/Vol. 78, No. 158/Thursday, August 15, 2013/Rules and Regulations
Dodd-Frank Wall Street Reform andConsumer Protection Act, Public Law 111–203, 124Stat. 1376 (2010). The text of the Dodd-Frank Actmay be accessed at
Section 701 of the Dodd-Frank Act.
7 U.S.C. 1
Commodity Futures Modernization Act of 2000, Public Law 106–554, 114 Stat. 2763 (2000).
A New Regulatory Framework for ClearingOrganizations, 66 FR 45604 (Aug. 29, 2001) (finalrule) (adopting 17 CFR part 39, app. A).
section 725(c) of the Dodd-Frank Act(explicitly giving the Commission authority topromulgate rules regarding the core principlespursuant to its rulemaking authority under section8a(5) of the CEA, 7 U.S.C. 12a(5)).
Derivatives Clearing Organization GeneralProvisions and Core Principles, 76 FR 69334 (Nov.8, 2011) (final rule).
Core Principle B also expressly requires DCOsto ‘‘possess financial resources that,
at a minimum,
exceed the total amount that would (I) enable theorganization to meet its financial obligations to itsmembers and participants notwithstanding adefault by the member or participant creating thelargest financial exposure for that organization inextreme but plausible market conditions; and (II)enable the [DCO] to cover operating costs of the[DCO] for a period of 1 year (as calculated on arolling basis).’’ Section 5b(c)(2)(B) of the CEA, 7U.S.C. 7a–1(c)(2)(B) (emphasis added).
17 CFR 39.11(a)(1) (implementing CorePrinciple B pertaining to financial resources).
17 CFR 39.11(d)(2)(iii) (requiring a DCO toapply a 30 percent haircut to the value of potentialassessments);
17 CFR 39.11(d)(2)(iv)(permitting a DCO to count the value of assessments, after the 30 percent haircut, to meetup to 20 percent of its default obligations).
Core Principle I also requires DCOs to‘‘establish and maintain a program of risk analysisand oversight to identify and minimize sources of operational risk through the development of appropriate controls and procedures, andautomated systems, that are reliable, secure, andhave adequate scalable capacity,’’ and ‘‘periodicallyconduct tests to verify that the backup resources of the [DCO] are sufficient to ensure daily processing,clearing, and settlement.’’ Section 5b(c)(2)(I) of theCEA, 7 U.S.C. 7a–1(c)(2)(I).
17 CFR 39.18(e)(3) (implementing CorePrinciple I pertaining to system safeguards).
Section 801 of the Dodd-Frank Act.
The rules will become effectiveOctober 15, 2013. Systemicallyimportant derivatives clearingorganizations must comply with §39.29and §39.30 no later than December 31,2013.
FOR FURTHER INFORMATION CONTACT
Ananda Radhakrishnan, Director, 202–418–5188,
Robert B. Wasserman, Chief Counsel,202–418–5092,
M. Laura Astrada, Associate Chief Counsel, 202–418–7622,
or Tracey Wingate,Special Counsel, 202–418–5319,
Division of Clearingand Risk, Commodity Futures TradingCommission, Three Lafayette Centre,1155 21st Street NW., Washington, DC20581.
Table of Contents
I. BackgroundA. Core Principles for DCOsB. Designation of Systemically ImportantDerivatives Clearing OrganizationsUnder Title VIII of the Dodd-Frank ActC. Standards for SIDCOs Under Title VIIIof the Dodd-Frank ActD. Principles for Financial MarketInfrastructuresE. Existing Prudential RequirementsF. Risk Management Standards for SIDCOsII. Regulation 39.29A. Regulation 39.29(a)B. Regulation 39.29(b)III. Regulation 39.30IV. Regulation 39.31V. Compliance DatesVI. Consideration of Costs and BenefitsA. IntroductionB. BackgroundC. Benefits and Costs of the Final RuleD. Section 15(a) FactorsVII. Related MattersA. Paperwork Reduction ActB. Regulatory Flexibility ActVIII. Text of Final Rules
A. Core Principles for DCOs
On July 21, 2010, President Obamasigned the Dodd-Frank Act.
Title VII of the Dodd-Frank Act, entitled the ‘‘WallStreet Transparency and AccountabilityAct of 2010,’’
amended the CommodityExchange Act (‘‘CEA’’ or the ‘‘Act’’)
toestablish a comprehensive regulatoryframework for over-the-counter (‘‘OTC’’)derivatives, including swaps. Thelegislation was enacted to reduce risk,increase transparency, and promotemarket integrity within the financialsystem by, among other things: (1)Providing for the registration andcomprehensive regulation of swapdealers and major swap participants; (2)imposing mandatory clearing and tradeexecution requirements on clearableswap contracts; (3) creating rigorousrecordkeeping and real-time reportingregimes; and (4) enhancing theCommission’s rulemaking andenforcement authorities with respect to,among others, all registered entities andintermediaries subject to theCommission’s oversight.Section 725(c) of the Dodd-Frank Actamended section 5b(c)(2) of the CEA,which sets forth core principles that aderivatives clearing organization(‘‘DCO’’) must comply with to registerand maintain registration with theCommission. The core principles wereoriginally added to the CEA by theCommodity Futures Modernization Actof 2000 (‘‘CFMA’’),
and in 2001, theCommission issued guidance on DCOcompliance with these core principles.
However, in furtherance of the goals of the Dodd-Frank Act to reduce risk,increase transparency, and promotemarket integrity, the Commission,pursuant to the Commission’s enhancedrulemaking authority,
withdrew the2001 guidance and adopted regulationsestablishing standards for compliancewith the DCO core principles.
As noted in the preamble to theadopting release for subparts A and B of part 39 of the Commission’s regulations,the regulations that implement the DCOcore principles, the Commission soughtto provide legal certainty for marketparticipants, strengthen the riskmanagement practices of DCOs, andincrease overall confidence in thefinancial system by assuring the publicthat DCOs are meeting minimum riskmanagement standards.
These riskmanagement standards include, in part:(1) With respect to financialresources, (a) Core Principle B, whichrequires DCOs to have ‘‘adequatefinancial, operational, and managerialresources, as determined by theCommission, to discharge eachresponsibility of the [DCO],’’
and (b)Commission regulation 39.11, whichrequires a DCO to maintain sufficientfinancial resources to meet its financialobligations to its clearing membersnotwithstanding a default by theclearing member creating the largestfinancial exposure for the DCO inextreme but plausible marketconditions,
and permits the inclusionof assessment powers to meet a limitedportion of the DCO’s default resourcesrequirement;
and(2) with respect to businesscontinuity, (a) Core Principle I, whichrequires DCOs to ‘‘establish andmaintain emergency procedures, backupfacilities, and a plan for disasterrecovery that allows for (I) the timelyrecovery and resumption of operationsof the [DCO], and (II) the fulfillment of each obligation and responsibility of the[DCO],’’
and (b) Commissionregulation 39.18, which requires a DCOto maintain a BC–DR plan, emergencyprocedures, and physical, technological,and personnel resources sufficient toenable the DCO to resume dailyprocessing, clearing, and settlement nolater than the next business dayfollowing the disruption of itsoperations.
B. Designation of Systemically Important Derivatives Clearing Organizations Under Title VIII of theDodd-Frank Act
Title VIII of the Dodd-Frank Act,entitled ‘‘Payment, Clearing, andSettlement Supervision Act of 2010,’’
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