Summary of SEC’s New Rules for Clearing Agency Governance

Chris T

November 17, 2023

Securities Law

Overview

The Securities and Exchange Commission (SEC) has announced the adoption of new rules aimed at enhancing the governance of registered clearing agencies. These rules are designed to mitigate conflicts of interest within their boards of directors or equivalent governing bodies.

SEC Chair’s Statement

SEC Chair Gary Gensler expressed his support for these rules, emphasizing their role in strengthening the resilience of clearinghouses. He highlighted the objectives of these rules as promoting board independence, considering stakeholder viewpoints, and reducing conflicts of interest among the board and senior management.

Key Components of the Rules

The newly adopted rules focus on several critical areas:

• Board Composition: Setting standards for the composition of boards, ensuring a balance of independent directors.
• Nominating Committees: Establishing nominating committees to oversee the selection of board members.
• Risk Management Committees: Implementing committees dedicated to managing risks associated with clearing agency operations.
• Conflict of Interest Policies: Requiring policies and procedures to address potential conflicts of interest, particularly in relationships with service providers.
• Stakeholder Consideration: Mandating that boards consider the perspectives and interests of various stakeholders in their decision-making processes.

Legal Basis and Goals

These rules are part of the SEC’s response to mandates under Section 765 of the Dodd-Frank Act, which directs the Commission to adopt rules that reduce conflicts of interest, especially for security-based swap clearing agencies. The overarching goal is to align the incentives of clearing agency owners and participants more closely and increase transparency in board governance.

Implementation Timeline

The rules have been published on SEC.gov and will also be published in the Federal Register. Compliance with these rules is required 12 months after their publication in the Federal Register, except for the independence requirements for boards and board committees, which have a compliance deadline of 24 months post-publication.

Conclusion

The SEC’s adoption of these new rules represents a significant step in ensuring the integrity and effectiveness of clearing agency governance. By focusing on independent board composition, conflict of interest management, and stakeholder consideration, the SEC aims to fortify the stability and reliability of the financial markets.