The Financial Stability Oversight Council (FSOC) has appointed eight clearing houses and other market infrastructures as systemically important financial market utilities,” paving the way for further oversight and regulations of these institutions.
On the list are three Depository Trust & Clearing Corporation subsidiaries (The Depository Trust Company, Fixed Income Clearing Corporation and National Securities Clearing Corporation) as well as the Chicago Mercantile Exchange, ICE Clear Credit, The Clearing House Payments Company, CLS Bank International and The Options Clearing Corporation.
Designation as a systemically important institution has previously only been bestowed by the Financial Stability Board to the worlds largest banks. Currently, 17 firms from Europe, eight from America and four from Asia often referred to as too big to fail comprise the list. The financial market utility (FMU) designation is new. However, a FAQ on the FSOCs Web site says it has the authority to designate a nonbank financial firm for tough new supervision and therefore avoid the regulatory gaps that existed before the recent crisis, referring to the events of 2007-09.
Four criteria determine if an FMU is deemed systemically important by the FSOC: the monetary value of transactions performed by the FMU; the exposure it has to counterparties; the interactions of the FMU with other FMUs or payment, clearing or settlement activities; as well as the effect the failure of the FMU would have on markets or other financial institutions. The affected FMUs received notification of the FMUs on May 22 with an offer to request a hearing within 30 days if they disagreed, but no hearings were requested, the FSOC says.
While we will continue to closely assess the implications of this designation, DTCC remains committed to consistently operating to the highest of risk management standards. We do not anticipate these designations will either significantly change our day-to-day business or how we work with our clients, says Michael Bodson, president and CEO of the DTCC.
The FSOC, which comprises ten voting and five non-voting members, is chaired by Treasury Secretary Timothy Geithner and includes Federal Reserve Chairman Ben Bernanke, a chairperson from the Securities and Exchange Commission and the Commodities Futures Trading Commission. It was created by Title I of the 2010 Dodd-Frank Act and is tasked with preventing systemic risk in the U.S. financial system.
More information as well as minutes from its latest meeting can be found on the FSOCs Web site.
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