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.
