule
17Ab2-2 conflict with the PFMI Report's use of ``systemic importance in
multiple jurisdictions'' and ``more complex risk profile'' activities?
If so, please explain.

D. Proposed Rule 17Ad-22(f)

    The Commission is proposing Rule 17Ad-22(f) to codify its special
enforcement authority over designated clearing agencies for which the
Commission acts as the supervisory agency, pursuant to the Clearing
Supervision Act. Under Section 807(c) of the Clearing Supervision Act,
for purposes of enforcing the provisions of the Clearing Supervision
Act, a designated clearing agency is subject to, and the Commission has
authority under, the provisions of subsections (b) through (n) of
Section 8 of the Federal Deposit Insurance Act in the same manner and
to the same extent as if a designated clearing agency were an insured
depository institution and the Commission were the appropriate Federal
banking agency for such insured depository institution.\388\
---------------------------------------------------------------------------

    \388\ See 12 U.S.C. 5466(c); see also 12 U.S.C. 1818 (relevant
provisions under the Federal Deposit Insurance Act).
---------------------------------------------------------------------------

    Request for Comments. The Commission requests comment on proposed
Rule 17Ad-22(f), including whether the proposed rule is clear and
consistent with the requirements of the Exchange Act and the Clearing
Supervision Act.

E. Proposed Amendment to Rule 17Ad-22(d)

    To facilitate consistency with proposed Rule 17Ad-22(e), the

Commission is proposing to amend Rule 17Ad-22(d). Rule 17Ad-22(d) sets
forth certain minimum requirements for the operation and governance of
registered clearing agencies.\389\ The first paragraph of Rule 17Ad-
22(d) currently provides that a registered clearing agency shall
establish, implement, maintain and enforce written policies and
procedures reasonably designed to fulfill the requirements of Rule
17Ad-22(d), as applicable. The Commission is proposing to amend this
first paragraph of Rule 17Ad-22(d) to state that Rule 17Ad-22(d)
applies to registered clearing agencies other than covered clearing
agencies.\390\ As a result, the proposed amendment would limit the
applicability of Rule 17Ad-22(d) to CME and ICE, as systemically
important FMUs for which the CFTC is the supervisory agency under the
Clearing Supervision Act,\391\ the two registered but dormant clearing
agencies,\392\ and any clearing agency registered with the Commission
in the future that is not one of the following: a designated clearing
agency, a complex risk profile clearing agency, or a clearing agency
that the Commission has otherwise determined to be a covered clearing
agency pursuant to proposed Rule 17Ab2-2.\393\
---------------------------------------------------------------------------

    \389\ See 17 CFR 240.17Ad-22(d); see also Clearing Agency
Standards Release, supra note 5, at 66244-58.
    \390\ See proposed amendment to Rule 17Ad-22(d), infra Part 0.
    \391\ See supra notes 84-87 and accompanying text.
    \392\ See supra note 88 and accompanying text (discussing SCCP
and BSECC).
    \393\ See supra Part 0 (further discussing the scope of the
proposed rules).
---------------------------------------------------------------------------

    Request for Comments. The Commission requests comment on the
proposed amendment to Rule 17Ad-22(d), including whether the proposed
amendment is clear and consistent with the requirements of the Exchange
Act, the Clearing Supervision Act, and proposed Rule 17Ad-22(e)
thereunder.

III. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \394\ imposes certain
requirements on federal agencies in connection with the conducting or
sponsoring of any ``collection of information.'' \395\ More
specifically, an agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid control number. Additionally, 44 U.S.C. 3507(a)(1)(D)
provides that before adopting (or revising) a collection of information
requirement, an agency must, among other things, publish a notice in
the Federal Register stating that the agency has submitted the proposed
collection of information to the Office of Management and Budget
(``OMB'') and setting forth certain required information, including (1)
a title for the collection of information; (2) a summary of the
collection information; (3) a brief description of the need for the
information and the proposed use of the information; (4) a description
of the likely respondents and proposed frequency of response to the
collection of information; (5) an estimate of the paperwork burden that
shall result from the collection of information; and (6) notice that
comments may be submitted to the agency and director of OMB.\396\
---------------------------------------------------------------------------

    \394\ 44 U.S.C. 3501 et seq.
    \395\ See 44 U.S.C. 3502(3).
    \396\ See 44 U.S.C. 3507(a)(1)(D); see also 5 CFR
1320.5(a)(1)(iv).
---------------------------------------------------------------------------

    Certain provisions of the proposed rules would impose new
``collection of information'' requirements within the meaning of the
PRA. Accordingly, the Commission has submitted the information to the
OMB for review in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. A
title and control number already exists for Rule 17Ad-22 adopted in
October 2012 (OMB Control No. 3235-0695 for ``Clearing Agency Standards
for Operation and Governance''). Because the Commission is proposing to
revise the collection of information under this proposed rulemaking for
amendments to Rule 17Ad-22, the Commission will use OMB Control No.
3235-0695 for the collections of information for proposed Rule 17Ad-
22(e).
    Additionally, proposed Rule 17Ab2-2 would contain a new collection
of information requirement for PRA purposes. The title of the new
collection of information under this proposed rulemaking is
Determinations Affecting Covered Clearing Agencies (a proposed new
collection of information).

A. Overview and Organization

    The Commission preliminarily believes information that would be
required to be collected by virtue of written policies and procedure
requirements contained in this proposed rulemaking reflects to a degree
existing practices at covered clearing agencies.\397\ In certain
instances, however, the proposed requirements would require covered
clearing agencies to establish, implement, maintain and enforce written
policies and procedures reasonably designed to comply with this
proposed rulemaking.
---------------------------------------------------------------------------

    \397\ See infra Part 0 (describing current practices at
registered clearing agencies).
---------------------------------------------------------------------------

    With regard to proposed Rule 17Ad-22(e), given that several
provisions of the proposed rule are intended to be consistent with Rule
17Ad-22, the Commission preliminarily believes that covered clearing
agencies currently in compliance with the requirements of existing Rule
17Ad-22 may already have some written rules and procedures similar to
those in proposed Rule 17Ad-22(e). Accordingly, when covered clearing
agencies review and update their policies and procedures in order to
come into compliance with proposed Rule 17Ad-22(e), the Commission
preliminarily believes that the PRA burden would vary across the
requirements of proposed Rule 17Ad-22(e), based on the complexities of
the requirements under each paragraph of the proposed rule and the
extent to which covered clearing agencies currently comply with the
proposed requirements under their existing policies and
procedures.\398\
---------------------------------------------------------------------------

    \398\ For a discussion of the differences between Rule 17Ad-
22(d) and proposed Rule 17Ad-22(e), see Parts 0-0.
---------------------------------------------------------------------------

    The portions of proposed Rule 17Ad-22(e) for which the PRA burden
is preliminarily expected to be higher are the provisions contemplating
requirements not addressed in Rule 17Ad-22, as discussed in Part
II.A.4. Because these proposed requirements may not reflect established
practices of covered clearing agencies or reflect the normal course of
their activities, the PRA burden for these proposed rules may entail
both initial one-time burdens to create new written policies and
procedures and ongoing burdens. The expected PRA burden for the
proposed rules is discussed in detail below.\399\
---------------------------------------------------------------------------

    \399\ See infra Parts 0 (estimated burdens under proposed Rule
17Ad-22(e)(15)) and 0 (estimated burdens under proposed Rule 17Ad-
22(e)(19)).
---------------------------------------------------------------------------

    In addition to the collection of information requirements imposed
under proposed Rule 17Ad-22(e), proposed Rule 17Ab2-2 also would
contain collection of information requirements for PRA purposes.
Proposed Rule 17Ab2-2 establishes a process for making determinations
regarding whether or not a clearing agency would be 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.\400\ The expected PRA burden for proposed
Rule 17Ab2-2 is discussed below.
---------------------------------------------------------------------------

    \400\ 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).

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

B. Summary of Collection of Information and Proposed Use of Information
for Proposed Rule 17Ad-22(e) \401\ and Proposed Rule 17Ab2-2
---------------------------------------------------------------------------

    \401\ Proposed Rule 17Ad-22(e) would require covered clearing
agencies to establish, implement, maintain and enforce certain
written policies and procedures that would be used, among other
things, in connection with staff examinations.
---------------------------------------------------------------------------

1. Proposed Rules 17Ad-22(e)(1) through (3): General Organization
a. Proposed Rule 17Ad-22(e)(1)
    Proposed Rule 17Ad-22(e)(1) would require a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for a well-founded, clear,
transparent and enforceable legal basis for each aspect of its
activities in all relevant jurisdictions.\402\ The purpose of this
collection of information is to reduce the legal risks involved in the
clearance and settlement process and to ensure that a covered clearing
agency's policies and procedures do not cause legal uncertainty among
participants due to a lack of clarity, completeness, or conflicts with
applicable laws and judicial precedent.
---------------------------------------------------------------------------

    \402\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(1))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(2)
    Proposed Rule 17Ad-22(e)(2) would require a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for governance arrangements
that are clear and transparent, clearly prioritize the safety and
efficiency of the covered clearing agency, and support the public
interest requirements of Section 17A of the Exchange Act, and the
objectives of owners and participants. Proposed Rule 17Ad-22(e)(2)
would also require a covered clearing agency to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to provide for governance arrangements reasonably designed to
establish that the covered clearing agency's board of directors and
senior management have appropriate experience and skills to discharge
their duties and responsibilities.\403\
---------------------------------------------------------------------------

    \403\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(2))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

    The purpose of this collection of information is to promote boards
of directors that are composed of qualified members and that exercise
oversight of the covered clearing agency's management, while also
prioritizing the safety and efficiency of the covered clearing agency
and supporting the public interest.
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 maintain a sound risk management
framework for comprehensively managing legal, credit, liquidity,
operational, general business, investment, custody, and other risks
that arise in or are borne by the covered clearing agency. Under the
proposed rule, risk management policies, procedures, and systems must
provide for the identifying, measuring, monitoring, and managing of
risks that arise in or are borne by the covered clearing agency. Such
policies and procedures must be subject to review on a specified
periodic basis and be approved by the board of directors annually. The
proposed rule would require a covered clearing agency to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to provide for plans for the recovery and orderly
wind-down of the covered clearing agency in the event of credit losses,
liquidity shortfalls, losses from general business risk, or any other
losses. The proposed rule would also require a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to establish that risk management and
internal audit personnel have sufficient resources, authority, and
independence from management. The proposed rule would further require a
covered clearing agency to establish, implement, maintain and enforce
written policies and procedures reasonably designed to establish that
risk management and internal audit personnel have a direct reporting
line to, and are overseen by, a risk management committee and an audit
committee of the board of directors, respectively. The proposed rule
would also require policies and procedures providing for an independent
audit committee.\404\
---------------------------------------------------------------------------

    \404\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(3))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

    The purpose of this collection of information is to enhance a
covered clearing agency's ability to identify, monitor, and manage the
risks clearing agencies face, including by subjecting the relevant
policies and procedures to regular review, and to facilitate an orderly
recovery and wind-down process in the event that a covered clearing
agency is unable to continue operating as a going concern.
2. Proposed Rules 17Ad-22(e)(4) Through (7): Financial Risk Management
a. Proposed Rule 17Ad-22(e)(4)
    Proposed Rule 17Ad-22(e)(4) would require a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to effectively identify, measure,
monitor, and manage its credit exposures to each participant and those
exposures arising from payment, clearing, and settlement processes.
Proposed Rule 17Ad-22(e)(4)(i) would require a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to maintain sufficient financial
resources to cover its credit exposure to each member fully with a high
degree of confidence. To the extent not already maintained pursuant to
proposed Rule 17Ad-22(e)(4)(i), a covered clearing agency that provides
CCP services would also have to establish, implement, maintain, and
enforce written policies and procedures to meet either the ``cover
one'' requirement under proposed Rule 17Ad-22(e)(4)(iii) or, if it is a
complex risk profile clearing agency or systemically important in
multiple jurisdictions, the ``cover two'' requirement under proposed
Rule 17Ad-22(e)(4)(ii).
    Proposed Rule 17Ad-22(e)(4)(iv) would require covered clearing
agencies to establish, implement, maintain and enforce written policies
and procedures reasonably designed to cover its credit exposures by
including prefunded financial resources and excluding assessments for
additional guaranty fund contributions or other resources that are not
prefunded, when calculating financial resources available to meet the
requirements under proposed Rules 17Ad-22(e)(4)(i) through (iii), as
applicable.\405\
---------------------------------------------------------------------------

    \405\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(4))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

    Proposed Rule 17Ad-22(e)(4)(v) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to maintain the financial resources
required under proposed Rules 17Ad-22(e)(4)(i) through (iii), as
applicable, in combined or separately maintained clearing or guaranty
funds, and to test the sufficiency of its total financial resources by
conducting a stress test of total financial resources once each day

using standard predetermined parameters and assumptions.
    Proposed Rule 17Ad-22(e)(4)(vi) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to test the sufficiency of its total
financial resources available to meet the minimum financial resource
requirements under proposed Rules 17Ad-22(e)(4)(i) through (iii), as
applicable, by conducting stress tests and other comprehensive
analyses. Specifically, those would include conducting a stress test of
its total financial resources once each day using standard
predetermined parameters and assumptions. It would also include
conducting a comprehensive analysis on at least a monthly basis of the
existing stress testing scenarios, models, and underlying parameters
and assumptions, and considering modifications to ensure that they are
appropriate for determining the covered clearing agency's required
level of default protection in light of current market conditions. It
would also include conducting a comprehensive analysis of stress
testing scenarios, models, and underlying parameters and assumptions
more frequently than monthly when the products cleared or markets
served display high volatility, become less liquid, or when the size or
concentration of positions held by its participants increases
significantly. It would also include reporting the results of this
analysis to appropriate decision makers, including its risk management
committee or board of directors, and to use these results to evaluate
the adequacy of and adjust its margin methodology, model parameters,
models used to generate clearing or guaranty fund requirements, and any
other relevant aspects of its credit risk management policies and
procedures, in supporting compliance with the minimum financial
resources requirements discussed above.
    Finally, proposed Rule 17Ad-22(e)(4)(vii) would require a covered
clearing agency to establish, implement, maintain and enforce written
policies and procedures reasonably designed to require the covered
clearing agency to perform a conforming model validation for its credit
risk models at least annually, or more frequently if dictated by the
covered clearing agency's risk management policies and procedures
established under proposed Rule 17Ad-22(e)(3).\406\
---------------------------------------------------------------------------

    \406\ See id.
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(5)
    Rule 17Ad-22(e)(5) would require a covered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to limit the assets it accepts as
collateral to those with low credit, liquidity, and market risks. It
also would require policies that set and enforce appropriately
conservative haircuts and concentration limits if the covered clearing
agency requires collateral to manage its or its participants' credit
exposure and would require a covered clearing agency to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to require a not-less-than-annual review of the
sufficiency of its collateral haircut and concentration limits.\407\
---------------------------------------------------------------------------

    \407\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(5))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(6)
    Proposed Rule 17Ad-22(e)(6) would require a covered clearing agency
that provides CCP services to establish, implement, maintain and
enforce written policies and procedures reasonably designed to cover
its credit exposures to its participants by establishing a risk-based
margin system. The proposed rule would require such margin system to
consider, and produce margin levels commensurate with, the risks and
particular attributes of each relevant product, portfolio, and market.
Furthermore, under the proposed rule the margin system would mark
participant positions to market and collect margin, including variation
margin or equivalent charges if relevant, at least daily, and include
the authority and operational capacity to make intraday margin calls in
defined circumstances. The proposed rule also requires policies and
procedures with respect to the following: The calculation of margin
sufficient to cover a covered clearing agency's potential future
exposure to participants in the interval between the last margin
collection and close out of positions following a participant default;
the use of reliable sources of timely price data and procedures and
sound valuation models for addressing circumstances in which pricing
data are not readily available or reliable; and the use of an
appropriate method for measuring credit exposure that accounts for
relevant product risk factors and portfolio effects across
products.\408\
---------------------------------------------------------------------------

    \408\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(6))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

    In addition to requiring policies and procedures with respect to a
risk-based margin system, proposed Rule 17Ad-22(e)(6) would require a
covered clearing agency to establish, implement, maintain and enforce
written policies and procedures reasonably designed to regularly
review, test, and verify risk-based margin systems by conducting
backtests at least once each day and, at least monthly, a conforming
sensitivity analysis of its margin resources and its parameters and
assumptions for backtesting, and consider modifications to ensure the
backtesting practices are appropriate for determining the adequacy of
its margin resources. Such review, testing, and verification would
include conducting a conforming sensitivity analysis more frequently
than monthly when the products cleared or markets served display high
volatility, become less liquid, or when the size or concentration of
positions held by participants increase or decrease significantly. The
proposed rule would also require a covered clearing agency providing
CCP services to establish, implement, maintain and enforce written
policies and procedures reasonably designed to report the results of
such conforming sensitivity analysis to appropriate decision makers,
including its risk management committee or board of directors, and use
these results to evaluate the adequacy of and adjust its margin
methodology, model parameters, and any other relevant aspects of its
credit risk management policies and procedures. Finally, under such
policies and procedures, a not less than annual conforming model
validation would be required for the covered clearing agency's margin
system and related models.\409\
---------------------------------------------------------------------------

    \409\ See id.
---------------------------------------------------------------------------

d. Proposed Rule 17Ad-22(e)(7)
    Proposed Rule 17Ad-22(e)(7) would require a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to effectively measure, monitor, and
manage the liquidity risk that arises in or is borne by the covered
clearing agency, including measuring, monitoring, and managing its
settlement and funding flows on an ongoing and timely basis and its use
of intraday liquidity. Under the proposed rule, a covered clearing
agency would be required to establish, implement, maintain and enforce
written policies and procedures reasonably designed to maintain
sufficient liquid resources in all relevant currencies to effect same-
day and,

where appropriate, intraday and multiday settlement of payment
obligations with a high degree of confidence under a wide range of
potential stress scenarios that includes the default of the participant
family that would generate the largest aggregate payment obligation for
it in extreme but plausible market conditions. Under such policies and
procedures, use of access to accounts and services at a Federal Reserve
Bank, pursuant to Section 806 of the Clearing Supervision Act,\410\ or
other relevant central bank, when available and where determined to be
practical by the board of directors of the covered clearing agency,
would be required.\411\
---------------------------------------------------------------------------

    \410\ 12 U.S.C. 5465(a).
    \411\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(7))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

    For the purposes of meeting such liquid resource requirements, a
covered clearing agency would be required to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to require the holding of qualifying liquid resources in each
relevant currency for which clearing activities are performed, limited
to (i) cash at the central bank of issue or at creditworthy commercial
banks; (ii) assets that are readily available and convertible into cash
through prearranged funding arrangements without material adverse
change provisions, such as committed lines of credit, committed foreign
exchange swaps, committed repurchase agreements, and other prearranged
funding arrangements determined to be highly reliable even in extreme
but plausible market conditions by the board of directors, following an
annual review conducted for this purpose; and (iii) other assets that
are readily available and eligible for pledging to (or conducting other
appropriate forms of transactions with) a relevant central bank,
provided that the covered clearing agency had access to routine credit
at the central bank.
    With respect to a covered clearing agency's sources of liquidity,
the proposed rule would require a covered clearing agency to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to undertake due diligence to confirm that it has a
reasonable basis to believe each of its liquidity providers, whether or
not such liquidity provider is a clearing member, has sufficient
information to understand and manage the liquidity provider's liquidity
risks, and the capacity to perform as required under its commitments to
provide liquidity. Furthermore, under such policies and procedures, on
at least an annual basis, a covered clearing agency would be required
to maintain and test with each liquidity provider to the extent
practicable the covered clearing agency's procedures and operational
capacity for accessing each type of liquidity resource by conducting
stress testing of its liquidity resources using standard and
predetermined parameters and assumptions at least once each day.
Additionally, a covered clearing agency would be required to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to determine the amount and regularly test the
sufficiency of the liquid resources held for purposes of meeting the
minimum liquid resource requirement by (i) conducting a stress test of
its liquidity resources using standard and predetermined parameters and
assumptions at least once each day; and (ii) conducting a comprehensive
analysis of the existing stress testing scenarios, models, and
underlying parameters and assumptions used in evaluating liquidity
needs and resources, and considering modifications to ensure they are
appropriate in light of current and evolving market conditions at least
once a month and more frequently when products cleared or markets
served display high volatility, become less liquid, or when the size or
concentration of positions held by participants increase
significantly.\412\
---------------------------------------------------------------------------

    \412\ See id.
---------------------------------------------------------------------------

    Under such policies and procedures required by the proposed rule,
stress test results must be reported to appropriate decision makers,
including the risk management committee or board of directors, at the
covered clearing agency for use in evaluating the adequacy of and
adjusting its liquidity risk management policies and procedures. A
covered clearing agency would also be required to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to perform an annual conforming model validation of its
liquidity risk models and would be required to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to address foreseeable liquidity shortfalls that would not be
covered by its liquid resources and to seek to avoid unwinding,
revoking, or delaying the same-day settlement of payment obligations.
Additionally, a covered clearing agency would be required to establish,
implement, maintain and enforce written policies and procedures that
describe the covered clearing agency's process to replenish any liquid
resources that may be employed during a stress event.\413\
---------------------------------------------------------------------------

    \413\ See id.
---------------------------------------------------------------------------

    Finally, a covered clearing agency would be required to establish,
implement, maintain and enforce written policies and procedures
reasonably designed to require the covered clearing agency to undertake
an analysis at least once a year that evaluates the feasibility of
maintaining sufficient liquid resources at a minimum in all relevant
currencies to effect same-day and, where appropriate, intraday and
multiday settlement of payment obligations with a high degree of
confidence under a wide range of foreseeable stress scenarios that
includes, but is not limited to, the default of the two participant
families that would potentially cause the largest aggregate credit
exposure for the covered clearing agency in extreme but plausible
market conditions if the covered clearing agency provides central
counterparty services and is either systemically important in multiple
jurisdictions or a clearing agency involved in activities with a more
complex risk profile.
    The purpose of this information collection is to enable a covered
clearing agency to be able to effectively identify and limit exposures
to participants, to maintain sufficient collateral or margin, and to
satisfy all of its settlement obligations in the event of a participant
default.
3. Proposed Rules 17Ad-22(e)(8) Through (10): Settlement
a. Proposed Rule 17Ad-22(e)(8)
    Proposed Rule 17Ad-22(e)(8) would require a covered clearing agency
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to define the point at which settlement
is final no later than the end of the day on which the payment or
obligation is due and, where necessary or appropriate, either intraday
or in real time.\414\
---------------------------------------------------------------------------

    \414\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(8))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(9)
    Proposed Rule 17Ad-22(e)(9) would require covered clearing agencies
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to have the covered clearing agency
conduct its money settlements in central bank money, where available
and determined to be

practical by the board of directors of the covered clearing agency, and
minimize and manage credit and liquidity risk arising from the clearing
agency's money settlements in commercial bank money where central bank
money is not used.\415\
---------------------------------------------------------------------------

    \415\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(9))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(10)
    Proposed Rule 17Ad-22(e)(10) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
reasonably designed to set forth transparent written standards
regarding a clearing agency's obligations with respect to the delivery
of physical instruments, as well as operational practices that
identify, monitor, and manage the risk associated with such physical
deliveries.\416\
---------------------------------------------------------------------------

    \416\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(10))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

    The purpose of this information collection is to promote consistent
standards of timing and reliability in the settlement process, promote
reliability in a covered clearing agency's settlement operations, and
to provide a covered clearing agency's participants with information
necessary to evaluate the risks and costs associated with participation
in the covered clearing agency.
4. Proposed Rules 17Ad-22(e)(11) Through (12): CSDs and Exchange-of-
Value Settlement Systems
    The purpose of this collection of information is to reduce
securities transfer processing costs and risks associated with
securities settlement and custody, increase the speed and efficiency of
the settlement process, and eliminate risk in transactions with linked
obligations.
a. Proposed Rule 17Ad-22(e)(11)
    Proposed Rule 17Ad-22(e)(11) would require a covered CSD to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to implement internal auditing and other
controls to safeguard the rights of securities issuers and holders and
prevent the unauthorized creation or deletion of securities. A covered
CSD would also be required to establish, implement, maintain and
enforce written policies and procedures reasonably designed to conduct
periodic and at least daily reconciliation of securities issues that
the CSD maintains. Additionally, the proposed rule would require a
covered CSD to establish, implement, maintain and enforce written
policies and procedures reasonably designed to maintain securities in
an immobilized or dematerialized form, ensure the integrity of
securities issues, and minimize and manage the risks associated with
the safekeeping and transfer of securities, as well as protect assets
against custody risk.\417\
---------------------------------------------------------------------------

    \417\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(11))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(12)
    Proposed Rule 17Ad-22(e)(12) would require a covered clearing
agency that settles transactions involving the settlement of two linked
obligations to establish, implement, maintain and enforce written
policies and procedures reasonably designed to eliminate principal risk
by conditioning the final settlement of one obligation upon the final
settlement of the other, irrespective of whether the covered clearing
agency settles on a gross or net basis and when finality occurs.\418\
---------------------------------------------------------------------------

    \418\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(12))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

5. Proposed Rules 17Ad-22(e)(13) Through (14): Default Management
    The purpose of this collection of information is to facilitate the
functioning of a covered clearing agency in the event that a
participant fails to meet its obligations, as well as limit the extent
to which a participant's failure can spread to other participants or
the covered clearing agency itself, and to ensure the safe and
effective holding and transfer of customers' positions and collateral
in the event of a participant's default or insolvency.
a. Proposed Rule 17Ad-22(e)(13)
    Proposed Rule 17Ad-22(e)(13) would require covered clearing
agencies providing CCP services to establish, implement, maintain and
enforce written policies and procedures reasonably designed to ensure
that a covered clearing agency subject to this rule has sufficient
authority and operational capability to contain losses and liquidity
demands in a timely fashion and continue to meet its own obligations.
The proposed rule would also require that a covered clearing agency
subject to the rule establish, implement, maintain and enforce written
policies and procedures reasonably designed to address the allocation
of credit losses it may face if its collateral or other resources are
insufficient to fully cover its credit exposures, describe the process
whereby the clearing agency would replenish any financial resources it
may use following a default or other event in which the use of such
resources is contemplated, and require participants and other
stakeholders, to the extent applicable, to participate in the testing
and review of its default procedures, including any close out
procedures. Under such policies and procedures, the testing and review
must occur at least annually and following any material changes
thereto.\419\
---------------------------------------------------------------------------

    \419\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(13))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(14)
    Proposed Rule 17Ad-22(e)(14) would require a covered clearing
agency that provides CCP services for security-based swaps or engages
in activities that the Commission has determined to have a more complex
risk profile to establish, implement, maintain and enforce written
policies and procedures reasonably designed to enable the segregation
and portability of positions of a participant's customers and
collateral and effectively protect such positions and collateral from
the default or insolvency of that participant.\420\
---------------------------------------------------------------------------

    \420\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(14))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

6. Proposed Rules 17Ad-22(e)(15) Through (17): General Business and
Operational Risk Management
    The purpose of this collection of information is to mitigate the
potential impairment of a covered clearing agency as a result of a
decline in revenues or increase in expenses, to limit disruptions that
may impede the proper functioning of a covered clearing agency, and to
improve the ability of a covered clearing agency to meet its settlement
obligations.
a. Proposed Rule 17Ad-22(e)(15)
    Proposed Rule 17Ad-22(e)(15) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to identify, monitor, and manage
general business risk and hold sufficient liquid net assets funded by
equity to cover potential general business losses so that the covered
clearing agency can continue operations and services as a going concern
if losses materialize. Covered clearing agencies would also be required
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to determine the amount of liquid net
assets funded by equity based upon the general risk profile of that
clearing agency and the

length of time necessary to achieve recovery or orderly wind-down. The
proposed rule would also require a covered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to hold liquid net assets funded by
equity in an amount equal to the greater of either six months of
current operating expenses or the amount determined by the agency's
board of directors to be sufficient to ensure a recovery or orderly
wind-down of critical operations and services. Under such policies and
procedures, these resources are to be held in addition to resources
held to cover participant default or other risks and must be of high
quality and sufficiently liquid. Furthermore, under such policies and
procedures, a covered clearing agency would be required to maintain a
viable plan for raising additional equity in the event that its equity
falls close to, or below, the required amount, and the plan would be
required to be approved by the board of directors and updated at least
annually.\421\
---------------------------------------------------------------------------

    \421\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(15))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(16)
    Proposed Rule 17Ad-22(e)(16) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to safeguard its own assets, as well
as the assets of its participants, and to minimize the risk of loss and
delay in access to such assets. A covered clearing agency would be
required to establish, implement, maintain and enforce written policies
and procedures reasonably designed to invest such assets in instruments
with minimal credit, market and liquidity risks.\422\
---------------------------------------------------------------------------

    \422\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(16))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(17)
    Proposed Rule 17Ad-22(e)(17) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to manage operational risk. A
covered clearing agency would be required to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to identify the plausible sources of operational risk, both
internal and external, and mitigate their impact through the use of
appropriate systems, policies, procedures, and controls. A covered
clearing agency would also be required to establish, implement,
maintain and enforce written policies and procedures reasonably
designed to ensure that systems have a high degree of security,
resiliency, operational reliability, and adequate, scalable capacity.
The proposed rule would also require a covered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to establish and maintain a business
continuity plan that addresses events posing a significant risk of
disrupting operations.\423\
---------------------------------------------------------------------------

    \423\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(17))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

7. Proposed Rules 17Ad-22(e)(18) Through (20): Access
    The purpose of the collection of information is to enable a covered
clearing agency to ensure that only entities with sufficient financial
and operational capacity are direct participants in the covered
clearing agency while ensuring that all qualified persons can access a
covered clearing agency's services; to enable a covered clearing agency
to monitor that participation requirements are met on an ongoing basis
and to identify a participant experiencing financial difficulties
before the participant fails to meet its settlement obligations; and to
enable a covered clearing agency to identify and manage risks posed by
non-member entities.
a. Proposed Rule 17Ad-22(e)(18)
    Proposed Rule 17Ad-22(e)(18) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to establish objective, risk-based,
and publicly disclosed criteria for participation, which permit fair
and open access by direct and, where relevant, indirect participants
and other FMUs, and require participants to have sufficient financial
resources and robust operational capacity to meet obligations arising
from participation in the clearing agency. A covered clearing agency
would also be required to establish, implement, maintain and enforce
written policies and procedures reasonably designed to monitor
compliance with such participation requirements on an ongoing
basis.\424\
---------------------------------------------------------------------------

    \424\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(18))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

b. Proposed Rule 17Ad-22(e)(19)
    Proposed Rule 17Ad-22(e)(19) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to identify, monitor, and manage the
material risks to the covered clearing agency arising from arrangements
in which firms that are indirect participants rely on services provided
by direct participants to access the covered clearing agency's payment,
clearing, or settlement facilities.\425\
---------------------------------------------------------------------------

    \425\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(19))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

c. Proposed Rule 17Ad-22(e)(20)
    Proposed Rule 17Ad-22(e)(20) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to identify, monitor, and manage
risks related to any link with one or more other clearing agencies,
FMUs, or trading markets.\426\
---------------------------------------------------------------------------

    \426\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(20))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

8. Proposed Rules 17Ad-22(e)(21) Through (22): Efficiency
    The purpose of this collection of information is to ensure that the
services provided by a covered clearing agency do not become
inefficient and to promote the sound operation of a covered clearing
agency. The collection of information is also intended to ensure the
prompt and accurate clearance and settlement of securities transactions
by enabling participants to communicate with a clearing agency in a
timely, reliable, and accurate manner.
a. Proposed Rule 17Ad-22(e)(21)
    Proposed Rule 17Ad-22(e)(21) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to require the covered clearing
agency to be efficient and effective in meeting the requirements of its
participants and the markets it serves. Additionally, the rule would
require a covered clearing agency to establish, implement, maintain and
enforce written policies and procedures reasonably designed to have the
management of a covered clearing agency regularly review the efficiency
and effectiveness of the covered clearing agency's (i) clearing and
settlement arrangement; (ii) operating structure, including risk
management policies, procedures, and systems; (iii) scope of products
cleared, settled, or recorded; and (iv) use of technology and
communications procedures.\427\
---------------------------------------------------------------------------

    \427\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(21))
and infra Part 0 (providing the proposed rule text).

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

b. Proposed Rule 17Ad-22(e)(22)
    Proposed Rule 17Ad-22(e)(22) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to use, or at a minimum,
accommodate, relevant internationally accepted communication procedures
and standards in order to facilitate efficient payment, clearing, and
settlement.\428\
---------------------------------------------------------------------------

    \428\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(22))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

9. Proposed Rule 17Ad-22(e)(23): Disclosure
    Proposed Rule 17Ad-22(e)(23) would require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to maintain clear and comprehensive
rules and procedures that provide for (i) publicly disclosing all
relevant rules and material procedures, including key aspects of
default rules and procedures; (ii) providing sufficient information to
enable participants to identify and evaluate the risks, fees, and other
material costs incurred by participating in a covered clearing agency;
and (iii) publicly disclosing relevant basic data on transaction volume
and values. The proposed rule would also require a covered clearing
agency to establish, implement, maintain and enforce written policies
and procedures reasonably designed to maintain clear and comprehensive
rules and procedures that provide for a comprehensive public disclosure
of its material rules, policies, and procedures regarding governance
arrangements and legal, financial, and operational risk management that
is accurate in all material respects at the time of publication and to
update this public disclosure every two years, or more frequently
following changes to the clearing agency's system or the environment in
which it operates to the extent necessary to ensure that previous
statements remain accurate in all material respects.\429\ The purpose
of the collection of information is to ensure that participants, as
well as prospective participants, are provided with a complete picture
of the covered clearing agency's operations and risk mitigation
procedures in order to be able to fully and clearly understand the
risks and responsibilities of participation in a clearing agency.
---------------------------------------------------------------------------

    \429\ See supra Part 0 (discussing proposed Rule 17Ad-22(e)(23))
and infra Part 0 (providing the proposed rule text).
---------------------------------------------------------------------------

10. Proposed Rule 17Ab2-2
    Proposed Rule 17Ab2-2 establishes a process for making
determinations regarding whether a 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.\430\ Each of these determinations
may be initiated by a registered clearing agency, a member of the
clearing agency, or upon the Commission's own initiative.\431\ In each
case, under proposed Rule 17Ab2-2(d), the Commission would publish
notice of its intention to consider such determinations, together with
a brief statement of the grounds under consideration, and provide at
least a 30-day public comment period prior to any determination. Under
proposed Rule 17Ab2-2(e), notice of determinations in each case would
be given prompt publication by the Commission, together with a
statement of written reasons supporting the determination.
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    \430\ 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).
    \431\ See proposed Rule 17Ab2-2(a), infra Part 0.
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C. Respondents

    The Commission estimates that the majority of the proposed
requirements under proposed Rule 17Ad-22(e) would apply to five
registered clearing agencies. The proposed requirements in proposed
Rules 17Ad-22(e)(1) through (23) would impose a PRA burden on covered
clearing agencies. A covered clearing agency is defined under proposed
Rule 17Ad-22(a)(7) as any designated clearing agency, clearing agency
involved in activities with a more complex risk profile for which the
CFTC is not the supervisory agency as defined in Section 803(8) of the
Clearing Supervision Act, or a clearing agency determined by the
Commission to be a covered clearing agency pursuant to proposed Rule
17Ab2-2.\432\ A designated clearing agency is defined under proposed
Rule 17Ad-22(a)(8) as a registered clearing agency that has been
designated systemically important by the FSOC.\433\ The FSOC has
designated six registered clearing agencies as systemically
important.\434\ The Commission is the supervisory agency with respect
to four of these designated clearing agencies, and the CFTC is the
supervisory agency for the remaining two.\435\ Accordingly, proposed
Rule 17Ad-22(e) would apply to the four designated clearing agencies
for which the Commission is the supervisory agency.\436\
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    \432\ See proposed Rule 17Ad-22(a)(7), infra Part 0; see also
supra Part 0 (describing the scope of proposed Rule 17Ad-22(e) and
defining ``covered clearing agency'').
    \433\ See proposed Rule 17Ad-22(a)(8), infra Part 0; see also
supra Part 0 (describing the scope of proposed Rule 17Ad-22(e) and
defining ``designated clearing agency''); supra Part 0 (describing
designation as systemically important by the FSOC under the Clearing
Supervision Act).
    \434\ See supra note 38 and accompanying text.
    \435\ See supra note 41 and accompanying text.
    \436\ See supra notes 82, 84-87, and accompanying text.
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    In addition to the four designated clearing agencies for which the
Commission is the supervisory agency, a fifth clearing agency would
also be subject to the proposed rules as a complex risk profile
clearing agency that provides CCP services for security-based swaps for
which the CFTC is not the supervisory agency under the Clearing
Supervision Act.\437\
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    \437\ See supra note 83 and accompanying text.
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    While the proposed rules would be applicable to the five registered
clearing agencies currently captured by the definition of covered
clearing agency, the Commission estimates that two additional entities
may seek to register with the Commission and that one of these entities
may seek to register in order to provide CCP services for security-
based swaps. Upon registration, these two entities may be deemed
covered clearing agencies and would be subject to proposed Rule 17Ad-
22(e).
    The number of covered clearing agencies subject to proposed Rule
17Ad-22(e) could increase if the FSOC designates additional clearing
agencies as systemically important.\438\ Additionally, the Commission
could determine additional clearing agencies to be covered clearing
agencies under proposed Rule 17Ab2-2,\439\ subjecting them to the
provisions of proposed Rule 17Ad-22(e). While the number of clearing
agencies subject to proposed Rule 17Ad-22(e) could increase, the
Commission is not able to predict whether the FSOC will exercise its
authority in the future to designate additional clearing entities as
systemically important FMUs or whether the Commission will determine
additional clearing agencies to be covered clearing agencies. As a
result, for the purposes of the PRA analysis, the Commission is
preliminarily estimating that there would be seven respondents for a
majority of the proposed requirements under proposed Rule

17Ad-22(e). With regard to proposed Rule 17Ad-22(e)(6), the number of
respondents would be six because the proposed rule would apply to
covered clearing agencies that provide CCP services. With regard to
proposed Rule 17Ad-22(e)(11), the number of respondents would be one
because the proposed rule would apply to covered clearing agencies that
provide CSD services. With regard to proposed Rule 17Ad-22(e)(14), the
number of respondents would be two because the proposed rule would
apply to covered clearing agencies that provide CCP services for
security-based swaps.
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    \438\ See supra Part 0, in particular notes 27-28, 38-41, and
accompanying text.
    \439\ See supra Part 0 (discussing the purpose, scope, and
application of proposed Rule 17Ab2-2) and Part 0 (proposed text of
Rule 17Ab2-2).
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    With regard to proposed Rule 17Ab2-2, the Commission preliminarily
estimates for purposes of the PRA analysis that two registered clearing
agencies or their members on their behalf will apply for a Commission
determination, or may be subject to a Commission-initiated
determination, regarding whether the registered clearing agency is a
covered clearing agency, whether a registered clearing agency is
involved in activities with a more complex risk profile, or whether a
covered clearing agency is systemically important in multiple
jurisdictions.

D. Total Annual Reporting and Recordkeeping Burden for Proposed Rule
17Ad-22(e)

    The Commission preliminarily believes that the potential PRA burden
imposed by the requirements under proposed Rule 17Ad-22(e) will vary
depending on the requirement in question because registered clearing
agencies are subject to existing requirements under Rule 17Ad-22 that,
in some cases, are similar to those in proposed Rule 17Ad-22(e), as
discussed in Part II.
    First, because proposed Rules 17Ad-22(e)(1), (8) through (10),
(12), (14),\440\ (16), and (22) \441\ contain requirements that are
either substantially similar to those under existing Rule 17Ad-22 or
have current practices that the Commission understands largely conform
with the proposed rules, the Commission preliminarily believes that
covered clearing agencies may need to make only limited changes to
update their policies and procedures to satisfy these proposed
requirements. In these cases, as an example, a covered clearing agency
may need to conduct a review of the proposed rule against its existing
policies and procedures to confirm that it satisfies the proposed
requirements.\442\
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    \440\ In the case of proposed Rule 17Ad-22(e)(14), the
Commission preliminarily believes that the current practices of
covered clearing agencies already largely conform to the proposed
requirement, and accordingly believes that covered clearing agencies
may need to make only limited changes to update their policies and
procedures pursuant to the proposed rule. See infra note 508 and
accompanying text; see also infra Parts 0 and 0 (discussing the
current practices at registered clearing agencies regarding
segregation and portability and the anticipated economic effect of
the proposed rule, respectively).
    \441\ In the case of proposed Rule 17Ad-22(e)(22), the
Commission preliminarily believes that the current practices of
covered clearing agencies already largely conform to the proposed
requirement, and accordingly believes that covered clearing agencies
may need to make only limited changes to update their policies and
procedures pursuant to the proposed rule. See supra Part 0
(discussing the requirements under the proposed rule) and infra
Parts 0 and 0 (discussing the current practices at registered
clearing agencies regarding communication procedures and standards
and the anticipated economic effect of the proposed rule,
respectively).
    \442\ In this regard, the Commission notes that its estimates
for the initial one-time and ongoing burdens for proposed Rules
17Ad-22(e)(8) through (10) and (12) are the same across each of the
proposed rules because the Commission preliminarily believes that
the burdens associated with each would primarily constitute a review
of the covered clearing agency's policies and procedures to confirm
that those policies and procedures satisfy the proposed requirement.
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    Second, because proposed Rules 17Ad-22(e)(2), (3), (5), (11), (13),
(17), (18), (20), and (21) contain provisions that are similar to those
under existing Rule 17Ad-22 but would impose additional requirements
that do not appear in existing Rule 17Ad-22, the Commission
preliminarily believes that covered clearing agencies may need to make
changes to update their policies and procedures to satisfy the proposed
requirements. In these cases, as an example, a covered clearing agency
may need to review and amend its existing rule book, policies, and
procedures but may not need to develop, design, or implement new
operations and practices to satisfy the proposed requirements.
    Third, for proposed Rules 17Ad-22(e)(4), (6), (7), (15), (19), and
(23), for which no similar existing requirements under Rule 17Ad-22
have been identified,\443\ the Commission preliminarily believes that
covered clearing agencies may need to make more extensive changes to
their policies and procedures (or implement new policies and
procedures), and may need to take other steps to satisfy the proposed
requirements. In these cases, the PRA burden would be greater since a
covered clearing agency may need to, as an example, develop, design,
and implement new operations and practices. With respect to these
provisions, the PRA burden may be greater since these proposed
requirements may not reflect established practices of covered clearing
agencies or reflect the normal course of their activities, and the PRA
burden for these proposed rules may therefore entail initial one-time
burdens to create new written policies and procedures and ongoing