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SEC Proposes Rules for Security-Based Swap Clearing Agencies

The Securities Exchange Commission (SEC) voted Wednesday to propose new rules to enhance oversight of clearing agencies that are "systemically important" or that are involved in complex transactions, such as security-based swaps.

The increased regulations would monitor securities clearing agencies that act as a middleman between parties in a transaction, "ensuring that funds and securities are correctly transferred between parties and, in some cases, assuming the risks of a party defaulting on a transaction ... ," the release said.

The Dodd-Frank Wall Street Reform and Consumer Protection Act called for enhanced regulations for certain clearing agencies. The SEC's proposal would only apply to SEC-registered agencies that have been specially designated as systemically important by the Financial Stability Oversight Council, or those involved in complex transactions.

The clearing agencies, if the proposed rules come into effect, would be subject to new requirements related to their financial risk management, operations, governance, and disclosures to market participants and the public.

"Clearing agencies that have been designated as systemically important or that clear security-based swaps are a backbone of the U.S. financial markets," said SEC Chair Mary Jo White. "The enhanced regulatory regime proposed today reflects the importance of effective regulation of these entities."

Claire Hall, Of Counsel at law firm DLA Piper, spoke with DS News about the new SEC proposed regulations.

"A lot of swaps that were previously OTC (over-the-counter) are now being pushed to clearinghouses. As you can imagine, the volume of transactions that clearinghouses will be responsible for is going to grow exponentially. There is a concern that these clearinghouses could become too big to fail," Hall said.

She continued, "These rules are to make sure that clearinghouses are very robust; that they've got sufficient resources, and have stress testing in place because these entities need to be solvent."

The public will have 60 days to comment on the proposed rules after their publication in the Federal Register.

About Author: Colin Robins

Colin Robins is the online editor for DSNews.com. He holds a Bachelor of Arts from Texas A&M University and a Master of Arts from the University of Texas, Dallas. Additionally, he contributes to the MReport, DS News' sister site.

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