[Federal Register Volume 88, Number 103 (Tuesday, May 30, 2023)]
[Proposed Rules]
[Pages 34708-34743]
[FR Doc No: 2023-10889]

Vol. 88

Tuesday,

No. 103

May 30, 2023

Part IV

Securities and Exchange Commission

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

17 CFR Part 240

Covered Clearing Agency Resilience and Recovery and Wind-Down Plans;
Proposed Rule

Federal Register / Vol. 88 , No. 103 / Tuesday, May 30, 2023 /
Proposed Rules

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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-97516; File No. S7-10-23]
RIN 3235-AN19

Covered Clearing Agency Resilience and Recovery and Wind-Down
Plans

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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

SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing to amend certain portions of the Covered Clearing Agency
Standards under the Securities Exchange Act of 1934 (``Exchange Act'')
to strengthen the existing rules regarding margin with respect to
intraday margin and the use of substantive inputs to a covered clearing
agency's risk-based margin system. The Commission is also proposing a
new rule to establish requirements for the contents of a covered
clearing agency's recovery and wind-down plan.

DATES: Comments should be received on or before July 17, 2023.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to [email protected]. Please include
File Number S7-10-23 on the subject line.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-10-23. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's website (https://www.sec.gov/rules/proposed.shtml).
Comments are also available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Operating conditions may limit access to the Commission's Public
Reference Room. Do not include personal identifiable information in
submissions; you should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on our website. To ensure direct electronic
receipt of such notifications, sign up through the ``Stay Connected''
option at www.sec.gov to receive notifications by email.

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

Table of Contents

I. Introduction
II. Regulatory Framework
    A. The Covered Clearing Agency Standards
    B. Statutory Requirements for Covered Clearing Agencies as Self-
Regulatory Organizations
    C. Title II of the Dodd-Frank Act
III. Proposal
    A. Amendments Regarding Risk Management
    1. Proposed Changes to Rule 17Ad-22(e)(6)
    2. Discussion
    3. Request for Comment
    D. Contents of Recovery and Wind-Down Plans
    1. Proposed Rule 17Ad-26
    2. Discussion
    4. Request for Comment
IV. Economic Analysis
    A. Introduction
    B. Economic Baseline
    1. Description of Market
    2. Overview of the Existing Regulatory Framework
    3. Current Recovery and Wind-Down Plans
    4. Current Risk-Based Margin
    E. Consideration of Benefits and Costs as well as the Effects on
Efficiency, Competition, and Capital Formation
    1. Proposed Rule 17Ad-26
    2. Amendments to Rule 17Ad-22(e)(6)
    3. Efficiency, Competition, and Capital Formation
    F. Reasonable Alternatives to the Proposed Rule and Amendments
    1. Establish Precise Triggers for Implementation of RWPs Across
Covered Clearing Agencies
    2. Establish Specific Scenarios and Analyses
    3. Establish Specific Rules, Policies, Procedures, Tools, and
Resources
    4. Require the Identification of Interconnections and
Interdependencies
    5. Establish a Specific Monitoring Frequency for Intraday Margin
Calls
    6. Adopt Only Certain Elements of Proposed Rule 17Ad-26
    7. Focus Intraday Margin Requirements on a Subset of Covered
Clearing Agencies
    G. Request for Comment
V. Paperwork Reduction Act
    A. Proposed Amendment to Rule 17Ad-22(e)(6)
    B. Proposed Rule 17Ad-26
    H. Request for Comment
VI. Small Business Regulatory Enforcement Fairness Act
VII. Regulatory Flexibility Act Certification
VIII. Statutory Authority

I. Introduction

    Section 17A of the Exchange Act directs the Commission to
facilitate the establishment of a national system for the prompt and
accurate clearance and settlement of securities transactions and
provides the Commission with the authority to regulate those entities
critical to the clearance and settlement process.\1\ The enactment of
the Payment, Clearing, and Settlement Supervision Act (``Clearing
Supervision Act'') in Title VIII of the Wall Street Reform and Consumer
Protection Act of 2010 (``Dodd-Frank Act'') reaffirmed the importance
of the national system for clearance and settlement.\2\ Specifically,
Congress found that the ``proper functioning of the financial markets
is dependent upon safe and efficient arrangements for the clearing and
settlement of payments, securities, and other financial transactions.''
\3\
---------------------------------------------------------------------------

    \1\ See 15 U.S.C. 78q-1(a)(2)(A).
    \2\ See 12 U.S.C. 5461-5472.
    \3\ See 12 U.S.C. 5461(a)(1).
---------------------------------------------------------------------------

    In recognition of the importance of clearance and settlement to the
securities markets, the Commission adopted 17 CFR 240.17Ad-22(e)
(``Rule 17Ad-22(e)''), which sets forth standards for covered clearing
agencies registered with the Commission.\4\ These standards address all
aspects of a covered clearing agency's operations, including financial
risk management, operational risk, default management, governance, and
participation requirements.\5\ In this release, the Commission is
proposing changes to augment and strengthen the requirements of these
rules, referred to as the Covered Clearing Agency Standards, in three
ways.\6\
---------------------------------------------------------------------------

    \4\ A covered clearing agency is a registered clearing agency
that provides the services of a central counterparty or a central
securities depository. 17 CFR 240.17Ad-22(a)(5).
    \5\ See section II.A infra (providing more information on the
Covered Clearing Agency Standards).
    \6\ In addition, the Commission is proposing to amend the CFR
section designation for 17 CFR 240.17Ad-22 to replace the uppercase
letter with the corresponding lowercase letter. Accordingly, 17 CFR
240.17Ad-22 is proposed to be redesignated as 17 CFR 240.17ad-22.

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

    First, the Commission is proposing changes with respect to the
Covered Clearing Agency Standards regarding the intraday collection of
margin set forth in 17 CFR 240.17Ad-22(e)(6)(ii) (``Rule 17Ad-
22(e)(6)(ii)''). This proposal would build upon and strengthen the
existing requirement that a covered clearing agency have policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, among
other things, includes the authority and operational capacity to make
intraday margin calls in defined circumstances. Specifically, the
proposed amendments to this rule would require that the covered
clearing agency have policies and procedures to establish a risk-based
margin system that includes the authority and operational capacity to
monitor intraday exposure on an ongoing basis and to make intraday
margin calls as frequently as circumstances warrant, including when
risk thresholds specified by the covered clearing agency are breached
or when the products cleared or markets served display elevated
volatility.
    Second, the proposal would amend and expand the requirements of 17
CFR 240.17Ad-22(e)(6)(iv) (``Rule 17Ad-22(e)(6)(iv)'') to provide that
a covered clearing agency have policies and procedures that would apply
in the event that the covered clearing agency relies on substantive
inputs from third parties to calculate margin using a risk-based margin
system and, specifically, when such inputs are not readily available or
reliable. This proposal would require that the procedures used in such
circumstances must include substantive inputs from an alternate source
or, if it does not use an alternate source, the use of an alternate
risk-based margin system that does not similarly rely on the
unavailable or unreliable substantive inputs.
    Finally, the Commission is proposing to prescribe requirements for
the contents of a covered clearing agency's recovery and orderly wind-
down plan (``RWP''). At the time that it adopted the Covered Clearing
Agency Standards in 2016, the Commission required in 17 CFR 240.17Ad-
22(e)(3)(ii) (``Rule 17Ad-27(e)(3)(ii)'') that a covered clearing
agency's policies and procedures include an RWP, but the Commission
declined to include requirements for the content of the RWP, stating
that, given the nature of recovery and resolution planning, such plans
are likely to closely reflect the specific characteristics of the
covered clearing agency, including its ownership, organizational, and
operational structures, as well as the size, systemic importance,
global reach, and/or the risks inherent in the products it clears.\7\
The Commission continues to believe that an RWP should closely reflect
the specific characteristics of the covered clearing agency. However,
at this time, based on its supervisory experience considering the RWPs
of the covered clearing agencies, the Commission believes that there
are certain elements that must be included in each covered clearing
agency's plan, to ensure that the plan is fit for purpose and provides
sufficient identification of how a covered clearing agency would
operate in a recovery and how it would achieve an orderly wind-down.
Accordingly, the Commission is proposing a new rule at 17 CFR 240.17ad-
26 (``Rule 17ad-26''), which would identify certain elements that a
covered clearing agency would be required to include in an RWP and
would also include definitions of recovery and orderly wind-down, which
would identify the objective that these plans are designed to meet. As
discussed further in sections III.B and IV.B infra, many of these
elements are already contained in existing covered clearing agencies'
RWPs, while other elements would be new to all or most of the existing
RWPs. The Commission believes that the elements identified in new Rule
17ad-26 would accomplish three objectives. First, the rule would
bolster existing plans by requiring certain new elements be included.
Second, for the elements that are already contained in existing RWPs,
the rule would codify these elements and ensure that the plans are
required to continue to include these elements in their RWPs. Finally,
the rule would ensure that the RWPs of any new covered clearing
agencies would contain all of these elements.
---------------------------------------------------------------------------

    \7\ Standards for Covered Clearing Agencies Adopting Release,
Exchange Act Release No. 78961 (Sept. 28, 2016), 81 FR 70786, 70808-
09 (Oct. 13, 2016) (``CCA Standards Adopting Release'').
---------------------------------------------------------------------------

    However, with respect to changes to RWPs and to risk management
rules more generally, the Commission would need to approve any proposed
rule changes and, in filings for which an advance notice is required,
not object to any such notice, as discussed further in section II.B
infra. The Commission believes that this process should ensure that it
is able to consider such changes and their consistency with the
Exchange Act and the rules and regulations thereunder.

II. Regulatory Framework

A. The Covered Clearing Agency Standards

    In 1975, Congress added section 17A to the Exchange Act as part of
the Securities Acts Amendments of 1975, which, as noted in section I
supra, directed the Commission to facilitate the establishment of: (i)
a national system for the prompt and accurate clearance and settlement
of securities transactions (other than exempt securities which
typically includes U.S. Treasury securities, except as discussed
further below), and (ii) linked or coordinated facilities for clearance
and settlement of securities transactions.\8\ In so doing, Congress
made several findings related to the importance of the clearance and
settlement of securities transactions and the relationship of clearance
and settlement of securities transactions to the protection of
investors. Specifically, Congress found that the prompt and accurate
clearance and settlement of securities transactions are necessary for
the protection of investors and persons facilitating transactions by
and acting on behalf of investors.\9\ In facilitating the establishment
of the national clearance and settlement system, the Commission must
have due regard for the public interest, the protection of investors,
the safeguarding of securities and funds, and maintenance of fair
competition among brokers and dealers, clearing agencies, and transfer
agents.\10\
---------------------------------------------------------------------------

    \8\ See 15 U.S.C. 78q-1; Report of the Senate Committee on
Banking, Housing & Urban Affairs, S. Rep. No. 94-75, at 4 (1975)
(stating the Committee's belief that ``the banking and security
industries must move quickly toward the establishment of a fully
integrated national system for the prompt and accurate processing
and settlement of securities transactions'').
    \9\ See 15 U.S.C. 78q-1(a)(1)(A); see also 15 U.S.C. 78q-1(B),
(C), and (D) (setting forth additional findings related to the
national system of clearance and settlement).
    \10\ See 15 U.S.C. 78q-1(a)(2)(A).
---------------------------------------------------------------------------

    The Commission's ability to achieve these goals is based upon the
regulation of clearing agencies registered with the Commission.\11\
Specifically, section 17A of the Exchange Act provides the Commission
with authority to adopt rules as necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Exchange Act (including for the prompt and
accurate clearance and settlement of securities transactions) and
prohibits a clearing agency from engaging in any activity in

contravention of such rules and regulations.\12\
---------------------------------------------------------------------------

    \11\ Under the Exchange Act and the regulations thereunder, any
entity performing the functions of a clearing agency must register
with the Commission or seek an exemption from registration. 15
U.S.C. 78q-1(b)(1); see also 17 CFR 240.17Ad-22(a)(5) (defining
covered clearing agency).
    \12\ See 15 U.S.C. 78q-1(d)(1); see also 15 U.S.C. 78q-1(b)(2)
(referring to the Commission's ability to adopt rules with respect
to the application of section 17A).
---------------------------------------------------------------------------

    The Commission has exercised its broad authority to prescribe
requirements for the prompt and accurate clearance and settlement of
securities transactions and the safeguarding of securities and funds.
Most recently, the Commission promulgated the Covered Clearing Agency
Standards.\13\ These standards require covered clearing agencies to
establish, implement, maintain, and enforce written policies and
procedures reasonably designed to, as applicable, meet certain minimum
standards regarding, among other things, operations, governance, and
risk management.\14\
---------------------------------------------------------------------------

    \13\ CCA Standards Adopting Release, supra note 7, 81 FR at
70839.
    \14\ See generally 17 CFR 240.17Ad-22(e). A covered clearing
agency is a registered clearing agency that provides the services of
a central counterparty or a central securities depository. 17 CFR
240.17Ad-22(a)(5).
---------------------------------------------------------------------------

    One of the Covered Clearing Agency Standards concerns the
maintaining of 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.\15\ As part of maintaining a sound risk
management framework, a covered clearing agency is required to include
plans for the recovery and orderly wind-down of the covered clearing
agency necessitated by credit losses, liquidity shortfalls, losses from
general business risk, or any other losses.\16\ At that time, the
Commission stated that it understands that when a financial company
becomes non-viable as a going concern or insolvent, recovery refers to
actions taken that allow the financial company to sustain its critical
operations and services; by contrast, resolution, or wind-down, refers
to the transferring of a financial company's critical operations and
services to an alternate entity.\17\
---------------------------------------------------------------------------

    \15\ See 17 CFR 240.17Ad-22(e)(3).
    \16\ See 17 CFR 240.17Ad-22(e)(3)(ii).
    \17\ CCA Standards Adopting Release, supra note 7, 81 FR at
70808 n.251. In this release, the Commission is proposing
definitions of ``recovery'' and ``orderly wind-down'' that would
apply to the RWPs addressed by this release. See infra section
III.B.2.a.
---------------------------------------------------------------------------

    At the time of adoption of the Covered Clearing Agency Standards,
the Commission declined to articulate requirements for all RWPs.\18\
Rather, the Commission stated that, given the nature of recovery and
resolution planning, such plans are likely to closely reflect the
specific characteristics of the covered clearing agency, including its
ownership, organizational, and operational structures, as well as the
size, systemic importance, global reach, and/or the risks inherent in
the products it clears. While the Commission declined to articulate
requirements, it did provide guidance for covered clearing agencies in
developing RWPs. In the Covered Clearing Agency Standards Adopting
Release, the Commission stated that a covered clearing agency generally
should consider whether: (i) it can identify scenarios that may
potentially prevent it from being able to provide its critical services
as a going concern and assess the effectiveness of a full range of
options for recovery or orderly wind-down; (ii) it has prepared
appropriate plans for its recovery or orderly wind-down based on the
results of that assessment; and (iii) it has provided relevant
authorities with the information needed for purposes of recovery and
resolution planning.\19\ The Commission also stated in the CCA
Standards Adopting Release that, with respect to recovery tools, a
covered clearing agency generally should consider the following when
developing its recovery tools: (i) whether the set of recovery tools
comprehensively addresses how the covered clearing agency would
continue to provide critical services in all relevant scenarios; (ii)
the extent to which each tool is reliable, timely, and has a strong
legal basis; (iii) whether the tools are transparent and designed to
allow those who would bear losses and liquidity shortfalls to measure,
manage, and control their potential losses and liquidity shortfalls;
(iv) whether the tools create appropriate incentives for the covered
clearing agency's owners, direct and indirect participants, and other
relevant stakeholders; and (v) whether the tools are designed to
minimize the negative impact on direct and indirect participants and
the financial system more broadly.\20\
---------------------------------------------------------------------------

    \18\ Id. at 70808.
    \19\ Id. at 70810. As discussed in section III.B infra, the
Commission is proposing to codify elements in proposed Rule 17ad-26
that are consistent with this guidance, with the exception of the
guidance related to ``resolution planning.'' With respect to the
guidance related to providing relevant authorities with the
information needed for purposes of recovery and resolution planning,
the Commission continues to support and reiterates this prior
guidance. See infra section III.B.2.
    \20\ Id. The Commission is also proposing to codify the first
section of this guidance in proposed Rule 17ad-26(a)(5). See section
III.B.2.c infra. With respect to the remaining items of this
guidance, the Commission continues to support and reiterates this
prior guidance in section III.B.2.d infra.
---------------------------------------------------------------------------

    Relatedly, the Covered Clearing Agency Standards also address the
financial resources necessary for a covered clearing agency's recovery
or orderly wind-down. Specifically, 17 CFR 240.17Ad-22(e)(15) requires
written policies and procedures reasonably designed to, among other
things, 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 those losses
materialize.\21\ This requirement encompasses: (i) determining the
amount of liquid net assets funded by equity based upon the covered
clearing agency's general business risk profile and the length of time
required to achieve a recovery or orderly wind-down, as appropriate, of
its critical operations and services if such action is taken; (ii)
holding liquid net assets funded by equity equal to the greater of
either (x) six months of the covered clearing agency's current
operating expenses, or (y) the amount determined by the board of
directors to be sufficient to ensure a recovery or orderly wind-down of
critical operations and services of the covered clearing agency, as
contemplated by the RWPs established under current Rule 17Ad-
22(e)(3)(ii),\22\ and (iii) maintaining a viable plan, approved by the
board of directors and updated at least annually, for raising
additional equity should its equity fall close to or below the amount
required under paragraph (ii).\23\ With respect to the policies and
procedures related to maintaining a viable plan for raising additional
equity, the Commission stated that a viable plan generally should
enable the covered clearing agency to hold sufficient liquid net assets
to achieve recovery or orderly wind-down.\24\
---------------------------------------------------------------------------

    \21\ 17 CFR 240.17Ad-22(e)(15).
    \22\ This amount shall be in addition to resources held to cover
participant defaults or other risks covered under the credit risk
standard in 17 CFR 240.17Ad-22(b)(3) or 17Ad-22(e)(4)(i) through
(iii), as applicable, and the liquidity risk standard in 17 CFR
240.17Ad-22(e)(7)(i) and (ii), and it shall be of high quality and
sufficiently liquid to allow the covered clearing agency to meet its
current and projected operating expenses under a range of scenarios,
including in adverse market conditions. 17 CFR 240.17Ad-
22(e)(15)(ii)(A) and (B).
    \23\ 17 CFR 240.17Ad-22(e)(15)(i), (ii), and (iii).
    \24\ CCA Standards Adopting Release, supra note 7, 81 FR at
70836.
---------------------------------------------------------------------------

    Another of the Covered Clearing Agency Standards sets forth
requirements for written policies and procedures reasonably designed
to, among other things, establish a risk-based margin system to cover
the covered clearing agency's credit

exposures to its participants if the covered clearing agency provides
central counterparty services.\25\ At a minimum, such a system, among
other things, must 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.\26\ The Commission
stated that defined circumstances would generally include margin calls
on both a scheduled and unscheduled basis.\27\
---------------------------------------------------------------------------

    \25\ See 17 CFR 240.17Ad-22(e)(6).
    \26\ See 17 CFR 240.17Ad-22(e)(6)(ii).
    \27\ CCA Standards Adopting Release, supra note 7, 81 FR at
70818.
---------------------------------------------------------------------------

    In addition, a covered clearing agency's risk-based margin system
has to use reliable sources of timely price data and use procedures and
sound valuation models for addressing circumstances in which pricing
data are not readily available or reliable.\28\ The Commission stated
that in selecting price data sources, a covered clearing agency
generally should consider the ability of the provider to provide data
in a variety of market conditions, including periods of market stress,
and not select data sources based on their cost alone to ensure that
such price data sources are reliable.\29\
---------------------------------------------------------------------------

    \28\ See 17 CFR 240.17Ad-22(e)(6)(iv).
    \29\ CCA Standards Adopting Release, supra note 7, 81 FR at
70819.
---------------------------------------------------------------------------

B. Statutory Requirements for Covered Clearing Agencies as Self-
Regulatory Organizations

    A covered clearing agency is, by definition, a registered clearing
agency, meaning that it is a self-regulatory organization (``SRO'') for
purposes of the Exchange Act.\30\ Therefore, as a SRO, a covered
clearing agency is required to file with the Commission any proposed
rule or proposed change in its rules, including additions or deletions
from its rules.\31\ The Commission has specified the format and process
for filing such proposed rule changes in Form 19b-4, which is intended
to elicit information necessary for the public to provide meaningful
comment on the proposed rule change and for the Commission to determine
whether the proposed rule change is consistent with the requirements of
the Exchange Act and the rules and regulations thereunder.\32\
---------------------------------------------------------------------------

    \30\ 17 CFR 240.17Ad-22(a)(5) (defining a covered clearing
agency); 15 U.S.C. 78c(a)(26) (defining an SRO to include a
registered clearing agency).
    \31\ An SRO must submit proposed rule changes to the Commission
for review and approval pursuant to Rule 19b-4 under the Exchange
Act. A stated policy, practice, or interpretation of an SRO, such as
its written policies and procedures, would generally be deemed to be
a proposed rule change. See 15 U.S.C. 78s(b)(1); 17 CFR 240.19b-4.
    \32\ See Form 19b-4, General Instruction B. The Form 19b-4
specifies the contents that must be included in a proposed rule
change filing, including, among other items, a statement of purpose
for the proposed rule change, which describes the reasons for
adopting the proposed rule change, any problems the proposed rule
change is intended to address, the manner in which the proposed rule
change will operate to resolve those problems, the manner in which
the proposed rule change will affect various persons (e.g., brokers,
dealers, issuers, and investors), and any significant problems known
to the SRO that persons affected are likely to have in complying
with the proposed rule change. Id. at Form 19b-4 Information section
3. The SRO must also include in its proposed rule change the
complete text of the proposed rule. Id. at Form 19b-4 Information
section 1. The SRO may request confidential treatment of any portion
of its filing, see 17 CFR 240.24b-2, but it would still have to
comply with the requirements of Form 19b-4 with respect to
describing the contents of the proposed rule change for public
comment.
---------------------------------------------------------------------------

    The Commission publishes all proposed rule changes for comment.\33\
Proposed rule changes are generally required to be approved by the
Commission prior to going into effect; however, certain types of
proposed rule changes take effect upon filing with the Commission.\34\
When considering whether to approve or disapprove a proposed rule
change, the Commission shall approve the proposed rule change if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to the particular type of SRO.\35\ The rule
filing process provides transparency to market participants and the
public about new initiatives and changes to governance, operations, and
risk management at the clearing agency.
---------------------------------------------------------------------------

    \33\ See 15 U.S.C. 78s(b)(1).
    \34\ See 15 U.S.C. 78s(b)(3)(A) (setting forth the types of
proposed rule changes that take effect upon filing with the
Commission). The Commission may temporarily suspend those rule
changes within 60 days of filing and institute proceedings to
determine whether to approve or disapprove the rule changes. 15
U.S.C. 78s(b)(3)(C).
    \35\ 15 U.S.C. 78s(b)(1)(C)(i). On the other hand, the
Commission shall disapprove a proposed rule change if it cannot make
such a finding. 15 U.S.C. 78s(b)(1)(C)(ii).
---------------------------------------------------------------------------

    In addition, clearing agencies registered with the Commission are
financial market utilities, as defined in section 803(6) of the Dodd-
Frank Act.\36\ A clearing agency that has been designated by the
Financial Stability Oversight Council as systemically important or
likely to become systemically important, and for which the Commission
is the Supervisory Authority (``designated clearing agency''), is
required to file 60-days advance notice with the Commission of changes
to rules, procedures, and operations that could materially affect the
nature or level of risk presented by the designated clearing agency
(``advance notice'').\37\ Such an advance notice also requires
consultation with the Board of Governors of the Federal Reserve System
(``Board of Governors'').\38\ The Clearing Supervision Act authorizes
the Commission to object to changes proposed in such an advance notice,
which would prevent the clearing agency from implementing its proposed
change(s).\39\
---------------------------------------------------------------------------

    \36\ See 12 U.S.C. 5462(6).
    \37\ The Dodd-Frank Act defines a ``designated clearing entity''
as a designated financial market utility that is either a
derivatives clearing organization registered under section 5b of the
Commodity Exchange Act (7 U.S.C. 7a-1) or a clearing agency
registered with the Securities and Exchange Commission under section
17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1). See 12
U.S.C. 5462(3). The Commission is the Supervisory Agency, as defined
in 12 U.S.C. 5462(8), for four designated clearing agencies (the
Depository Trust Company, the National Securities Clearing
Corporation, the Fixed Income Clearing Corporation, and the Options
Clearing Corporation). See 12 U.S.C. 5465(e)(1)(A). The Commission
published a final rule concerning the filing of advance notices for
designated clearing agencies in 2012. See 17 CFR 240.19b-4(n);
Exchange Act Release No. 34-67286 (June 28, 2012), 77 FR 41602 (July
13, 2012).
    \38\ See 12 U.S.C. 5465(e)(1)(B).
    \39\ See 12 U.S.C. 5465(e)(1)(E) and (F).
---------------------------------------------------------------------------

    The covered clearing agencies' obligations as SROs and, as
applicable, designated clearing agencies, are important when
considering the types of changes that the Commission is proposing. If
the covered clearing agency has to make changes to its rules to align
with any of the proposed rules, if adopted, the covered clearing agency
would be obligated to consider whether any proposed rule change and/or
advance notice is necessary. For example, the Commission previously has
stated that recovery and wind-down plans, and material changes thereto,
would constitute a proposed rule change under section 19(b) of the
Exchange Act and, for designated clearing agencies, an advance notice
under the Clearing Supervision Act because such plans and material
changes thereto would constitute changes to a stated policy, practice,
or interpretation of the covered clearing agency and, for designated
clearing agencies, a proposed change to its operations that could
materially affect the nature or level of risk presented by the
designated clearing agency.\40\
---------------------------------------------------------------------------

    \40\ CCA Standards Adopting Release, supra note 7, 81 FR at
70809.
---------------------------------------------------------------------------

    Indeed, covered clearing agencies have submitted RWPs, and material
changes thereto, for public comment and Commission review pursuant to
the proposed rule change and advance

notice processes, as appropriate.\41\ The Commission continues to
believe that such RWPs, and material changes thereto, would constitute
a proposed rule change under section 19(b) of the Exchange Act and, for
designated clearing agencies, an advance notice under the Clearing
Supervision Act because such plans and material changes thereto would
constitute changes to a stated policy, practice, or interpretation of
the covered clearing agency and, for designated clearing agencies, a
proposed change to its operations that could materially affect the
nature or level of risk presented by the designated clearing agency.
---------------------------------------------------------------------------

    \41\ See, e.g., Securities Exchange Act Release Nos. 91429 (Mar.
29, 2021), 86 FR 17421 (Apr. 2, 2021) (SR-DTC-2021-004); 83972 (Aug.
28, 2018), 83 FR 44964 (Sept. 4, 2018) (SR-DTC-2017-021); 83953
(Aug. 27, 2018), 83 FR 44381 (Aug. 30, 2018) (SR-DTC-2017-803);
91430 (Mar. 29, 2021), 86 FR 17432 (Apr. 2, 2021) (SR-FICC-2021-
002); 83973 (Aug. 28, 2018), 83 FR 44942 (Sept. 4, 2018) (SR-FICC-
2017-021); 83954 (Aug. 27, 2018), 83 FR 44361 (Aug. 30, 2018) (SR-
FICC-2017-805); 94983 (May 25, 2022), 87 FR 33223 (June 1, 2022)
(SR-ICC-2022-004); 91806 (May 10, 2021), 86 FR 26561 (May 14, 2021)
(SR-ICC-2021-005) (``ICC 2021 Order''); 79750 (Jan. 6, 2017), 82 FR
3831 (Jan. 12, 2017) (SR-ICC-2016-013) (``ICC 2017 Notice and
Order''); 86364 (July 12, 2019), 84 FR 34455 (July 18, 2019) (SR-
ICEEU-2019-013) (``ICEEU 2019 Order''; 84498 (Oct. 29, 2018), 83 FR
55219 (Nov. 2, 2018) (SR-ICEEU-2018-014); 83651 (July 17, 2018), 83
FR 34891 (July 23, 2018) (SR-ICEEU-2017-016 and SR-ICEEU-2017-017);
88578 (Apr. 7, 2020), 85 FR 20561 (Apr. 13, 2020) (SR-LCH SA-2020-
001); 87720 (Dec. 11, 2019), 84 FR 68989 (Dec. 11, 2019) (SR-LCH SA-
2019-008); 83451 (June 15, 2018), 83 FR 28886 (June 21, 2018) (SR-
LCH SA-2017-012 and SR-LCH SA-2017-013); 91428 (Mar. 29, 2021), 86
FR 17440 (Apr. 2, 2021) (SR-NSCC-2021-004); 83974 (Aug. 28, 2018),
83 FR 44988 (Sept. 4, 2018), (SR-NSCC-2017-017); 83955 (Aug. 27,
2018), 83 FR 44340 (Aug. 30, 2018) (SR-NSCC-2017-805); 90712 (Dec.
17, 2020), 85 FR 84050 (Dec. 23, 2020) (SR-OCC-2020-013); 90701
(Dec. 17, 2020), 85 FR 83662 (Dec. 22, 2020) (SR-OCC-2020-806);
83918 (Aug. 23, 2018), 83 FR 44091 (Aug. 29, 2018) (SR-OCC-2017-
021); 83928 (Aug. 23, 2018), 83 FR 44109 (Aug. 29, 2018) (SR-OCC-
2017-810).
---------------------------------------------------------------------------

C. Title II of the Dodd-Frank Act

    Title II of the Dodd-Frank Act establishes a process for the
appointment of the Federal Deposit Insurance Corporation (``FDIC'') as
receiver of a failing financial company if, among other things, its
failure would otherwise have serious adverse effects on financial
stability in the United States.\42\ This Title II authority would
relate to covered clearing agencies, to the extent that they are
determined, pursuant to the process described in this section, to be
covered financial companies for purposes of the statute, meaning that
the FDIC could be appointed as a receiver for a covered clearing
agency.
---------------------------------------------------------------------------

    \42\ See 12 U.S.C. 5383.
---------------------------------------------------------------------------

    Under this process, certain specified Federal regulatory
authorities must recommend to the Secretary of the Treasury (the
``Secretary'') that the Secretary appoint the FDIC as receiver of the
company. For most entities, including covered clearing agencies, the
recommending agencies would be the Board of Governors and the FDIC.\43\
Upon receipt of such recommendations, the Secretary must make certain
determinations to implement Title II's orderly liquidation authority.
Specifically, the Secretary shall take action to appoint the FDIC as
receiver, if the Secretary (in consultation with the President)
determines generally that, inter alia, the company is a financial
company in default or in danger of default; the failure of the company
and its resolution under otherwise applicable Federal or State law
would have serious adverse effects on financial stability in the United
States; and no viable private sector alternative is available to
prevent the default.\44\
---------------------------------------------------------------------------

    \43\ See 12 U.S.C. 5383(a)(1)(A). By contrast, if the entity is
a broker or dealer, the recommending agencies would be the Board of
Governors and the Commission. See 12 U.S.C. 5383(a)(1)(B).
    \44\ See 12 U.S.C. 5383(b).
---------------------------------------------------------------------------

    Notably for this proposal, a covered clearing agency would be
subject to this sort of orderly liquidation if two conditions are met.
First, it must be considered to be a financial company, which includes
any company that is incorporated or organized under any provision of
Federal law or the laws of any State and is predominately engaged in
activities that the Board of Governors has determined are financial in
nature or incidental thereto.\45\ Second, pursuant to the process
described above, the Secretary would have to determine to implement an
orderly liquidation authority.\46\ If both those conditions occur, then
the covered clearing agency would be considered a ``covered financial
company.'' \47\ In that case, the FDIC would serve as the receiver for
the covered clearing agency.\48\
---------------------------------------------------------------------------

    \45\ See 12 U.S.C. 5381(11)(A) and (B)(iii). Activities that are
financial in nature include, but are not limited to, lending,
exchanging, transferring, investing for others, or safeguarding
money or securities. 12 U.S.C. 1843(k)(4).
    \46\ See 12 U.S.C. 5383(b).
    \47\ See 12 U.S.C. 5381(a)(8).
    \48\ Title II refers to the FDIC as the receiver in an orderly
liquidation. More generally, the orderly liquidation process is
often referred to as resolution. See Resolution of Systemically
Important Financial Institutions: The Single Point of Entry
Strategy, 78 FR 76614, 76615 (Dec. 18, 2013) (referring generally to
the orderly liquidation process as resolution). Existing guidance by
standard-setting bodies generally refers to the governmental entity
conducting a resolution as the resolution authority. See, e.g.,
Financial Stability Board, Key Attributes of Effective Resolution
Regimes, section 2.1 (2014). For purposes of this release, the
Commission uses the more general term ``resolution authority'' to
encompass the role of the FDIC as a receiver in an orderly
liquidation.
---------------------------------------------------------------------------

    Once appointed as the resolution authority, the FDIC essentially
``steps into the shoes'' of the financial company and is able to use
any powers and resources available to the financial company.\49\ The
FDIC as the resolution authority is responsible for the operations of
the financial company, including, among other things, taking over the
assets of and operating the financial company, collecting all
obligations and money owed to the financial company, and performing all
functions of the financial company in the financial company's name.\50\
In addition, the FDIC shall liquidate and wind-up the financial
company's affairs, including taking steps to realize upon the company's
assets, as appropriate (e.g., through the sale of assets or the
transfer of assets to a bridge company).\51\ A covered clearing
agency's RWP would be helpful to the FDIC if it were to serve as the
resolution authority for a covered clearing agency. Such a plan could
provide insights, allowing the resolution authority (i.e., the FDIC) to
obtain an understanding of the covered clearing agency's critical
services, how it provides such services, and how it would be able to
continue providing such services in the event of a recovery or an
orderly wind-down.
---------------------------------------------------------------------------

    \49\ Specifically, the FDIC as receiver serves as the successor
to the financial company, holding all rights, titles, powers, and
privileges of the financial company and its assets, and of any
stockholder, member, officer, or director of such company, and it
takes title to the books, records, and assets of any previous
receiver or other legal custodian of such covered financial company.
See 12 U.S.C. 5390(a)(1)(A).
    \50\ 12 U.S.C. 5390(a)(1)(B).
    \51\ 12 U.S.C. 5390(a)(1)(D).
---------------------------------------------------------------------------

III. Proposal

    The Commission is proposing amendments to existing rules and an
additional rule under section 17A of the Exchange Act. Specifically,
the Commission is proposing to amend Rule 17Ad-22(e)(6)(ii) with
respect to intraday margin, to require that a covered clearing agency's
risk-based margin system monitors intraday exposures on an ongoing
basis and includes the authority and operational capacity to make
intraday margin calls as frequently as circumstances warrant, including
when risk thresholds specified by the covered clearing agency are
breached or when the products cleared or markets served display
elevated volatility. Second, the Commission is proposing to amend Rule
17Ad-22(e)(6)(iv) with respect to the use of sources of information in
a covered clearing agency's risk-based margin system, to require
policies and procedures reasonably designed to have

a covered clearing agency use reliable sources for both price data, as
the current rule requires, and other substantive inputs to its risk-
based margin system and to require that the covered clearing agency use
procedures for when such inputs and price data are not available or
reliable. Finally, the Commission is proposing new Rule 17ad-26 that
would require a covered clearing agency to include nine specific
elements in its RWP. Each of these proposed rules is discussed further
below.

A. Amendments Regarding Risk Management

1. Proposed Changes to Rule 17Ad-22(e)(6)
    The Commission is proposing to amend Rule 17Ad-22(e)(6)(ii) to
strengthen its requirements: first, by further requiring that a covered
clearing agency have policies and procedures reasonably designed to
monitor intraday exposures on an ongoing basis; and second, by
providing additional specificity to the circumstances in which a
covered clearing agency should have policies and procedures to collect
intraday margin. Specifically, as proposed, Rule 17ad-22(e)(6)(ii)
would require a covered clearing agency that provides central
counterparty 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 that, at a minimum, marks participant positions to market and
collects margin, including variation margin or equivalent charges if
relevant, at least daily, monitors intraday exposures on an ongoing
basis, and includes the authority and operational capacity to make
intraday margin calls as frequently as circumstances warrant, including
when risk thresholds specified by the covered clearing agency are
breached or when the products cleared or markets served display
elevated volatility.
    The Commission is also proposing to amend Rule 17Ad-22(e)(6)(iv) to
strengthen its requirements: first, by expanding the scope of the rule
to apply to both price data and other substantive inputs to a covered
clearing agency's risk-based margin system; second, by further
specifying the level to which the covered clearing agency's procedures
must perform when price data or other substantive inputs are not
available or reliable; and third, by providing that the procedures used
when price data or other inputs are not available or reliable should
include alternate sources or an alternate risk-based margin system.
2. Discussion
a. Amendments to Rule 17Ad-22(e)(6)(ii)
    As discussed above, when considering the adoption of Rule 17Ad-
22(e)(6)(ii) in 2014, the Commission stated that requiring covered
clearing agencies to have the authority and operational capacity to
make intraday margin calls in defined circumstances would ``benefit
covered clearing agencies by covering settlement risk created by
intraday price movements.'' \52\ Thus, the current rule requires that
covered clearing agencies have the authority and operational capacity
to make intraday margin calls. Importantly, the Commission understands
that the ``operational capacity'' to make intraday margin calls
includes the ability to monitor intraday exposure; otherwise, it would
be impossible for a covered clearing agency to make appropriate
intraday margin calls if it were not monitoring its intraday exposure.
Therefore, under the current rule, covered clearing agencies have some
ability to monitor for intraday exposure and make intraday margin
calls,\53\ but there currently are no requirements to monitor for
intraday exposure or regarding what frequency at which to monitor
intraday exposures.
---------------------------------------------------------------------------

    \52\ Standards for Covered Clearing Agencies Standards Proposing
Release, Exchange Act Release No. 71699 (Mar. 12, 2014), 79 FR
29507, 29529 (May 22, 2014) (``CCA Standards Proposing Release'').
The Commission adopted Rule 17Ad-22(e)(6)(ii) in substantially the
form it was proposed. See CCA Standards Adopting Release, supra note
7, 81 FR at 70786.
    \53\ See section IV.B.4.a infra.
---------------------------------------------------------------------------

    The Commission is now proposing to amend Rule 17Ad-22(e)(6)(ii) to
incorporate a requirement of intraday monitoring and to require that
such monitoring is done on an ongoing basis. The Commission continues
to believe that it is essential that a covered clearing agency monitor
its intraday exposure because the covered clearing agency faces a risk
that its exposure to its participants can change rapidly as a result of
intraday changes in prices, positions, or both. Moreover, the
Commission believes that requiring that such monitoring occur on an
ongoing basis will contribute to ensuring that the covered clearing
agency is sufficiently informed and situated to take appropriate
actions to manage any intraday exposure that arises.\54\ Therefore, the
Commission is proposing to amend Rule 17Ad-22(e)(6)(ii) to require that
a covered clearing agency's written policies and procedures be
reasonably designed to ensure that such monitoring occurs on an ongoing
basis.
---------------------------------------------------------------------------

    \54\ See CPMI-IOSCO, Resilience of central counterparties
(CCPs): Further guidance on the PFMI, paragraph 5.2.2 (July 2017),
available at (discussing how a CCP addresses intraday exposure in
its margin system and stating that ``a CCP faces the risk that its
exposure to its participants can change rapidly as a result of
intraday changes in prices, positions, or both; ie adverse price
movements, as well as participants building larger positions through
new trading (and settlement of maturing trades). For the purposes of
addressing these and other forms of risk that may arise intraday, a
CCP should address and monitor on an ongoing basis how such risks
affect all components of its margin system, including initial
margin, variation margin and add-on charges.'').
---------------------------------------------------------------------------

    The Commission is not prescribing a particular time period or
frequency that would constitute an ongoing basis because the Commission
believes that the covered clearing agency should be able to tailor its
monitoring to the particular products cleared and markets served. The
Commission believes that this requirement to monitor intraday exposure
on an ongoing basis should allow flexibility to determine what
monitoring frequency is appropriate to the particular market. For
example, more frequent monitoring may be necessary for a covered
clearing agency that operates in markets where intraday trading may be
more prevalent or where intraday exposures may tend to be larger
because of specific features, such as the settlement process. Being
able to monitor, on an ongoing basis, any decrease in the margin
coverage as compared to the changes in intraday credit exposures in its
participants' portfolios should help the covered clearing agency ensure
that it is able to collect margin sufficient to cover its participants'
exposures. A covered clearing agency generally should consider whether
its intraday monitoring considers how participants' exposures would
affect all risks faced by the covered clearing agency, including those
that may already be contemplated by variation margin, initial margin,
or add-on charges.
    Currently, Rule 17ad-22(e)(6)(ii) refers only to the covered
clearing agency's ability to collect intraday margin ``in defined
circumstances.'' The proposed amendment to Rule 17Ad-22(e)(6)(ii) would
amend this to require covered clearing agencies to have policies and
procedures to establish a risk-based margin system with the ability to
make intraday margin calls as frequently as circumstances warrant,
including when risk thresholds specified by the covered clearing agency
are breached or when the products cleared or markets served display
elevated volatility. The Commission believes that this proposed
requirement would build upon and expand the current rule's requirement
that provides

for the authority and operational capacity to make intraday margin
calls in defined circumstances \55\ by identifying particular instances
in which a covered clearing agency needs to have policies and
procedures to collect margin, such as the breach of specific risk
thresholds or in times of elevated volatility, while continuing to
provide flexibility to covered clearing agencies to make intraday
margin calls as frequently as circumstances warrant. Moreover, as the
Commission stated when adopting the Covered Clearing Agency Standards,
this proposed amendment would continue to reflect that intraday margin
calls should be able to be made on both a scheduled and unscheduled
basis,\56\ but would also provide more specificity as to what
constitutes the appropriate scheduled and unscheduled bases.
---------------------------------------------------------------------------

    \55\ Currently, Rule 17Ad-22(e)(6)(ii) does not define what
constitutes ``defined circumstances.''
    \56\ CCA Standards Adopting Release, supra note 7, 81 FR at
70818.
---------------------------------------------------------------------------

    The Commission believes that the proposed requirement for a covered
clearing agency to have the authority and operational capacity to make
intraday margin calls when the markets served display elevated
volatility should ensure that the covered clearing agency develops
policies and procedures to determine when it considers volatility to be
elevated above typical levels, and potentially necessitating the
collection of additional margin, in a manner specific to the products
cleared and markets served. The Commission also believes that the
proposed requirement for a covered clearing agency to have the
authority and operational capacity to make intraday margin calls when
specific risk thresholds are breached should ensure that the covered
clearing agency considers ex ante the degree of exposure that
necessitates additional margin to take into account new cleared
positions and current market prices, in a manner specific to the
products cleared and market served. Further, the Commission also
believes that the requirement to specify thresholds that would trigger
intraday margin calls, if breached, could improve participants' ability
to understand when they may be subject to additional margin calls and,
therefore, to be able to prepare accordingly to provide additional
financial resources in anticipation of additional margin calls. In
addition, specifying that a covered clearing agency should have the
authority and operational capacity to make intraday margin calls in
times of elevated volatility also makes clear to participants when they
may be subject to additional margin calls and recognizes that intraday
exposures may occur more frequently in volatile markets.
b. Amendments to Rule 17Ad-22(e)(6)(iv)
    Currently, Rule 17Ad-22(e)(6)(iv) requires the establishment of a
risk-based margin system that uses reliable sources of timely price
data and uses procedures and sound valuation models for addressing
circumstances in which pricing data are not readily available or
reliable. When it proposed Rule 17Ad-22(e)(6)(iv), the Commission
stated that a covered clearing agency should use reliable sources of
timely price data because its margin system needs such data to operate
with a high degree of accuracy and reliability, given the risks that
the covered clearing agency's size, operation, and importance pose to
the U.S. securities markets.\57\ The Commission also recognized that,
in some situations, price data may not be available or reliable, such
as in instances where third party data providers experience lapses in
service or where limited liquidity otherwise makes price discovery
difficult, and that establishing appropriate procedures and sound
valuation models is a useful step a covered clearing agency can take to
help protect itself in such situations.\58\
---------------------------------------------------------------------------

    \57\ CCA Standards Proposing Release, supra note 52, 79 FR at
29529.
    \58\ Id.
---------------------------------------------------------------------------

    Based on its experience with the Covered Clearing Agency Standards
since their adoption in 2016, including its review and understanding of
the covered clearing agencies' margin methodologies and, specifically,
whether the methodologies rely on substantive inputs other than price
data, the Commission believes that it is appropriate to expand the
scope of this rule beyond price data to encompass other substantive
inputs to a covered clearing agency's risk-based margin system.\59\ As
discussed in more detail in section IV.B.4.b infra, covered clearing
agencies generally use risk-based margin systems to calculate margin.
Covered clearing agencies' use of other substantive inputs, beyond
price data (which is already addressed in current Rule 17Ad-
22(e)(6)(iv)), from other entities as part of the risk-based margin
system varies, and some do not rely on such substantive inputs. These
types of inputs could include, for example, portfolio size, volatility,
and sensitivity to various risk factors that are likely to influence
security prices; \60\ other examples of substantive inputs include
duration and convexity, as well as the results of margin models run by
third parties. Similarly, the procedures used when such substantive
inputs are not available vary. The Commission believes that certain
covered clearing agencies would need to develop additional procedures,
or refine existing procedures, that would apply when the specific
substantive inputs used by a covered clearing agency are not readily
available or reliable, in order to ensure that the covered clearing
agency can continue to meet its requirements under Rule 17Ad-22(e)(6).
---------------------------------------------------------------------------

    \59\ Despite some organizational changes to the rule to
accommodate the proposal, Rule 17Ad-22(e)(6)(iv), as it relates to
pricing data, is not being amended in this proposal, except with
respect to the proposed new requirement to ensure that any
procedures used when pricing data is not readily available or
reliable must ensure that the covered clearing agency continues to
meet its requirements under Rule 17Ad-22(e)(6). However, the
Commission is proposing to standardize references to such data in
the rule, which currently refers to both price and pricing data, to
refer only to price data. The Commission previously used the two
words interchangeably in Rule 17Ad-22(e)(6)(ii).
    \60\ See CCA Standards Adopting Release, supra note 7, 81 FR at
70855. Other portions of the Covered Clearing Agency Standards
reference a model's inputs, along with parameters and assumptions,
as part of a covered clearing agency's sensitivity analysis, which
is required by current Rule 17Ad-22(e)(6)(vi).
---------------------------------------------------------------------------

    In some instances, a covered clearing agency relies on third
parties for these inputs. For similar reasons as the Commission
discussed when proposing Rule 17Ad-22(e)(6)(iv), there is a need to use
reliable sources for such inputs. The unavailability or unreliability
of an input to a margin system, for example, if a third party provider
does not perform, could potentially affect the covered clearing
agency's ability to calculate margin. Currently, the Commission's rules
do not address how a covered clearing agency plans for circumstances in
which a substantive input to its risk-based margin system is not
readily available or reliable. This proposed amendment to Rule 17ad-
22(e)(6)(iv) would require that the covered clearing agency addresses
such circumstances and develops appropriate procedures, for those
covered clearing agencies that use such substantive inputs.
Establishing procedures for when such substantive inputs from third
parties are not available or reliable should, in turn, help ensure that
the covered clearing agency can continue to calculate and collect
margin commensurate with, the risks and particular attributes of each
relevant product, portfolio, and market, as required under Rule 17Ad-
22(e)(6)(i), in such circumstances.
    The Commission is therefore proposing to amend Rule 17Ad-
22(e)(6)(iv) to expand its scope beyond

price data to encompass other substantive inputs to its risk-based
margin system and to impose requirements on a covered clearing agency
to have procedures when such substantive inputs are not readily
available or reliable. For purposes of this rule, the Commission
believes that ``substantive'' refers to any inputs used by the covered
clearing agency that are necessary for the risk-based margin system to
calculate margin, and it is meant to distinguish from other potential
inputs that may not be consequential to the calculation of margin,
which would not be encompassed by this proposed rule. The Commission is
not requiring that covered clearing agencies use such substantive
inputs, but establishing requirements in the event that they do use
such substantive inputs.
    Further, the Commission is proposing to impose a new requirement
that would further elaborate on the procedures necessary when price
data is not available and that would also apply to substantive inputs
to a covered clearing agency's risk-based margin system. Currently, the
rule requires that the covered clearing agency use procedures and sound
valuation models only when price data is not readily available or
reliable. The proposed amendment would, with respect to both price data
and other substantive inputs, require that such procedures should
address circumstances in which price data or substantive inputs are not
readily available or reliable, in order to ensure that the covered
clearing agency be able to meet its requirements under Rule 17Ad-
22(e)(6) and cover its credit exposures to its participants. The
Commission believes that specifying the level to which these backup
procedures should perform, that is, that the procedures should ensure
that the covered clearing agency can continue to meet its requirements
under Rule 17Ad-22(e)(6), should help ensure that covered clearing
agencies adopt sufficiently robust procedures.
    The Commission also proposes to further specify that the procedures
for when the price data or substantive inputs are not readily available
or reliable shall include the use of price data or substantive inputs
from an alternate source or the use of an alternate risk-based margin
system that does not similarly rely on the same unavailable or
unreliable substantive input. With respect to the use of an alternate
source, such an alternate source generally should meet the same level
of reliability of the primary source, whether that alternate is sourced
from an external provider or created internally. With respect to
policies and procedures for the use of an alternate risk-based margin
system if the covered clearing agency does not use an alternate source,
this potential alternate risk-based margin system needs to be an
alternate margin model that does not rely on the same data source that
is unavailable or unreliable, to ensure that the covered clearing
agency can continue to meet its requirements under Rule 17Ad-22(e)(6).
Any alternative risk-based margin system would be subject to the
requirements of 17 CFR 240.17Ad-22(e)(6)(vi) and (vii), with respect to
monitoring, review, testing, and verification, and model validation.
    With respect to both, a covered clearing agency generally should
consider its reliance on any third party sources for purposes of its
risk-based margin system and consider whether an alternate system or
source of data or other inputs that is internal to the covered clearing
agency, and does not rely upon any third party provider, would be
appropriate, given the importance of calculating margin for a covered
clearing agency to cover its exposure to its participants.\61\
---------------------------------------------------------------------------

    \61\ 17 CFR 240.17Ad-22(e)(6).
---------------------------------------------------------------------------

3. Request for Comment
    The Commission is requesting comment on all aspects of the proposed
amendments to Rule 17Ad-22(e)(6). The Commission also solicits comment
on the particular questions set forth below, and encourages commenters
to submit any relevant data or analysis in connection with their
answers.
    1. Should Rule 17Ad-22(e)(6) be amended to require that covered
clearing agencies have policies and procedures reasonably designed to
monitor intraday exposures and to require that monitoring to occur on
an ongoing basis? Do commenters have views on what constitutes an
ongoing basis, and does it differ for products cleared or markets
served by a covered clearing agency? For example, would an ongoing
basis in the equity market be different than in the security-based
swaps market?
    2. Should Rule 17Ad-22(e)(6) be amended to require that covered
clearing agencies have policies and procedures reasonably designed to
make intraday margin calls as frequently as circumstances warrant,
including when risk thresholds specified by the covered clearing agency
are breached or when the products cleared or markets served display
elevated volatility?
    3. Should the Commission prescribe particular risk thresholds for
intraday margin calls? If so, what should those thresholds be and what
is the basis for those thresholds, and should the threshold applicable
to particular asset classes (e.g., equities, fixed income, options,
etc.) be determined jointly or separately?
    4. Should the Commission identify additional circumstances that may
warrant intraday margin calls beyond when the products cleared or
markets served display elevated volatility? If so, what should those
circumstances be?
    5. Do commenters believe that certain participants of covered
clearing agencies, including, for example, participants with less
capital or using smaller settlement banks, could face operational
challenges or pricing disadvantages, if proposed Rule 17Ad-22(e)(6)(ii)
were to result in more frequent margin calls?
    6. Should Rule 17Ad-22(e)(6)(iv) be amended to expand its scope to
encompass other substantive inputs to a covered clearing agency's risk-
based margin system? Should the Commission identify any particular
types of substantive inputs or further specify what types of inputs
should be included within the scope of the rule?
    7. Should Rule 17Ad-22(e)(6)(iv) be amended to state that the
procedures used when price data or other substantive inputs are not
readily available or reliable should ensure that the covered clearing
agency can continue to meet its obligations under Rule 17Ad-22(e)(6)?
    8. Should Rule 17Ad-22(e)(6)(iv) be amended to further describe
that the procedures used by a covered clearing agency when price data
or other substantive inputs are not readily available or reliable shall
include the use of price data or substantive inputs from an alternate
source or the use of an alternate risk-based margin system?
    9. Do commenters have views on whether the Commission should
require that any alternate source should be independent of third party
providers, that is, within the sole control of the covered clearing
agency?

B. Contents of Recovery and Wind-Down Plans

1. Proposed Rule 17ad-26
    Proposed Rule 17ad-26(a) would require that a covered clearing
agency's recovery and wind-down plan, the existence of which is
required in current Rule 17Ad-22(e)(3)(ii), shall: (1) identify and
describe the covered clearing agency's critical payment, clearing, and
settlement services and address how the covered clearing agency would
continue to provide such critical services in the event of recovery

and during an orderly wind-down, including the identification of the
staffing necessary to support such critical services and analysis of
how such staffing would continue in the event of a recovery and during
an orderly wind-down; (2) identify and describe any service providers
upon which the covered clearing agency relies to provide its critical
payment, clearing, and settlement services identified in paragraph (1),
specify to what critical services such service providers are relevant,
and address how the covered clearing agency would ensure that service
providers would continue to provide such critical services in the event
of a recovery and during an orderly wind-down, including consideration
of contractual obligations with such service providers and whether
those obligations are subject to alteration or termination as a result
of initiation of the recovery and orderly wind-down plan; (3) identify
and describe scenarios that may potentially prevent the covered
clearing agency from being able to provide its critical payment,
clearing, and settlement services as a going concern, including
scenarios arising from uncovered credit losses, uncovered liquidity
shortfalls, or general business losses; (4) identify and describe
criteria that could trigger the implementation of the recovery and
orderly wind-down plan and the process that the covered clearing agency
uses to monitor and determine whether the criteria have been met,
including the governance arrangements applicable to such process; (5)
identify and describe the rules, policies, procedures, and any other
tools the covered clearing agency would use in a recovery or orderly
wind-down; (6) address how the rules, policies, procedures, and any
other tools or resources identified in paragraph (5) would ensure
timely implementation of the recovery and orderly wind-down plans; (7)
include procedures for informing the Commission as soon as practicable
when the covered clearing agency is considering initiating a recovery
or orderly wind-down; (8) include procedures for testing the covered
clearing agency's ability to implement the recovery and wind-down plans
at least every twelve months, including by requiring the covered
clearing agency's participants and, when practicable, other
stakeholders to participate in the testing of its plans, providing for
reporting the results of the testing to the covered clearing agency's
board of directors and senior management, and specifying the procedures
for, as appropriate, amending the plans to address the results of the
testing; and (9) include procedures for review of the plans by the
board of directors at least every twelve months or following material
changes to the system or environment in which the covered clearing
agency operates that would significantly affect the viability or
execution of the plans, with such review informed, as appropriate by
the covered clearing agency's testing of the plans as required in the
prior section of the proposed rule. Proposed Rule 17ad-26(b) would
provide definitions of ``affiliate,'' ``recovery,'' ``orderly wind-
down,'' and ``service provider'' for purposes of this rule.
2. Discussion
    As discussed in section II.A supra, when the Commission adopted
Rule 17Ad-22(e)(3)(ii), it did not establish requirements for specific
elements to include in such RWPs. Since that time, however, the
Commission has reviewed and approved RWPs for each of the seven covered
clearing agencies, as well as periodic updates to those plans.\62\ In
so doing, the Commission has continued to develop its understanding of
what are the essential elements of RWPs.\63\
---------------------------------------------------------------------------

    \62\ See infra note 41.
    \63\ CCA Standards Adopting Release, supra note 7, 81 FR at
70809.
---------------------------------------------------------------------------

    In addition, the Commission has continued to participate in the
development of guidance by international standard setting bodies in the
areas of recovery and resolution of financial market infrastructures,
which would include covered clearing agencies. The Committee on
Payments and Market Infrastructure and the International Organization
of Securities Commissions (together, ``CPMI-IOSCO'') published a report
entitled Recovery of financial market infrastructures, which sets forth
a policy statement on both the recovery planning process and the
content of recovery plans.\64\ With respect to resolution planning, the
Financial Stability Board (``FSB'') published a policy statement
regarding resolution and resolution planning for central
counterparties.\65\ To accommodate the development of effective RWPs
while this guidance was being developed, and in recognition of the need
to further develop an understanding of effective recovery and
resolution strategies for different types of market infrastructure, the
Commission extended the compliance date for Rule 17Ad-22(e)(3)(ii) to
allow the affected clearing agencies to consider this emerging guidance
before submitting their RWPs for review and approval.\66\ Additional
guidance has since followed, and work on the recovery and resolution of
clearing agencies continues.\67\
---------------------------------------------------------------------------

    \64\ See CPMI-IOSCO, Recovery of financial market
infrastructures (July 2017), https://www.bis.org/cpmi/publ/d162.pdf
(``CPMI-IOSCO Recovery Guidance''). The guidance covers a number of
topics: first, recovery planning, including the importance of
recovery planning, the relationship between risk management,
recovery, and resolution, the process of recovery planning, the
content of recovery plans, and the role of the authorities in
recovery; second, general considerations with respect to recovery
tools, including risk categories and failure scenarios that may
require the use of recovery tools, characteristics of recovery
tools, and considerations for allocating losses and liquidity
shortfalls; and third, specific recovery tools, including tools to
allocate uncovered losses caused by participant default, tools to
address uncovered liquidity shortfalls, tools to replenish financial
resources, tools to re-establish a matched book following
participant default, and tools to address losses not caused by
participant default.
    \65\ See Guidance on CCP Resolution and Resolution Planning
(July 5, 2017), https://www.fsb.org/wp-content/uploads/P050717-1.pdf; Guidance on Central Counterparty Resolution and Resolution
Planning: Consultative Document (Feb. 1, 2017), https://www.fsb.org/wp-content/uploads/Guidance-on-Central-Counterparty-Resolution-and-Resolution-Planning.pdf.
    \66\ See Securities Exchange Act Release No. 80978 (Apr. 5,
2017), 82 FR 17300 (Apr. 10, 2017) (granting a temporary exemption
to covered clearing agencies from compliance with Rule 17Ad-
22(e)(3)(ii) among other requirements); see also Letter from Michael
C. Bodson, President and Chief Executive Officer, DTCC (Feb. 15,
2017), https://www.sec.gov/comments/s7-03-14/s70314-1594398-132354.pdf.
    \67\ See, e.g., FSB, CPMI-IOSCO, Central Counterparty Financial
Resources for Recovery and Resolution (Mar. 10, 2022), https://www.fsb.org/wp-content/uploads/P090322.pdf.
---------------------------------------------------------------------------

    Other U.S. authorities have established and had the opportunity to
administer requirements for certain specific elements to be included in
the RWPs of the financial market utilities they supervise. For example,
Regulation HH, issued by the Board of Governors, was amended in 2014 to
identify seven elements that must be addressed or be included in
recovery and wind-down plans.\68\ These elements are substantially
similar to those proposed in Rule 17ad-26. Similarly, the CFTC's
regulatory framework includes specific requirements for RWPs as applied
to clearing entities within its authority.\69\
---------------------------------------------------------------------------

    \68\ 12 CFR 234.3(a)(3)(iii); see also Final Rule, Financial
Market Utilities, Docket No. R-1477 (Oct. 28, 2014), 79 FR 65543
(Nov. 5, 2014).
    \69\ See Derivatives Clearing Organizations and International
Standards, 78 FR 72476 (Dec. 2, 2013) (adopting 17 CFR 39.39(b) and
(c)). For example, 17 CFR 39.39(c)(1) states that the plans shall
identify scenarios that may potentially prevent a derivatives
clearing organization from being able to meet its obligations,
provide its critical operations and services as a going concern, and
assess the effectiveness of a full range of options for recovery or
orderly wind-down. CFTC staff also released a memorandum with
additional guidance for affected entities on the subjects and
analysis that should be included in a viable RWP, as well as
questions that affected entities should consider in evaluation tools
for inclusion and designing proposed rule changes to support the
inclusion of particular tools in such plans. See Memorandum from
Jeffrey M. Bandman, Acting Director, Division of Clearing and Risk,
CFTC Letter No. 16-61 (July 21, 2016<EMAIL_ADDRESS>
---------------------------------------------------------------------------

    Based on this supervisory experience, including its review and
approval of the RWPs for the covered clearing agencies, the Commission
believes it is now appropriate to specify elements for inclusion in a
covered clearing agency's RWP by proposing Rule 17ad-26. The Commission
has observed that the covered clearing agencies have, to a great
degree, converged in terms of the types of elements that are included
in each plan. As discussed in more detail in section IV.B.3 infra and
in the discussion of each particular element below, the current RWPs
contain or address many of the elements being proposed for inclusion,
but the current plans do not contain all the elements that would be
required under the proposed rule. Therefore, the Commission believes
that codifying these nine elements, and the related definitions, will
help ensure that RWPs continue to be effective at planning for and
managing a range of recovery and orderly wind-down scenarios that could
risk transmitting systemic risk through the U.S. securities markets and
the broader financial system, by accomplishing three objectives. First,
the rule would bolster existing plans by requiring certain new elements
be included. Second, for the elements that are already contained in
existing RWPs, the rule would codify these elements and ensure that the
plans are required to continue to include these elements in their RWPs,
and any future changes to the RWPs would be subject to Commission
review for consistency with these requirements, as discussed in section
II.B supra. Finally, the rule would ensure that the RWPs of any new
covered clearing agencies would contain all of these elements.
    When adopting the Covered Clearing Agency Standards, the Commission
stated that a covered clearing agency generally should have policies
and procedures to provide the relevant resolution authorities with
information needed for the purposes of resolution planning, including
its recovery and wind-down plan.\70\ The Commission also explained that
it works with the FDIC and other resolution authorities, as
appropriate, to help ensure the development of effective resolution
strategies for covered clearing agencies, and that providing the
Commission and the FDIC information for resolution planning would
promote the ongoing development of these resolution strategies.\71\ The
Commission continues to believe that this is the case, and that the
ongoing development of these strategies will be further promoted by
specifically requiring that RWPs contain certain elements and ensuring
that RWPs address these specified elements.
---------------------------------------------------------------------------

    \70\ See CCA Standards Adopting Release, supra note 7, 81 FR at
70810.
    \71\ Id.
---------------------------------------------------------------------------

    The Commission believes that codifying these items as part of
recovery and wind-down plans would help assist relevant resolution
authorities develop and improve resolution plans for covered clearing
agencies in resolution. For example, by ensuring that these items are
included in RWPs, a resolution authority will have a more comprehensive
understanding of what the covered clearing agencies' critical payment,
clearing, and settlement services are, as well as what providers
support such services, thereby allowing a resolution authority to
connect, or ``map,'' the various providers to the critical services to
ensure continuity of clearance and settlement by a covered clearing
agency in resolution.
a. Proposed Definitions
    The Commission believes that definitions of the terms ``recovery''
and ``orderly wind-down'' would provide covered clearing agencies, as
well as market participants, a precise description of the meaning of
these terms, which are not currently defined in the Commission's rules
and are often used together, and somewhat interchangeably, by market
participants. Further, these definitions would help covered clearing
agencies understand the precise goal for which their RWPs should be
reasonably designed to meet. The Commission believes that the RWPs
generally should set forth the covered clearing agency's viable
strategy for ensuring that they address how a covered clearing agency
would achieve a recovery or orderly wind-down, using the tools and
resources available under its rules and procedures.
    Current Rule 17Ad-22(e)(3)(ii) and proposed Rule 17ad-26 both refer
to plans for recovery and orderly wind-down, and, therefore, a covered
clearing agency should prepare plans for both recovery and orderly
wind-down. Providing separate definitions specifies that these are two
distinct events, both of which a covered clearing agency should include
in its recovery and wind-down planning. Simply including a plan for
what a covered clearing agency would do in recovery is not sufficient,
and a plan for one event does not serve as a substitute for the other.
For example, there may be circumstances in which a covered clearing
agency attempts to recover but the recovery effort eventually fails. As
part of its planning, a covered clearing agency generally should
identify and maintain the relevant supporting information necessary to
support its RWP.
    Moreover, because these definitions refer to actions of a covered
clearing agency only, as opposed to any other entity, neither a
recovery plan nor an orderly wind-down plan should be based on
assumptions of government intervention or support.
    Proposed Rule 17ad-26(b) would define ``recovery'' to mean the
actions of a covered clearing agency, consistent with its rules,
procedures, and other ex ante contractual arrangements, to address any
uncovered loss, liquidity shortfall, or capital inadequacy, whether
arising from participant default or other causes (such as business,
operational, or other structural weaknesses), including actions to
replenish any depleted prefunded financial resources and liquidity
arrangements, as necessary to maintain the covered clearing agency's
viability as a going concern and to continue its provision of critical
services. The Commission believes that this proposed definition is
generally consistent with its previous understanding of recovery, as
set forth in the CCA Standards Adopting Release, in that this proposed
definition also focuses on the actions of the covered clearing agency
that are beyond its typical business operations and refers to
situations in which the covered clearing agency's ability to serve as a
going concern is in question, that is, it goes beyond the covered
clearing agency's ``business as usual'' operations.\72\
---------------------------------------------------------------------------

    \72\ See CCA Standards Adopting Release, supra note 7, 81 FR at
70808, n. 251 (when addressing comments regarding recovery and wind-
down plans, stating the Commission's general understanding that: (i)
when a financial company becomes non-viable as a going concern or
insolvent, recovery refers to actions taken that allow the financial
company to sustain its critical operations and services; (ii)
resolution (or wind-down), by contrast, refers to the transferring
of the financial company's critical operations and services to an
alternate entity.).
---------------------------------------------------------------------------

    Proposed Rule 17ad-26(b) would define ``orderly wind-down'' to mean
the actions of a covered clearing agency to effect the permanent
cessation, sale, or transfer of one or more of its critical services in
a manner that would not increase the risk of significant liquidity,
credit, or operational problems spreading among financial institutions
or markets and thereby threaten the stability of the U.S. financial
system. The Commission believes that this

definition would clarify that an orderly wind-down is distinct from a
resolution in that orderly wind-down continues to rest within the
control of the covered clearing agency while resolution would involve a
governmental entity as the resolution authority, such as the FDIC as a
receiver. The Commission further believes that this proposed definition
would identify the specific goals of an orderly wind-down, in that the
actions of a covered clearing agency should not increase the risk of
significant liquidity, credit, or operational problems spreading among
financial institutions or markets and thereby threaten the stability of
the U.S. financial system, and that it would serve as a final and
binding solution to whatever circumstance necessitated the wind-down,
that is, not a temporary stopgap measure. This distinguishes an orderly
wind-down from winding down the covered clearing agency as quickly as
possible.
    To be orderly, a wind-down generally should include a covered
clearing agency providing notice to allow participants to transition to
alternative arrangements in an orderly manner, as well as maintaining
the operation of critical services. Moreover, for a wind-down involving
the sale or transfer of all or a portion of the covered clearing agency
to be orderly, the covered clearing agency generally should consider
the separability of the parts of the covered clearing agency and
whether there are certain portions of the covered clearing agency's
business that could be sold or transferred as separate businesses.
b. Critical Services
    Proposed Rule 17ad-26(a)(1) would require each covered clearing
agency's RWP to identify and describe the covered clearing agency's
critical payment, clearing, and settlement services and address how the
covered clearing agency would continue to provide such critical
services in the event of recovery and during an orderly wind-down,
including the identification of the staffing necessary to support such
critical services and analysis of how such staffing would continue in
the event of a recovery and during an orderly wind-down.
    The Commission believes that, regardless of the products cleared or
markets served, the necessary first step in effective recovery and
wind-down planning must be identifying and describing the critical
services that are provided to market participants, as required under
this proposed rule. As stated above, market participants rely on the
services of covered clearing agencies to facilitate payment, clearing,
and settlement for the U.S. securities markets. The Commission believes
that identifying and describing the critical services in an RWP should
ensure that the covered clearing agency focuses its recovery and wind-
down plans on its ability to continue to provide those services on an
ongoing basis, even under stress. Covered clearing agencies already
identify and describe their critical services in the existing RWPs, as
well as the criteria used to determine what services are critical.
However, covered clearing agencies generally do not provide specific
information as to the staffing necessary to support a recovery or
orderly wind-down.
    When identifying what is a critical payment, clearing, or
settlement service, the Commission believes that the covered clearing
agency generally should consider the impact that any interruption to
particular services would have on the covered clearing agency's
participants and the smooth functioning of the markets that it serves,
as well as whether the service is available from any substitute
provider. In this proposed rule, the Commission believes that
``critical'' would refer to the importance of the service to the
covered clearing agency's participants, and to the proper functioning
of the markets that the covered clearing agency services. The inability
of a covered clearing agency to provide these services would have
implications with respect to financial stability. The failure to
provide these critical services would likely have a material negative
impact on participants or third parties, give rise to contagion, and
undermine general confidence in the markets served.
    The Commission believes that, after identifying the critical
services, the next step of effective recovery and wind-down planning is
to address how the covered clearing agency would continue to provide
such critical services in the event of recovery and during an orderly
wind-down, as required under proposed Rule 17ad-26(a)(1). This
requirement should continue to ensure that a covered clearing agency
has developed policies and procedures to continue providing its
critical services in the event of a recovery or orderly wind-down.
Further, by addressing how to continue providing such services, the
recovery plan should also allow the covered clearing agency to evaluate
how to ensure the orderly transfer of those services to a new or an
existing entity as part of a wind-down, in the event that recovery is
unsuccessful.
    In addition, the Commission believes that the consideration of how
the covered clearing agency would continue to provide its identified
critical services must include the identification of the staffing
necessary to support such critical services and analysis of how such
staffing would continue in the event of a recovery and during an
orderly wind-down, in order to ensure that the necessary personnel are
available to continue operating the covered clearing agency. The
Commission believes that this aspect of the proposal generally should
include identification of key business units and/or employees who may
be necessary to implement and execute the critical services identified
in the RWP. As part of this process, the covered clearing agency
generally should consider how it would retain the services of any
personnel who are essential to the execution of the plans, including
whether they are or should be subject to employment agreements and an
analysis of the terms of employment agreements (e.g., whether such
agreements would allow the employee to continue working in the event
that ownership of the covered clearing agency were to transfer in the
event of a recovery or orderly wind-down). In addition, the covered
clearing agency generally may consider, as part of this process, any
``key person risk'' that exists within its organization and how it
would address such risk in its RWP.
    Finally, the Commission believes that this proposed requirement
regarding the identification and description of critical services
should also assist a resolution authority, as discussed in section II.C
supra, with resolution planning. A key obligation of a resolution
authority is to ensure the continued provision of an entity's critical
services, to avoid harm to the broader market.\73\ Understanding what
those critical services are, and the covered clearing agency's strategy
for ensuring that such critical services

continue to be provided, therefore is essential for resolution
planning.
---------------------------------------------------------------------------

    \73\ See, e.g., Resolution of Systemically Important Financial
Institutions: The Single Point of Entry Strategy, 78 FR 76614, 76615
(Dec. 18, 2013) (``In resolving a failed or failing SIFI . . . the
FDIC seeks to preserve financial stability by maintaining the
critical services, operations and funding mechanisms conducted
throughout the company's operating subsidiaries.''); 12 U.S.C.
5384(a) (stating that the purpose of the FDIC's orderly liquidation
authority is to provide the necessary authority to liquidate failing
financial companies that pose a significant risk to the financial
stability of the United States in a manner that mitigates such risk
and minimizes moral hazard). See also Financial Stability Board, Key
Attributes of Effective Resolution Regimes, Annex 1.1 (2014)
(identifying as the objective of CCP resolution the pursuit of
financial stability and ensuring the continuity of critical CCP
functions in all jurisdictions where those functions are critical);
Financial Stability Board, Guidance on Central Counterparty
Resolution and Resolution Planning, section 1.2 (July 2017).
---------------------------------------------------------------------------

i. Interaction With Other Commission Rules
    The Commission acknowledges that there likely will be some
connection between what a covered clearing agency identifies as its
critical services for purposes of inclusion in its recovery and wind-
down plan and what it identifies as Critical SCI systems for purposes
of Regulation Systems Compliance Integrity (``Regulation SCI'').
Regulation SCI is designed to strengthen the infrastructure of the U.S.
securities markets, reduce the occurrence of systems issues in those
markets, improve their resiliency when technological issues arise, and
implement an updated and formalized regulatory framework, thereby
helping to ensure more effective Commission oversight of such
systems.\74\ However, inclusion in a covered clearing agency's recovery
plan as a critical service would have no impact on a covered clearing
agency's obligations under Regulation SCI. This proposed rule is
designed to improve and strengthen a covered clearing agency's recovery
and wind-down plan, whereas Regulation SCI is focused on, among other
things, strengthening the infrastructure of the U.S. securities markets
and improving its resilience when technological issues arise.
---------------------------------------------------------------------------

    \74\ Securities Exchange Act Release No. 73639 (Nov. 19, 2014),
79 FR 72252, 72253, 72256 (Dec. 5, 2014) (``Regulation SCI Adopting
Release'').
---------------------------------------------------------------------------

    The key market participants that are currently subject to
Regulation SCI are called ``SCI entities'' and encompass certain SROs,
including registered clearing agencies.\75\ Regulation SCI is designed
to apply to the automated systems important to the functioning of the
U.S. securities markets and requires SCI entities to, among other
things, establish, maintain, and enforce written policies and
procedures reasonably designed to ensure that their key automated
systems have levels of capacity, integrity, resiliency, availability,
and security adequate to maintain their operational capability and
promote the maintenance of fair and orderly markets, and that such
systems operate in accordance with the Exchange Act and the rules and
regulations thereunder and the entities' rules and governing documents,
as applicable.\76\
---------------------------------------------------------------------------

    \75\ As stated above, see note 30, a covered clearing agency is
a registered clearing agency and therefore is subject to Regulation
SCI. See 17 CFR 242.1000 (defining SCI entity and SCI self-
regulatory organization).
    \76\ See 17 CFR 242.1001.
---------------------------------------------------------------------------

    Regulation SCI applies to the systems of, or operated by or on
behalf of, SCI entities, that directly support any one of six core
securities market functions--trading, clearance and settlement, order
routing, market data, market regulation, and market surveillance (``SCI
systems'').\77\ Regulation SCI also identifies a subset of SCI systems
defined as ``Critical SCI systems,'' which are those systems whose
functions are critical to the operation of the markets, including those
that represent single points of failure, and are therefore subject to
certain heightened requirements.\78\ Specifically, Critical SCI systems
means, any SCI systems of, or operated by or on behalf of, an SCI
entity that directly support functionality relating to, among other
things, clearance and settlement systems of clearing agencies.\79\
---------------------------------------------------------------------------

    \77\ See 17 CFR.242.1000 (defining SCI systems).
    \78\ See 17 CFR 242.1000 (defining Critical SCI systems) and
1001(a)(2)(iv) (imposing heightened requirements); see also
Regulation SCI Adopting Release, supra note 74, at 72277.
    \79\ 17 CFR 242.1000(a) (defining Critical SCI systems).
---------------------------------------------------------------------------

    When discussing the inclusion of clearance and settlement systems
of clearing agencies as a Critical SCI system, the Commission stated
that the clearance and settlement of securities is fundamental to
securities market activity.\80\ The Commission identified a variety of
services that clearing agencies perform to help ensure that trades
settle on time and at the agreed upon terms, including comparing
transaction information (or reporting to members the results of
exchange comparison operations), calculating settlement obligations
(including net settlement), collecting margin (such as initial and
variation margin), and serving as a depository to hold securities as
certificates or in dematerialized form to facilitate automated
settlement.\81\
---------------------------------------------------------------------------

    \80\ Regulation SCI Adopting Release, supra note 74, at 72278.
    \81\ Id.
---------------------------------------------------------------------------

    As stated above in section III.B.2.b, a covered clearing agency's
critical services, for purposes of inclusion in an RWP, would encompass
its critical payment, clearing, and settlement services. Thus, those
services could be supported by the covered clearing agency's Critical
SCI systems, as defined in Regulation SCI.
c. Identification of Service Providers
    Proposed Rule 17ad-26(a)(2) would require each covered clearing
agency's RWP to identify and describe any service providers upon which
the covered clearing agency relies to provide its critical payment,
clearing, and settlement services, identifying to what critical
services such third parties are relevant, and address how the covered
clearing agency would ensure that such service providers would continue
to provide such critical services in the event of recovery and during
an orderly wind-down. In addition, the Commission is proposing to
define in proposed Rule 17ad-26(b) the term ``service provider'' as any
person, including an affiliate or a third party, that is contractually
obligated to the covered clearing agency in any way related to the
provision of critical services, as identified by the covered clearing
agency in proposed Rule 17ad-26(a)(1), discussed in section III.B.2.b
infra. This definition includes both ``external'' third-party service
providers, such as technology or data providers, and those ``internal''
service providers that may be affiliated with the covered clearing
agency, such as when a covered clearing agency is part of a holding
company and receives certain services pursuant to agreements with that
holding company. The Commission also proposes to define ``affiliate''
in proposed Rule 17ad-26(b) to mean a person that directly or
indirectly controls, is controlled by, or is under common control with
the covered clearing agency. It would include a holding company that
owns the covered clearing agency.
    Based on its supervisory experience, the Commission has observed
that covered clearing agencies have used services provided by service
providers to help ensure the prompt and accurate clearance and
settlement of securities transactions. Service providers may be
affiliates or third party entities and can perform a wide variety of
functions, such as providers of technology, data, or other services.
For service providers that are necessary for the covered clearing
agency to provide its core payment, clearing, and settlement services,
the failure of the service provider to perform its obligations could
pose significant operational risks and have substantial effects on the
ability of the covered clearing agency to perform its risk management
function and facilitate prompt and accurate clearance and settlement.
In a recovery or orderly wind-down, the continued performance of a
service provider of its function would remain essential.
    The Commission is therefore proposing to require that an RWP
specifically identify and describe such service providers, to ensure
that the RWP considers what providers are necessary for the covered
clearing agency to continue providing its critical services. This
requirement would

ensure that the covered clearing agency has identified which service
providers relate to which critical services. This identification must
include both affiliated service providers and non-affiliated service
providers. The covered clearing agency also generally should consider
whether there are any interdependencies or interconnections amongst its
service providers, that is, whether a service provider supporting
critical services also provides other, unrelated services to the
covered clearing agency. Regardless of the nature of the service
provider, it is essential that an RWP identify such providers to ensure
that the covered clearing agency understands the relationships that it
should maintain to continue providing its critical services.\82\
---------------------------------------------------------------------------

    \82\ The Commission proposed Rule 17Ad-25(i), which would
establish policy and procedure requirements for clearing agency
boards of directors to oversee relationships with service providers
for critical services to, among other things, confirm and document
that risks related to relationships with service providers for
critical services are managed in a manner consistent with its risk
management framework, review senior management's monitoring of
relationships with service providers for critical services, and
review and approve plans for entering into third-party relationships
where the engagement entails being a service provider for critical
services to the registered clearing agency. See Clearing Agency
Governance and Conflicts of Interest Proposing Release, Exchange Act
Release No. 34-95431 (Aug. 8, 2022), 87 FR 51812, 51836 (Aug. 23,
2022). In addition, the Commission proposed a new subparagraph (ix)
under Rule 1001(a)(2) of Regulation SCI regarding third party
provider management, which would require that SCI entities have a
third party provider management program that includes: initial and
periodic review of contracts with such third party providers for
consistency with the SCI entity's obligations under Regulation SCI;
and a risk-based assessment of each third party provider's
criticality to the SCI entity, including analyses of third party
provider concentration, of key dependencies if the third party
provider's functionality, support, or service were to become
unavailable or materially impaired, and of any potential security,
including cybersecurity, risks posed. Proposing Release, Regulation
Systems Compliance and Integrity, Exchange Act Release No. 97143
(Mar. 15, 2023), 88 FR 23146 (Apr. 14, 2023). Although this aspect
of proposed rule 17ad-26 also relates to third party providers and/
or service providers, the Commission does not believe that these
proposed rules have any substantive overlap. This proposed rule
would require that a covered clearing agency identify certain
service providers for purposes of its recovery and wind-down plan.
The Commission encourages commenters to review the proposals with
respect to clearing agency governance and Regulation SCI to
determine whether they might affect their comments on this proposing
release. Further, the Commission recognizes that the CA Governance
Proposal includes a proposed defined term for ``service providers
for critical services,'' which would mean any person that is
contractually obligated to the registered clearing agency for the
purpose of supporting clearance and settlement functionality or any
other purposes material to the business of the registered clearing
agency. In this release, the Commission is proposing to define
``service provider'' as any person that is contractually obligated
to the covered clearing agency in any way related to the provision
of critical services, as identified by the covered clearing agency
in proposed Rule 17ad-26(a)(1). See section III.B.a supra.
---------------------------------------------------------------------------

    In addition, the Commission is proposing to require that an RWP
address how the covered clearing agency would ensure that service
providers could continue to perform in the event of a recovery or
during an orderly wind-down, including consideration of contractual
obligations with such service providers and whether those obligations
are subject to alteration or termination as a result of initiation of
the recovery and orderly wind-down plan. This requirement would ensure
that the covered clearing agency has considered the nature of its
contractual obligations with the identified service providers (such as
contracts, arrangements, agreements, and licenses) and whether the
service providers could be contractually obligated to perform in a
recovery or orderly wind-down. Generally, this should include
consideration of whether a service provider's contractual relationship
with the covered clearing agency would be affected by a recovery or
orderly wind-down.\83\ Currently, the RWPs often identify some set of
service providers, but the Commission believes that the identified sets
may not, for all covered clearing agencies, be sufficient to align with
this rule, if adopted, because the covered clearing agencies do not
uniformly ensure that they have addressed all such service providers
and instead identify some different subset thereof. Moreover, the RWPs
generally do not address how the covered clearing agency would ensure
that such service providers would continue to provide such critical
services in the event of recovery and during an orderly wind-down,
including consideration of the contractual obligations with such
service providers.
---------------------------------------------------------------------------

    \83\ For example, the covered clearing agency should consider
whether its contractual relationships with such providers would
transfer to a new entity in the event of the creation of a new
entity or the sale or transfer of the business in an orderly wind-
down.
---------------------------------------------------------------------------

    More generally, the Commission believes that the requirement to
identify and describe any critical service providers and address how
the covered clearing agency would ensure that such service providers
would be legally obligated to perform in a recovery or during an
orderly wind-down should help regulatory planning in the event of a
resolution. To create an actionable resolution plan that would allow a
resolution authority to ensure the continued provision of the covered
clearing agency's critical services and, accordingly, to avoid market
interruption or any potential financial instability, the resolution
authority would need to be able to identify the critical services, as
well as the scope and nature of underlying service providers. Further,
the requirement that the plan address the continued provision of
services in the event of a recovery or during an orderly wind-down
should also help a resolution authority, in that it should enable a
better understanding of the terms and conditions of the relationship
between the covered clearing agency and the service provider.
d. Scenarios
    Having identified its critical services, proposed Rule 17ad-
26(a)(3) would then require an RWP to identify and describe scenarios
that may potentially prevent a covered clearing agency from being able
to provide its critical services as a going concern, including
scenarios arising from uncovered credit losses (as described in Rule
17Ad-22(e)(4)(viii)), uncovered liquidity shortfalls (as described in
Rule 17Ad-22(e)(7)(viii)), and general business losses (as described in
Rule 17Ad-22(e)(15)).\84\ These scenarios are consistent with the
current requirement in Rule 17Ad-22(e)(3)(ii). Identification and
description of scenarios is essential to evaluating what is necessary
to achieve a recovery of the clearing agency and, in the event that
recovery fails, ensuring the orderly wind-down of the clearing agency
and transfer of critical services to a new entity. Identifying the
scenarios enables a covered clearing agency to make the reasonable and
appropriate preparations to achieve a recovery or, in the event that
recovery fails, avoid a disorderly wind-down arising from those
scenarios that could transmit risk through the U.S. securities markets
and the broader financial system.
---------------------------------------------------------------------------

    \84\ Rule 17Ad-22(e)(3)(ii) refers to identifies several
specific bases for recovery and orderly wind-down that should be
covered by the plans: credit losses, liquidity shortfalls, and
losses from general business risk. Proposed rule 17ad-26(a)(3) would
reference those same bases and include cross-references to where
those bases are addressed in the Covered Clearing Agency Standards.
---------------------------------------------------------------------------

    Because the covered clearing agencies should contemplate the
inability to provide services as a going concern, these scenarios would
necessarily go beyond those contemplated in business as usual
circumstances, business continuity planning, crisis management, or
failure management. That is, unlike those types of scenarios, recovery
and wind-down planning scenarios would involve shocks that could
potentially

cause the covered clearing agency to become insolvent and cease
operations.
    When identifying scenarios, the covered clearing agency generally
should consider the various risks to which it is exposed, which will
vary across different covered clearing agencies serving different
markets. The proposed rule would require that the covered clearing
agency consider scenarios arising from uncovered credit losses,
uncovered liquidity shortfalls, and general business losses. This set
of scenarios would therefore include scenarios arising from the default
of a participant and also those arising from events not related to a
participant default, such as a general business loss. Other potential
scenarios that are not related to a participant default could include
the realization of investment or custody losses, the failure of a third
party, such as a settlement bank, to perform a critical function for
the covered clearing agency, or scenarios caused by an SCI event or
other significant operational disruption, such as a significant
cybersecurity incident. In addition, a covered clearing agency that is
part of a larger organization may be exposed to risks arising from
other entities within the organization. Put more generally, the
identified scenarios take into account various risks to which the
covered clearing agency is exposed that may potentially prevent the
covered clearing agency from being able to provide its critical
services, which will vary across different types of covered clearing
agencies (i.e., a central counterparty versus a central securities
depository) and even across covered clearing agencies of the same type.
    The Commission believes that the identified scenarios generally
should be structured such that the underlying assumptions ensure that
the scenarios are sufficiently severe, such that they would result in
the need for a recovery or orderly wind-down. These scenarios generally
should include both idiosyncratic and system-wide stress scenarios,
taking into account the possibility of contagion in a stress event and
of simultaneous crises in several significant markets. Although all
covered clearing agencies generally consider at a high level what
circumstances may cause them to enter recovery or wind-down (e.g.,
whether a recovery or wind-down would arise from the default of a
participant or from issues unrelated to a participant default), the
RWPs do not all identify particular scenarios the covered clearing
agencies have considered when developing the RWP or contain detailed
analyses of each particular scenario.
    Each scenario generally should be analyzed individually in the
recovery plan, with the analysis including: a description of the
scenario; the events that are likely to trigger the scenario; the
covered clearing agency's process for monitoring such events; the
market conditions, operational and financial issues, and other relevant
circumstances that are likely to result from the scenario; the
potential financial and operational impact of the scenario on the
covered clearing agency and its participants, internal and external
service providers, and relevant affiliated companies, both in an
orderly and stressed market (e.g., where markets are unavailable or
there are limited solvent counterparties); and the specific steps that
the covered clearing agency would expect to take if the scenario occurs
or appears likely to occur, including, without limitation, any
governance or other procedures that may be necessary to implement the
relevant tools or use the relevant resources and to ensure that such
implementation occurs in sufficient time to achieve the intended
effect.
e. Triggers
    Proposed Rule 17ad-26(a)(4) would require a covered clearing
agency's RWP to identify and describe the criteria that would trigger
the implementation of its RWP and the process that the covered clearing
agency uses to monitor and determine whether the criteria have been
met, including the governance arrangements applicable to such process.
Given that the implementation of a covered clearing agency's RWPs would
most likely occur during a period of significant stress at the covered
clearing agency or in the market in general, the Commission believes
that the covered clearing agency needs to identify in advance what
criteria could trigger implementation of its RWP. Such ex ante
identification of potential triggers can help ensure that a covered
clearing agency not only implements its plan pursuant to the
established RWP but that, before it implements such plans, it is aware
of the triggering events that may necessitate use of the RWP.
Thoughtful consideration of triggers can help ensure that the steps
taken in anticipation of a potential recovery or wind-down have been
planned for and coordinated to minimize the onward transmission of risk
to the U.S. financial system. Currently, covered clearing agencies
identify triggers in their RWPs but differ with respect to how much
they identify the specific monitoring or governance processes for such
triggers.
    The covered clearing agency generally should consider defining both
quantitative and qualitative criteria that would trigger the
implementation of part or all of the recovery plan or of an orderly
wind-down plan. Moreover, the covered clearing agency generally should
consider triggers that would be applicable in circumstances involving
the default of its participant(s), as well as those that would be
applicable in circumstances not related to the default of a participant
or participants. When determining triggers, the covered clearing agency
also generally should consider whether the likely timing of a
triggering event in the identified scenarios would permit sufficient
time for implementation of the RWP.
    There may be circumstances in which the trigger is obvious. For
example, when a participant of a covered clearing agency defaults, the
recovery plan likely would be triggered when the covered clearing
agency has exhausted its pre-funded financial resources, its qualifying
liquid resources,\85\ or any other liquidity arrangements that it has
in place to deal with default-related shortfalls, or when it has become
unlikely that the pre-funded financial resources and/or the liquidity
arrangements will be sufficient. In other circumstances, the covered
clearing agency may have to employ more judgment with respect to how to
develop appropriate triggers. For example, a covered clearing agency
may need to exercise judgment to determine an appropriate capital level
to trigger activation of its RWP in the event of persistent or
extraordinary capital losses from general business risks.
---------------------------------------------------------------------------

    \85\ See 17 CFR 240.17Ad-22(a)(14).
---------------------------------------------------------------------------

    The identification of triggers does not mean that such triggers
should be self-executing. Instead, the importance of identifying
triggers lies in ensuring that a covered clearing agency considers and
identifies ex ante when it would initiate its RWP. Therefore, the
Commission believes that the RWP also must identify and describe the
process that the covered clearing agency uses to monitor and determine
whether the criteria have been met, including the governance
arrangements applicable to such process. Specifying the monitoring
process would allow the covered clearing agency to ensure that it has
reliable and appropriate processes to analyze the facts and
circumstances related to the triggers identified in the RWP. Consistent
with its obligations under Rule 17Ad-22(e)(3), the identification of
the governance process generally should include clearly defining the
responsibilities of board members, senior management, and business
units, including with respect to

escalation within the covered clearing agency, and it also generally
should specify whether and to what extent the covered clearing agency
may exercise discretion in its monitoring and determination whether the
triggering criteria have been met. The Commission believes that
including the related governance in the RWP is important to allow the
covered clearing agency to use the RWP in a crisis because the RWP
would set forth clear and defined roles and avoid potential confusion
at the time of the RWP's implementation.
f. Rules, Policies, Procedures, and Tools
    Proposed Rule 17ad-26(a)(5) would require a covered clearing
agency's RWP to identify and describe the rules, policies, procedures,
and any other tools or resources the covered clearing agency would rely
upon in a recovery or orderly wind-down. The Commission believes that
describing the rules, policies, procedures, and any other tools or
resources is essential to a covered clearing agency's RWP. The
requirement to describe rules, policies, procedures, and any other
tools or resources that may be used in advance for certain situations
would provide some level of predictability in such a situation and
avoid unexpected actions because it would allow participants to
understand the potential of tools or resources that could be used,
including whether any of the tools would require participant
involvement or resources (such as a cash call).
    Generally, the rules, policies, procedures, and any other tools or
resources should address shortfalls arising in the stress scenarios
identified by the covered clearing agency, whether caused by
participant default or by some other event, that are not covered by
pre-funded financial resources. They should also address situations
where the covered clearing agency does not have sufficient qualifying
liquid resources to meet its obligations on time. In addition, the
tools should address other losses or liquidity shortfalls, including
those arising from general business risks that may or may not develop
more slowly than a sudden default or other event.
    However, the Commission is not prescribing particular tools, such
as tear-up or margin haircutting, that a covered clearing agency would
be required to include in its RWP. The Commission believes that this
proposed requirement preserves discretion for each covered clearing
agency to consider the full range of available recovery tools and
select those most appropriate for the circumstances of the covered
clearing agency, including the products cleared and the markets
served.\86\ It would also allow a covered clearing agency to consider
the ways in which its ownership structure (such as whether it is a
subsidiary of a larger organization, owned by its participants, etc.)
could impact its execution of its RWP or use of the tools set forth
therein, including through the applicable governance arrangements or
because of tools that rely on a parent or affiliated organization.
---------------------------------------------------------------------------

    \86\ See CCA Standards Adopting Release, supra note 7, 81 FR at
70809.
---------------------------------------------------------------------------

    The current RWPs identify the tools and other resources that the
covered clearing agency would use in a recovery or orderly wind-down.
Certain of those tools, which may often be referred to as the covered
clearing agency's default waterfall,\87\ may involve the allocation of
losses to its members or, potentially, to other shareholders or
creditors of the covered clearing agency, among others, and covered
clearing agencies are required to address such loss allocation under
the Covered Clearing Agency Standards.\88\ As part of their recovery
and wind-down planning, the Commission believes that covered clearing
agencies generally should consider their loss allocation policies in
light of the scenarios identified in response to proposed Rule 17ad-
26(a)(3), including the need for any additional tools or loss
allocation processes to address different scenarios.
---------------------------------------------------------------------------

    \87\ See note 150 infra.
    \88\ See 17 CFR 240.17Ad-22(e)(4)(viii) (requiring that a
covered clearing agency establish, implement, maintain and enforce
written policies and procedures reasonably designed to effectively
identify, measure, monitor, and manage its credit exposures to
participants and those arising from its payment, clearing, and
settlement processes, including by addressing allocation of credit
losses the covered clearing agency may face if its collateral and
other resources are insufficient to fully cover its credit
exposures).
---------------------------------------------------------------------------

    When identifying the tools and other resources that a covered
clearing agency may include in a recovery or orderly wind-down plan,
the Commission believes that the covered clearing agency generally
should consider the following characteristics to evaluate the
appropriateness of a tool or tools for a particular recovery scenario
or an orderly wind-down, including the sequence in which the tools
should be used. First, the set of tools should comprehensively address
how the covered clearing agency would continue to provide critical
services in all relevant scenarios. Second, the tools should be
effective, meaning that they should be reliable, timely, and have a
strong legal basis. Being effective generally should mean that the
covered clearing agency has a high degree of confidence that it could
employ the tool in all relevant circumstances, including a time of
stress. Third, the tools generally should be transparent, so as to
allow the covered clearing agency's participants and the broader market
participants to understand how they would operate and allow those who
would bear losses and liquidity shortfalls to measure, manage, and
control their potential losses and liquidity shortfalls. Finally, the
tools generally should take into account whether the tools create
appropriate incentives for the covered clearing agency's owners, direct
and indirect participants, and other relevant stakeholders, and they
generally should seek to minimize the potential impact that the tools
may have on participants and the financial system more broadly.
    When analyzing the tools to be included in its RWP, a covered
clearing agency generally should consider: (i) a description of the
tools that the covered clearing agency would expect to use in each
scenario; (ii) the order in which each tool would be expected to be
used; (iii) the time frame within which the tool would be used; (iv)
the governance and approval processes and arrangements within the
covered clearing agency for the use of each of the tools available,
including the exercise of any available discretion; (v) the processes
to obtain any approvals external to the covered clearing agency
(including any regulatory approvals) that would be necessary to use
each of the tools available, and the steps that might be taken if such
approval is not obtained; (vi) the steps necessary to implement the
tools; (vii) the roles and responsibilities of all parties, including
non-defaulting participants; (viii) whether the tool is mandatory or
voluntary; and (ix) an assessment of the associated risks from the use
of each tool to non-defaulting clearing members and their customers,
linked financial market infrastructures, and the financial system more
broadly.
g. Timely Implementation
    Proposed Rule 17ad-26(a)(6) would require a covered clearing
agency's RWP to address how the rules, policies, procedures, and any
other tools or resources identified in paragraph (5) would ensure
timely implementation of the recovery and orderly wind-down plan. The
Commission believes that this is an important element of a covered
clearing agency's RWP, that is, to provide, in advance, a level of
predictability as to how such measures would be implemented, which is
important to participants as discussed in section III.B.e infra, and to
ensure that the covered clearing agency has a

strategy for use of the various tools set forth in the RWP recovery and