The U.S. Securities and Exchange Commission yesterday said that it would adopt rules to strengthen the regulatory framework for clearing agencies deemed systemically important or that are involved in complex transactions, such as security-based swaps, Reuters reported today. Clearing agencies act as a middlemen between the parties to securities transactions by ensuring the smooth transfer of funds and securities, and in some cases, serve as a backstop in case a brokerage defaults. The rules are aimed at preventing clearing agencies deemed "too big to fail" from collapsing and spreading systemic market risks. These include the Fixed Income Clearing Corp, the National Securities Clearing Corp and the Options Clearing Corp. The new rules would enhance existing regulations put in place in 2014 though policies and procedures such as requiring daily stress testing, monthly review and annual validation of credit risk models. The rules would also increase capital requirements for the agencies and require them to have plans for an orderly recovery or wind-down of their operations.
