SEC Governance of Clearing Agencies

On Nov. 16, SEC adopted rules on governance, conflicts of interest.

  • SEC adopted new rules to improve governance of registered clearing agencies by reducing likelihood that conflicts may influence boards of directors/governing bodies.
  • Follows Aug. 2022 proposal to adopt Rule 17Ad-25 (17 CFR 240.17ad-25), #145210.
  • Chair Gensler and Commissioner Uyeda supported, Commissioner Peirce dissented.
  • The SEC also made available the comment letters received on the proposing release.
  • Final Rule Provisions
  • Defined independence regarding director serving on board of registered clearing firm.
  • In addition, required that the majority of the board - or 34 percent, if a majority of the voting rights are directly or indirectly held by participants - be independent directors.
  • Established independent director requirements for composition of certain committees.
  • Identified circumstances that would preclude director from being independent director.
  • Required clearing agency to establish a nominating committee and written evaluation process for evaluating board nominees and independence of nominees and directors.
  • Specified requirements re composition, fitness standards, documentation of evaluation.
  • Clearing agency to establish a risk management committee, with annual re-evaluation.
  • Required policies and procedures to identify, mitigate, document the identification, mitigation, elimination of conflicts of interest; directors to report potential conflicts.
  • Required policies and procedures for board to solicit, consider, document consideration of views of participants, relevant stakeholders re material developments in operations.
  • Service Providers
  • Required policies, procedures for management of risks from relationships with service providers for core services that directly support delivery of clearance or settlement.
  • Also, any other purposes material to the business of the registered clearing agency.
  • Chair and Commissioners' Statements
  • Gensler noted rulemaking is about making sure that critical market utilities (clearing agencies) cannot outsource obligations in a manner that puts market plumbing at risk.
  • Uyeda noted extended compliance date to avoid conflict with transition to T+1 cycle.
  • Peirce stated approach micromanages governance in way that is likely to divert board attention from key issues by focusing it instead on an amorphous set of stakeholders.
  • Effectiveness
  • Final rules effective date is 60 days after pending publication in the federal register.
  • Compliance date is 12 months after pending publication in federal register, except for independence requirements for board and committees, is 24 months after publication.
  • Dec. 2023 Fed Reg Final Rule
  • On Dec. 5, 2023, SEC published final rule in federal register; effective Feb. 5, 2024.
  • The compliance date is Dec. 5, 2024, except that the compliance date for the independence requirements of the board and board committees is Dec. 5, 2025.

Regulators SEC
Entity Types B/D; Depo; IA; OTC
Reference 88 FR 84454, 12/5/2023; Sp, PR 2023-236, Info, RF 34-98959, 11/16/2023; File No. S7-21-22; RIN 3235-0695; Citation: 17 CFR 240;
Functions Compliance; C-Suite; Legal; Operations; Outsourcing; Record Retention; Registration/Licensing; Reporting; Risk; Settlement
Countries United States of America
Category National Regulator
Products Clearing; Fund Mgt; Securities
Regions Am
Rule Type Final
Rule Date 11/16/2023
Effective Date 2/5/2024
Rule Id 191473
Linked to Rule :145210
Reg. Last Update 12/5/2023
Report Section US Investment

Last substantive update on 12/06/2023