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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations

SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 240
[Release No. 34–101446; File No. S7–10–
23]
RIN 3235–AN19

Covered Clearing Agency Resilience
and Recovery and Orderly Wind-Down
Plans
Securities and Exchange
Commission.
ACTION: Final rule.
AGENCY:

The Securities and Exchange
Commission (‘‘Commission’’) is
adopting amendments to certain rules in
the Covered Clearing Agency Standards
(‘‘CCA Standards’’) under the Securities

SUMMARY:

Exchange Act of 1934 (‘‘Exchange Act’’)
and the Dodd-Frank Wall Street Reform
and Consumer Protection Act (‘‘DoddFrank Act’’). The amendments
strengthen existing rules by adding new
requirements related to the collection of
intraday margin by a covered clearing
agency (‘‘CCA’’) and the use of
substantive inputs in its risk-based
margin system. The Commission is also
adopting a new rule to establish
required elements of a CCA’s recovery
and orderly wind-down plan (‘‘RWP’’).
DATES:
Effective date: January 17, 2025.
Compliance date: The applicable
compliance dates are discussed in Part
III.
FOR FURTHER INFORMATION CONTACT:
Elizabeth Fitzgerald, Assistant Director,
Matthew Lee, Assistant Director, Jesse

Commission reference

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1 15

U.S.C. 78q–1.

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18:56 Nov 15, 2024

§ 240.17ad–22.
§ 240.17ad–22(e)(3)(ii).
§ 240.17ad–22(e)(4).
§ 240.17ad–22(e)(6).
§ 240.17ad–22(e)(6)(ii).
§ 240.17ad–22(e)(6)(iv).
§ 240.17ad–22(e)(15).
§ 240.17ad–22(e)(15)(ii).
§ 240.17ad–22(e)(23).
§ 240.17ad–22(e)(23)(i).
§ 240.17ad–22(e)(23)(ii).
§ 240.17ad–22(e)(23)(iv).
§ 240.17ad–25.
§ 240.17ad–25(c).
§ 240.17ad–25(i).
§ 240.17ad–25(j).
§ 240.17ad–26.
§ 240.17ad–26(a).
§ 240.17ad–26(a)(1).
§ 240.17ad–26(a)(2).
§ 240.17ad–26(a)(3).
§ 240.17ad–26(a)(4).
§ 240.17ad–26(a)(5).
§ 240.17ad–26(a)(6).
§ 240.17ad–26(a)(7).
§ 240.17ad–26(a)(8).
§ 240.17ad–26(a)(9).
§ 240.17ad–26(b).

that a CCA document when it
determines not to make an intraday
margin call pursuant to its written
policies and procedures required under
paragraph (e)(6)(ii). The amendments to
Rule 17Ad–22(e)(6)(iv) establish new
requirements for a CCA relying upon
substantive inputs to its risk-based
margin model, including when such
substantive inputs are not readily
available or reliable.
New Rule 17Ad–26 prescribes
requirements for the contents of a CCA’s
2 12

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PO 00000

Pursuant
to section 17A of the Exchange Act,1 as
well as the Payment, Clearing, and
Settlement Supervision Act (‘‘Clearing
Supervision Act’’) in Title VIII of the
Dodd-Frank Act,2 the Commission is
adopting amendments to 17 CFR
240.17ad–22(e)(6) and adding new
§ 240.17ad–26. Below is a table of
citations to the rules referenced in this
release, including all rules being
amended or adopted:

SUPPLEMENTARY INFORMATION:

CFR citation (17 CFR)

Exchange Act:
Rule 17Ad–22 ...................................................................................................
Rule 17Ad–22(e)(3)(ii) ......................................................................................
Rule 17Ad–22(e)(4) ..........................................................................................
Rule 17Ad–22(e)(6) ..........................................................................................
Rule 17Ad–22(e)(6)(ii) ......................................................................................
Rule 17Ad–22(e)(6)(iv) .....................................................................................
Rule 17Ad–22(e)(15) ........................................................................................
Rule 17Ad–22(e)(15)(ii) ....................................................................................
Rule 17Ad–22(e)(23) ........................................................................................
Rule 17Ad–22(e)(23)(i) .....................................................................................
Rule 17Ad–22(e)(23)(ii) ....................................................................................
Rule 17Ad–22(e)(23)(iv) ...................................................................................
Rule 17Ad–25 ...................................................................................................
Rule 17Ad–25(c) ...............................................................................................
Rule 17Ad–25(i) ................................................................................................
Rule 17Ad–25(j) ................................................................................................
Rule 17Ad–26 ...................................................................................................
Rule 17Ad–26(a) ...............................................................................................
Rule 17Ad–26(a)(1) ..........................................................................................
Rule 17Ad–26(a)(2) ..........................................................................................
Rule 17Ad–26(a)(3) ..........................................................................................
Rule 17Ad–26(a)(4) ..........................................................................................
Rule 17Ad–26(a)(5) ..........................................................................................
Rule 17Ad–26(a)(6) ..........................................................................................
Rule 17Ad–26(a)(7) ..........................................................................................
Rule 17Ad–26(a)(8) ..........................................................................................
Rule 17Ad–26(a)(9) ..........................................................................................
Rule 17Ad–26(b) ...............................................................................................

The amendments to Rule 17Ad–
22(e)(6)(ii) establish new requirements
with respect to a CCA’s policies and
procedures regarding the collection of
intraday margin, specifically, to (i)
include a new requirement to monitor
intraday exposures on an ongoing basis,
(ii) modify the preexisting reference to
making intraday calls ‘‘in defined
circumstances’’ to making intraday calls
‘‘as frequently as circumstances
warrant’’ and identifying examples of
such circumstances, and (iii) require

Capelle, Special Counsel, Adam
Allogramento, Special Counsel, Haley
Holliday, Attorney-Adviser, and David
Li, Senior Financial Analyst, at (202)
551–5710, Office of Clearance and
Settlement, Division of Trading and
Markets; Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–7010.

U.S.C. 5461 et seq.

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Fmt 4701

RWP. While Rule 17Ad–22(e)(3)(ii)
currently requires a CCA’s written
policies and procedures to include the
CCA’s RWP, Rule 17Ad–22(e)(3)(ii) did
not include requirements for the content
of RWPs.3 New Rule 17Ad–26 identifies
elements that a CCA’s RWP must
contain, including: (i) elements related
to planning, including the identification
and use of scenarios, triggers, tools,
staffing, and service providers, as
discussed in Parts II.C.1 through 5; (ii)
timing and implementation of the plans,
3 17

Sfmt 4700

CFR 240.17ad–22(e)(3)(ii).

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
as discussed in Parts II.C.6 and 7; and
(iii) testing and board approval of the
plans, as discussed in Parts II.C.8 and 9.
Definitions included in new Rule 17Ad–
26 are discussed in Part II.D.
In developing these final rules,
Commission staff has consulted with the
Financial Stability Oversight Council
(‘‘FSOC’’), the Commodity Futures
Trading Commission (‘‘CFTC’’), the
Federal Deposit Insurance Corporation
(‘‘FDIC’’), and the Board of Governors of
the Federal Reserve System (‘‘FRB’’).4
The compliance dates for the
amendments to Rule 17Ad–22(e)(6) and
new Rule 17Ad–26 are discussed in Part
III.

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Table of Contents
I. Introduction
II. Discussion of Comments Received and
Final Rules
A. Collection of Intraday Margin
1. Proposed Amendment to Rule 17Ad–
22(e)(6)(ii)
2. Discussion of Comments
B. Inputs to Margin System
1. Proposed Amendment to Rule 17Ad–
22(e)(6)(iv)
2. Discussion of Comments
C. Contents of Recovery and Orderly WindDown Plans
1. Core Services: Rule 17Ad–26(a)(1)
2. Service Providers: Rule 17Ad–26(a)(2)
3. Scenarios: Rule 17Ad–26(a)(3)
4. Triggers: Rule 17Ad–26(a)(4)
5. Tools: Rule 17Ad–26(a)(5)
6. Implementation: Rule 17Ad–26(a)(6)
7. Notification to Commission: Rule 17Ad–
26(a)(7)
8. Testing: Rule 17Ad–26(a)(8)
9. Board Approval: Rule 17Ad–26(a)(9)
10. Other Comments
D. Defined Terms in Rule 17Ad–26
1. Definition of ‘‘Orderly Wind-Down’’
2. Other Defined Terms and Introductory
Clause
III. Compliance Date
IV. Economic Analysis
A. Introduction
B. Economic Baseline
1. Description of Market
2. Overview of the Existing Regulatory
Framework
3. Current Recovery and Orderly WindDown Plans
4. Current Risk-Based Margin
C. Consideration of Benefits and Costs as
Well as the Effects on Efficiency,
Competition, and Capital Formation
1. Final Rule 17Ad–26
2. Amendments to Rule 17Ad–22(e)(6)
3. Other Compliance Costs
4. Efficiency, Competition, and Capital
Formation
D. Reasonable Alternatives to the Final
Rule and Amendments
1. Establish Precise Triggers for
Implementation of RWPs Across All
CCAs
2. Establish Specific Scenarios and
Analyses
4 See,

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3. Establish Specific Rules, Policies,
Procedures, Tools, and Resources
4. Require the Identification of
Interconnections and Interdependencies
5. Establish a Specific Monitoring
Frequency for Intraday Margin Calls
6. Adopt Only Certain Elements of Rule
17Ad–26
7. Focus Intraday Margin Requirements on
a Subset of CCAs
V. Paperwork Reduction Act
A. Amendments to Rule 17Ad–22(e)(6)
B. New Rule 17Ad–26
C. Chart of Total PRA Burdens
VI. Regulatory Flexibility Act
A. Clearing Agencies
B. Certification
VII. Other Matters
Statutory Authority

I. Introduction
CCAs are an essential part of the
infrastructure of the U.S. securities
markets.5 While central clearing and
other important functions provided by
clearing agencies benefit the markets
they serve,6 clearing agencies can pose
systemic risk to the financial system,7
due in part to the fact that such clearing
functions concentrate risk in the
clearing agency.8 Disruption to a
clearing agency’s operations, or failure
on the part of a clearing agency to meet
its obligations, could therefore serve as
a potential source of contagion,
resulting in significant costs not only to
the clearing agency itself or its members
but also to other market participants and
5 See Release No. 34–78961 (Sept. 28, 2016), 81
FR 70786, 70789 (Oct. 13, 2016) (‘‘CCA Standards
Adopting Release’’), https://www.govinfo.gov/
content/pkg/FR-2016-10-13/pdf/2016-23891.pdf;
see also 15 U.S.C. 78q–1(a)(1)(A) (finding that the
prompt and accurate clearance and settlement of
securities transactions, including the transfer of
record ownership and the safeguarding of securities
and funds related thereto, are necessary for the
protection of investors and persons facilitating
transactions by and acting on behalf of investors).
CCAs are a subset of clearing agencies registered
with the Commission. See 17 CFR 240.17ad–22(a)
(defining ‘‘covered clearing agency’’); see also infra
note 6 (explaining further the definition of ‘‘covered
clearing agency’’ and two functions of a CCA).
6 Two functions are that of the central
counterparty (‘‘CCP’’) and the central securities
depository (‘‘CSD’’), each of which constitutes a
financial market infrastructure (‘‘FMI’’). A CCP is a
clearing agency that interposes itself between the
counterparties to securities transactions, acting
functionally as the buyer to every seller and the
seller to every buyer. 17 CFR 240.17ad–22(a). A
CSD is a clearing agency that is a securities
depository as described in section 3(a)(23)(A) of the
Exchange Act. Id. CCAs are clearing agencies
registered with the Commission that provide CCP
or CSD services. See 17 CFR 240.17ad–22(a).
7 CCA Standards Adopting Release, supra note 5,
at 70792; see also 12 U.S.C. 5461–72 (setting forth
provisions under the Clearing Supervision Act for
designating a clearing agency as systemically
important and imposing risk management standards
consistent with international standards).
8 CCA Standards Adopting Release, supra note 5,
at 70793.

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the broader U.S. financial system.9 As a
result, proper management of the risks
associated with CCAs is necessary to
help ensure the stability of the U.S.
securities markets and the broader U.S.
financial system.10
Whether in normal or stressed market
conditions, the effective functioning of
the securities markets requires a
regulatory framework for CCAs that can
promote effective risk management,
help preserve financial stability, and
help ensure the continuity of critical
CCP and CSD functions for the markets
they serve, participants in those
markets, and investors more generally.
Since the enactment of the Dodd-Frank
Act,11 the Commission has adopted a
series of rules designed to support its
ongoing supervision and oversight of
clearing agencies and to help ensure
that CCAs are robust and resilient under
normal market conditions and in
periods of market stress.12 The potential
for CCAs to spread contagion through
the financial system, particularly in
periods of market stress, has
necessitated that the Commission
continue to consider and adopt new
rules over time to improve the
regulatory framework for CCAs. These
series of rules help ensure an effective
regulatory response to evolving risks
that could threaten the U.S. financial
system.13
Since the Commission first adopted
the CCA Standards, supervisory
authorities, CCAs, and market
participants have continued to pursue
further consideration of several topics,
9 Id.; see also Committee on Payment and
Settlement Systems, International Organization of
Securities Commissions (‘‘CPMI–IOSCO’’),
Principles for financial market infrastructures (Apr.
16, 2012), http://www.bis.org/publ/cpss101a.pdf
(‘‘PFMI’’) (identifying the risks posed by FMIs,
including CCPs and CSDs, across 23 discrete
principles). The Committee on Payment and
Settlement Systems renamed itself the Committee
on Payments and Market Infrastructures (‘‘CPMI’’)
in 2014.
10 CCA Standards Adopting Release, supra note 5,
at 70788 n.18.
11 Public Law 111–203, 124 Stat. 1376 (2010).
12 E.g., 17 CFR 240.17ad–22; 17 CFR 240.17ad–25;
see also Release No. 34–9895 (Nov. 16, 2023), 88
FR 84454 (Dec. 5, 2023) (‘‘CA Governance Adopting
Release’’), https://www.govinfo.gov/content/pkg/FR2023-12-05/pdf/2023-25807.pdf; Release No. 34–
88616 (Apr. 9, 2020), 85 FR 28853 (May 14, 2020)
(‘‘CCA Definition Adopting Release’’), https://
www.govinfo.gov/content/pkg/FR-2020-05-14/pdf/
2020-07905.pdf; CCA Standards Adopting Release,
supra note 5; Release No. 34–68080 (Oct. 22, 2012),
77 FR 66219 (Nov. 2, 2012), https://
www.govinfo.gov/content/pkg/FR-2012-11-02/pdf/
2012-26407.pdf.
13 See infra Part II (discussing the rule
amendments and new rules in greater detail). In
addition, when designated as systemically
important by the FSOC, CCAs are also subject to
requirements set forth in Title VIII of the DoddFrank Act and rules thereunder. See, e.g., 12 U.S.C.
5461–72.

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including the collection of margin
generally, the collection of intraday
margin specifically, the potential effects
of such margin collection on market
liquidity, and the need for some
transparency into the margin collection
process so that market participants that
use or rely on CCAs for risk
management functions can monitor and
manage their own financial and other
risks.14
Although the CCA Standards adopted
in 2016 included several provisions
directed to a CCA’s margin system
generally,15 and specifically the
modeling of financial risk and the
collection of margin within it,16 the
Commission has identified two areas of
focus that support strengthening these
pre-existing rules: (i) ensuring effective
monitoring of intraday exposures and
specifying particular circumstances for
collection of margin intraday, and (ii)
ensuring that CCAs have effective tools
for margin modelling even when inputs
to the margin system become unreliable
or unavailable. Ongoing monitoring by
the CCA is necessary to help ensure that
a CCA collects sufficient margin to
cover its exposures throughout the day,
as portfolios and positions may change
after margin is collected at the start of
the day. This requirement should help
ensure that the CCAs have the
appropriate policies and procedures to
address market events featuring large
intraday price and position changes,
such as the events in the equity and
options markets in early 2021.17 In
14 E.g., CPMI–IOSCO, Streamlining Variation
Margin in Centrally Cleared Markets—Examples of
Effective Practices (Feb. 14, 2024), https://
www.bis.org/cpmi/publ/d221.pdf; CPMI–IOSCO,
Transparency and Responsiveness of Initial Margin
in Centrally Cleared Markets—Review and Policy
Proposals (Jan. 16, 2024), https://www.bis.org/bcbs/
publ/d568.pdf; CPMI–IOSCO, Resilience of Central
Counterparties (CCPs): Further Guidance on the
PFMIs (July 2017), https://www.bis.org/cpmi/publ/
d163.pdf (‘‘CPMI–IOSCO Resilience Guidance’’).
15 See, e.g., 17 CFR 240.17ad–22(e)(6).
16 See 17 CFR 240.17ad–22(e)(6)(i) (regarding the
setting of margin levels commensurate with the
risks and particular attributes of each relevant
product, portfolio, and market); (e)(6)(iii) (regarding
the calculating of margin sufficient to cover the
CCA’s potential future exposure to its participants);
(e)(6)(vi) (regarding the monitoring and regular
review, testing, and verification of margin models
using backtesting and sensitivity analysis).
17 For example, a CCA may require more margin
to guard against an increased risk of defaults, which
may occur if, for example, buyers do not carrythrough on paying for a stock that has plummeted
or sellers do not carry-through on delivering a stock
that has skyrocketed. See, e.g., Staff Report on
Equity and Options Market Structure Conditions in
Early 2021, at 31 (Oct. 14, 2021), https://
www.sec.gov/files/staff-report-equity-optionsmarket-struction-conditions-early-2021.pdf
(describing how the National Securities Clearing
Corporation (‘‘NSCC’’) observed unusual volatility
in certain securities in January 2021 and imposed
intraday margin calls in response to trading patterns

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addition, establishing backup
procedures if a substantive input to a
margin model is unavailable or
unreliable is especially relevant to
ensuring that a CCA can continue to
meet its regulatory obligations and
calculate margin appropriately.
Accordingly, in the RWP Proposing
Release,18 the Commission proposed
new requirements to ensure that CCAs
monitor intraday margin on an ongoing
basis and to facilitate intraday margin
collection not only in ‘‘defined’’
circumstances but as frequently as
circumstances warrant.19 The
Commission also defined two
circumstances in which a CCA should
have policies and procedures for
applying intraday margin: (i) when
specific risk thresholds have been
breached, and (ii) when the products
cleared or markets served display
elevated volatility.20 As the Commission
explained in the RWP Proposing
Release, these requirements would help
ensure that the CCA has an effective
process for monitoring margin and
avoiding circumstances in which a
participant becomes under-margined,
which undermines the ability of a CCA
to mitigate risk.21 In addition, with
respect to the inputs into a CCA’s
margin system, the Commission
proposed to expand existing
requirements requiring timely and
reliable price data beyond that limited
topic to also encompass other
substantive inputs to a CCA’s risk-based
margin system, to help ensure that
mechanisms are in place to calculate
margin during periods where inputs
become unavailable, such as if a data
feed becomes interrupted or
corrupted.22 In Parts II.A and B, the
Commission discusses these new
requirements in greater detail, in
addition to addressing the comments
received on the proposed rules.
Importantly, to be resilient in times of
market stress, a CCA will need to
monitor intraday risk on an ongoing
basis and use timely and accurate data
inputs to its margin system. Each helps
ensure that a CCA can, in turn, calculate
and collect margin in a timely manner,
managing its exposures to its
participants throughout the day. In
in Gamestop Corp. (‘‘GME’’) and other equity
securities).
18 See Release No. 34–97516 (May 17, 2023), 88
FR 34708, 34708 (May 30, 2023) (‘‘RWP Proposing
Release’’), https://www.govinfo.gov/content/pkg/FR2023-05-30/pdf/2023-10889.pdf.
19 See infra Parts II.A and B (further discussing
these amended requirements).
20 See infra Part II.A (further discussing these
amended requirements).
21 RWP Proposing Release, supra note 18, at
34714.
22 Id. at 34715.

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times of rapidly evolving or stressed
market conditions, a CCA must be able
to monitor risk and collect margin while
also effectively analyzing the potential
impact of any intraday collections on
market liquidity and financial stability.
Even a robust and resilient CCA may
face stressed market conditions or other
events so extreme that the resources it
has reserved for potential loss scenarios
will prove insufficient. For example,
depending on the markets they serve,
CCAs may hold financial resources
sufficient to withstand the default of the
one or two largest participant families
from among their clearing
participants.23 Such CCAs may not have
sufficient prefunded resources to
withstand defaults beyond these,24 and
would, in such a circumstance, be
charged with allocating losses among
their non-defaulting participants to
close out the portfolios of its defaulting
participants.25 CCAs may also find that
stressed market conditions lead to
liquidity shortfalls or that certain events
drain other capital sources that impair
the functioning of the CCA.
Accordingly, to help preserve financial
stability and ensure the continuity of
critical CCP and CSD functions in
periods of extreme stress, a resilient
CCA still needs to plan effectively to
replenish financial resources when
depleted, address and allocate losses
when they accrue, and, if the CCA is
unable to allocate losses and replenish
depleted resources, implement an
orderly wind-down and cessation or
transfer of its business. If a CCA is
unable to take these steps in a
transparent, orderly, and effective way,
it will serve as a source of contagion,
resulting in the potential for significant
costs not only to the CCA itself or its
clearing members but also to other
market participants and the broader U.S.
financial system.26
23 See, e.g., 17 CFR 240.17ad–22(e)(4)(i), (ii)
(establishing requirements related to maintaining
financial resources at the minimum to enable a CCA
to cover a wide range of foreseeable stress scenarios
that include, but are not limited to, the default of
the one or two participant families that would
potentially cause the largest aggregate credit
exposure for the CCA in extreme but plausible
market conditions).
24 Financial Stability Board (‘‘FSB’’), Central
Counterparty Financial Resources for Recovery and
Resolution (Mar. 10, 2022), https://www.fsb.org/wpcontent/uploads/P090322.pdf (‘‘FSB Analysis’’).
25 See, e.g., CPMI–IOSCO, Recovery of financial
market infrastructures (rev. July 2017), at 2.4,
https://www.bis.org/cpmi/publ/d162.pdf
(explaining considerations related to CCP recovery
in circumstances where the CCP’s prefunded
financial resources have been depleted) (‘‘CPMI–
IOSCO Recovery Guidance’’).
26 The RWP Proposing Release discusses in
greater detail the relationship between RWPs
implemented by CCAs and the considerations
related to orderly resolution of financial companies

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Although the CCA Standards adopted
in 2016 included a requirement for
CCAs to have policies and procedures
that provide for plans for recovery and
orderly wind-down, the Commission
did not include in the rule the specific
elements to be required as part of such
plans.27 The Commission stated that,
given the nature of recovery and
resolution planning, the RWP would
likely reflect the specific characteristics
of the CCA (e.g., its ownership,
organizational, and operational
structures, as well as its size, systemic
importance, global reach, and/or the
risks inherent in the products it
clears).28 Since that time, each CCA has
developed an RWP pursuant to the
requirement for such plans in Rule
17Ad–22. In addition, the Commission
has, through its supervisory process and
through its participation in the ongoing
consideration of issues regarding CCP
recovery and resolution,29 identified
several elements that should be
included in any RWP regardless of the
market served or the products cleared,
to help ensure that planning is effective,
thoughtful, and thorough.
Accordingly, in the RWP Proposing
Release,30 the Commission proposed
new requirements directed to
establishing specific elements of all
RWPs across CCAs, including:
requirements to identify critical systems
and service providers and related
staffing that would support these
functions, to be maintained in a
recovery or wind-down scenario; 31 the
identification and analysis of scenarios
and triggers that could necessitate
implementation of a recovery or winddown; 32 the identification and analysis
of which tools would be appropriate in
certain scenarios in order to facilitate
recovery or an orderly wind-down; 33
requirements for effecting
by the FDIC pursuant to Title II of the Dodd-Frank
Act. RWP Proposing Release, supra note 18, at
34712.
27 See 17 CFR 240.17ad–22(e)(3)(ii) (requiring
‘‘plans for the recovery and orderly wind-down of
the CCA necessitated by credit losses, liquidity
shortfalls, losses from general business risk, or any
other losses’’).
28 RWP Proposing Release, supra note 18, at
34709 (citing CCA Standards Adopting Release,
supra note 5, at 70808–09).
29 E.g., CPMI–IOSCO Recovery Guidance, supra
note 25; FSB Analysis, supra note 24; FSB,
Financial Resources and Tools for Central
Counterparty Resolution (Apr. 25, 2024), https://
www.fsb.org/wp-content/uploads/P250424-1.pdf
(‘‘FSB Guidance’’).
30 See RWP Proposing Release, supra note 18, at
34715–16.
31 See infra Parts II.C.1 and 2 (discussing critical
services and service providers, respectively).
32 See infra Parts II.C.3 and 4 (discussing
scenarios and triggers, respectively).
33 See infra Part II.C.5 (discussing tools).

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implementation of the plan; 34
notification to the Commission; 35
robust annual testing with participants
and key stakeholders, as appropriate; 36
and provisions for board review and
approval of the plan and any material
changes thereto.37 As discussed in the
RWP Proposing Release, these new
requirements draw from existing
practices at CCAs.38 In Parts II.C and D,
the Commission discusses in greater
detail these new requirements, codified
in new Rule 17Ad–26, in addition to
addressing the comments received on
the proposed rules. New Rule 17Ad–26
promotes three important objectives: (i)
bolstering the existing RWPs at CCAs;
(ii) codifying some existing RWP
elements to ensure that these elements
remain in the plans over time; and (iii)
establishing that the RWP of any new
CCA would contain each of the
elements specified in the rule.39 By
advancing these objectives, new Rule
17Ad–26 helps ensure that, in times of
extreme market stress, the recovery or
wind-down of a CCA can preserve
financial stability and ensure the
continuity of critical CCP or CSD
functions.40
The Commission received comments
on the RWP Proposing Release from
CCAs, industry groups (representing
both clearing agencies and their
participants), other market participants,
academics, individual investors, and
other interested parties.41 Commenters
were generally supportive of the
proposal, though some commenters also
expressed concerns regarding specific
elements of the proposed rules. In Part
II, the Commission discusses these
comments in detail and the
modifications made to the final rules to
address comments received. As
discussed further in Part II, the
34 See infra Part II.C.6 (discussing requirements
related to implementation).
35 See infra Part II.C.7 (discussing notification to
the Commission).
36 See infra Part II.C.8 (discussing the testing
requirement).
37 See infra Part II.C.9 (discussing board review
and approval of the RWP and material changes
thereto, including material changes to the covered
clearing agency’s operations that would
significantly affect the viability or execution of the
RWP).
38 RWP Proposing Release, supra note 18, at
34709.
39 See id. at 34711.
40 Id. at 34712. In April, the FSB published
guidance describing the existing set of financial
resources and tools available for use by resolution
authorities (such as the FDIC), in a CCP resolution.
FSB Guidance, supra note 29. The FSB Guidance
is relevant to some of the comments received on
proposed Rule 17Ad–26, as discussed further in
Part II.
41 Comments received are available on the
Commission’s website at https://www.sec.gov/
comments/s7-10-23/s71023.htm.

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Commission is adopting each of the
proposed rules, some substantially as
proposed and others with certain
modifications.
In addition, and separate from the
Commission’s proposed rules for CCAs,
the CFTC also has proposed rules
directed to the RWPs of systemically
important derivatives clearing
organizations (‘‘SIDCOs’’) under the
Commodity Exchange Act.42 Like the
Commission’s final rules for CCAs
adopted in this release, the CFTC’s
proposed rules are intended to codify
certain common elements of RWPs
across SIDCOs. With respect to some
elements of final Rule 17Ad–26, the
Commission has taken a different
approach from the CFTC’s proposed
rule. For example, given the range of
products cleared and markets served
across CCAs, the Commission has not
included in Rule 17Ad–26 requirements
for scenarios at the same level of
granularity as the CFTC. Nonetheless,
the final Rule 17Ad–26 and the CFTC’s
proposal are aligned in their objectives
and promote substantially similar
outcomes. The differing approaches are
discussed further in Part II.C.10.43
II. Discussion of Comments Received
and Final Rules
A. Collection of Intraday Margin
1. Proposed Amendment to Rule 17Ad–
22(e)(6)(ii)
The RWP Proposing Release proposed
to strengthen the preexisting
requirements in Rule 17Ad–22(e)(6)(ii)
for a CCA to have policies and
procedures reasonably designed to cover
its credit exposures to its participants by
establishing a risk-based margin system
that, among other things, includes the
operational capacity to make intraday
margin calls in defined circumstances.44
Specifically, the proposed amendments
to Rule 17Ad–22(e)(6)(ii) required a
CCA that provides CCP services to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to cover its credit
exposures to establish a risk-based
margin system that, among other things,
includes the authority and operational
capacity to (i) monitor intraday
exposure on an ongoing basis, and (ii)
to make intraday margin calls as
42 Derivatives Clearing Organizations Recovery
and Order Wind-Down Plans, Information for
Resolution Sharing (July 3, 2023), 88 FR 48968,
48972–73 (July 28, 2023), https://www.govinfo.gov/
content/pkg/FR-2023-07-28/pdf/2023-14457.pdf.
43 Commission staff communicates with the CFTC
staff regularly on topics of mutual interest for their
respective registrants, including RWPs, and has
consulted with CFTC staff regarding RWPs.
44 RWP Proposing Release, supra note 18, at
34713.

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frequently as circumstances warrant,
including when risk thresholds
specified by the CCA are breached or
when the products cleared or markets
served display elevated volatility.45
2. Discussion of Comments

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a. Monitoring Intraday Exposure on an
Ongoing Basis: Rule 17Ad–
22(e)(6)(ii)(B)
When adopted in 2016, preexisting
Rule 17Ad–22(e)(6)(ii) included the
requirement that CCAs have the
authority and operational capacity to
make intraday margin calls.46 In the
RWP Proposing Release, the
Commission stated that the ‘‘operational
capacity’’ to make intraday margin calls
‘‘includes the ability to monitor intraday
exposure; otherwise, it would be
impossible for a CCA to make
appropriate intraday margin calls if it
were not monitoring its intraday
exposure.’’ 47 Therefore, as originally
adopted, Rule 17Ad–22(e)(6)(ii)
required a CCA to have some ability to
monitor for intraday exposure and make
intraday margin calls but did not
include a specific requirement to
monitor for intraday exposure or
regarding the frequency at which to
monitor intraday exposures.48
In the RWP Proposing Release, the
Commission stated its continued belief,
consistent with its statements when
adopting the CCA Standards, that it is
essential that a CCA monitor its intraday
exposures because the CCA faces a risk
that a CCA’s exposure to its participants
can change rapidly because of intraday
changes in prices, positions, or both.49
The Commission further stated that a
requirement that such monitoring occur
on an ongoing basis would contribute to
ensuring that the CCA is sufficiently
informed and situated to take
appropriate actions to manage any
intraday exposure that arises.50 The
45 Id. at 34712–14. The preexisting requirement in
Rule 17Ad–22(e)(6)(ii) to establish written policies
and procedures that provide for marking participant
positions to market and collecting margin,
including variation margin or equivalent charges if
relevant, at least daily, would be unchanged under
the amendments being adopted in this release.
46 Id. at 34713.
47 Id.
48 Id.
49 Id.
50 Id.; see also CPMI–IOSCO Resilience Guidance,
supra note 14, at 5.2.2 (discussing how a CCP
addresses intraday exposure in its margin system
and stating that ‘‘a CCP faces the risk that its
exposure to its participants can change rapidly as
a result of intraday changes in prices, positions, or
both; ie [sic], adverse price movements, as well as
participants building larger positions through new
trading (and settlement of maturing trades). For the
purposes of addressing these and other forms of risk
that may arise intraday, a CCP should address and
monitor on an ongoing basis how such risks affect

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Commission also stated that being able
to monitor, on an ongoing basis, any
decrease in the margin coverage (as
compared to the changes in intraday
credit exposures in its participants’
portfolios) should help a CCA ensure
that it is able to collect margin sufficient
to cover its participants’ exposures.51
The Commission further stated that this
requirement to monitor intraday
exposure on an ongoing basis should
provide each CCA with some flexibility
to determine what monitoring frequency
is appropriate in the market served by
the CCA. Therefore, the Commission did
not specify a particular time period or
frequency for monitoring on an ongoing
basis because a CCA ‘‘should be able to
tailor its monitoring to the particular
products cleared and markets
served.’’ 52
Commenters generally recognized the
importance of monitoring intraday
exposure.53 Several commenters agreed
with the approach in the proposal not
to prescribe a particular monitoring
frequency that would constitute an
‘‘ongoing basis,’’ because of the need for
a CCA to be able to tailor its monitoring
to the particular products cleared and
markets served.54 For example, one
such commenter stated that, rather than
the Commission prescribing a
monitoring frequency, a CCA’s
monitoring ‘‘should align with each
[CCA’s] scheduled settlement, initial
margin, and variation margin practices
to support financial stability in both
all components of its margin system, including
initial margin, variation margin and add-on
charges.’’).
51 RWP Proposing Release, supra note 18, at
34713. The Commission also explained that a CCA
‘‘generally should consider whether its intraday
monitoring considers how participants’ exposures
would affect all risks faced by the CCA, including
those that may already by contemplated by
variation margin, initial margin, or add-on charges.’’
Id.
52 Id.
53 Letter from Megan Malone Cohen, Corporate
Secretary, General Counsel, The Options Clearing
Corporation (July 17, 2023) at 3 (‘‘OCC’’); Letter
from Timothy Cuddihy, Managing Director, Group
Chief Risk Officer, Depository Trust & Clearing
Corporation (July 17, 2023) at 3 (‘‘DTCC’’); Letter
from Ullrich Karl, Head of Clearing Services,
International Swaps and Derivatives Association,
and Jacqueline Mesa, Senior Vice President, Futures
Industry Association (July 17, 2023) at 6 (‘‘The
Associations’’); Letter from Stephen W. Hall, Legal
Director and Securities Specialist, Better Markets,
Inc. (July 17, 2023) at 7 (‘‘Better Markets’’); Letter
from Chris Edmonds, Chief Development Officer,
Intercontinental Exchange (July 19, 2023) at 2
(‘‘ICE’’); see also Letter from Sarah Bessin, Deputy
General Counsel, Investment Company Institute
(Sept. 26, 2023) at 10 (‘‘ICI’’) (generally supporting
the Commission’s proposed amendments).
54 OCC at 3; Letter from Global Association of
Central Counterparties (July 17, 2023) at 2
(‘‘CCP12’’); DTCC at 3; see also ICE at 2 (stating that
clearing agencies should continue to have the
flexibility to determine the appropriate timeframe
for intraday monitoring).

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normal and volatile market
conditions.’’ 55
By contrast, one commenter stated
that the Commission should prescribe
some particular universal, minimum
monitoring frequency (i.e., establishing
a maximum time between instances of
a CCA’s intraday monitoring of its credit
exposures).56 This commenter
acknowledged the benefit that would
arise from deferring ongoing monitoring
assessments to a CCA, but supported
that the Commission include a
universal, minimum monitoring
frequency in this requirement.57
Specifically, this commenter stated that
‘‘every 15 minutes should be the
absolute minimum’’ for frequency of
monitoring intraday exposures related
to any possible intraday margin
collection.58
The Commission is adopting the
requirement to monitor intraday
exposures on an ongoing basis as
proposed.59 As stated in the RWP
Proposing Release, a CCA should be
able to tailor its risk monitoring to the
particular products cleared and the
markets served.60 Accordingly, the
proposed requirement to monitor
intraday exposures on an ongoing basis
is designed to allow a CCA to determine
what monitoring frequency is
appropriate for its particular market.61
A CCA needs this flexibility because
‘‘more frequent monitoring may be
necessary for a CCA that operates in
markets where intraday trading may be
more prevalent’’ (such as, for example,
in the U.S. Treasury market),62 or
55 CCP12

at 2.
The Associations at 6.
57 Id. at 6.
58 Id.
59 The Commission is adding paragraph divisions
to Rule 17Ad–22(e)(6)(ii) to better delineate the
sections of the rule, for clarity. The portion of the
rule text regarding monitoring intraday exposure
would be Rule 17Ad–22(e)(6)(ii)(B). The
Commission is also adding ‘‘(A)’’ before the portion
of the rule that relates to marking participant
positions to market and collecting margin at least
daily and changing the punctuation at the end of
that section to a semi-colon, as opposed to a
comma. The Commission is also revising the
punctuation at the end of Rule 17Ad–22(e)(6)(ii)(B)
to a semicolon, as opposed to a comma.
60 RWP Proposing Release, supra note 18, at
34713.
61 Id.
62 See, e.g., Release No. 34–99149 (Dec. 13, 2023),
89 FR 2714, 2782 (Jan. 16, 2024) (‘‘Treasury
Clearing Adopting Release’’), govinfo.gov/content/
pkg/FR-2024-01-16/pdf/2023-27860.pdf (‘‘Today,
[proprietary trading firms] actively buy and sell
large volumes of U.S. Treasury securities on an
intraday basis using high-speed and other
algorithmic trading strategies.’’); James C.
Harkrader & Daniel J. Weitz, FEDS Notes: How Do
Principal Trading Firms and Dealers Trade around
FOMC Statement Releases? (Dec. 31, 2020), https://
www.federalreserve.gov/econres/notes/feds-notes/
how-do-principal-trading-firms-and-dealers-tradearound-fomc-statement-releases-20201231.html.
56 See

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alternatively where a CCA’s ‘‘intraday
exposures may tend to be larger because
of specific features, such as the
settlement process.’’ 63
In response to the commenter seeking
a required mandatory minimum
frequency for intraday monitoring, the
Commission does not agree that such a
requirement is necessary. Previously,
the Commission stated that a CCA
generally should consider whether its
policies and procedures for intraday
monitoring address how participants’
exposures would affect financial risks
faced by the CCA.64 For example, some
CCA margin methodologies may be
designed to account for some intraday
price and position changes, which could
have an impact on the appropriate
intraday monitoring frequency.
Therefore, the Commission is not
adopting a minimum monitoring
frequency. The Commission, however,
would be able to consider whether a
particular CCA’s intraday monitoring
frequency is reasonably designed to
meet this requirement within the
proposed rule change process when
changes thereto are filed as a proposed
rule change, including what the CCA
has identified as the appropriate
ongoing basis for the products cleared
and the markets served and in light of
the entirety of the CCA’s margin
methodology (that is, whether it has
other components which account for
some intraday price and position
changes).65 More generally, whether a
CCA has established, implemented,
maintained and enforced written
policies and procedures reasonably
designed to comply with Rule 17Ad–
22(e) is subject to examination.
When designing its intraday margin
monitoring, a CCA generally should
consider whether its monitoring
encompasses all aspects of intraday
exposures, including how such
exposures affect all components of a
CCA’s margin model, including initial
margin, variation margin, and add-on
charges.66 A CCA also generally should
consider whether its basis to recalculate
margin intraday accounts for both
position changes and price volatility.

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b. Circumstances for Intraday Margin
Calls
Preexisting Rule 17Ad–22(e)(6)(ii)
also required that a CCA’s written
policies and procedures be reasonably
63 RWP Proposing Release, supra note 18, at
34713.
64 These risks could include those that ‘‘may
already be contemplated by variation margin, initial
margin, or add-on charges.’’ Id.
65 See infra note 84 and accompanying text.
66 See, e.g., CPMI–IOSCO Resilience Guidance,
supra note 14, at 5.2.22.

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designed to include the authority and
operational capacity to make intraday
margin calls ‘‘in defined
circumstances.’’ 67 However, preexisting
Rule 17Ad–22(e)(6)(ii) did not define
what constitutes ‘‘defined
circumstances.’’ 68 In proposing the
requirement regarding collecting
intraday margin as frequently as
‘‘circumstances warrant,’’ the
Commission stated that the proposed
requirement would build upon and
expand this preexisting requirement
(i.e., to have the authority and
operational capacity to make intraday
margin calls in ‘‘defined
circumstances’’). Specifically, the
proposed requirement would identify
two particular circumstances: (1) when
risk thresholds specified by the CCA are
breached or (2) when the products
cleared or markets served display
elevated volatility. The proposed
requirement would also continue to
provide flexibility to CCAs to make
intraday margin calls as frequently as
circumstances warrant.69
Commenters generally agreed with the
need for thresholds regarding when a
CCA would make intraday margin calls.
However, commenters raised several
concerns which are addressed below.70
i. Scheduled vs. Unscheduled Intraday
Calls
Several commenters suggested that
intraday margin calls generally should
be scheduled, with unscheduled
intraday margin calls limited to extreme
circumstances.71 One such commenter
specified that scheduled intraday
margin calls should be at the same time
every day, in the early afternoon.72 This
commenter explained that the
unpredictability of unscheduled
intraday margin calls may require a
fund (which is a participant in a CCA)
to keep a portion of its assets in loweryielding, highly liquid assets.73
67 17

CFR 240.17ad–22(e)(6)(ii).
see also RWP Proposing Release, supra note
18, at 34713.
69 RWP Proposing Release, supra note 18, at
34713–14.
70 See The Associations; Better Markets; ICI;
Letter from Thomas F. Price, Managing Director,
Technology, Operations, and Business Continuity,
SIFMA, and William C. Thum, Managing Director
and Associate General Counsel, SIFMA Asset
Management Group (Sept. 26, 2023) (‘‘SIFMA’’).
71 ICI at 10–11; Letter from John P. Davidson (June
5, 2023) at 2, 9 (‘‘Davidson’’) (stating that intraday
financial flows should be mandatory at a fixed
scheduled time and at the same time across all
linked CCPs, but also acknowledging ‘‘the
occasional need for an additional set of intraday
cash and collateral movements in cases of truly
extreme market moves’’).
72 SIFMA at 8.
73 Id.
68 Id.;

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91005

In response to these comments
seeking additional requirements for
scheduled intraday margin calls and to
limit unscheduled intraday margin
calls, the Commission recognizes that
scheduled intraday margin calls provide
certainty for market participants about
when resources will be needed.
However, there may be circumstances
that arise intraday, such as in times of
elevated volatility or significant position
changes, where a CCA needs to manage
its exposure to a participant through an
unscheduled margin call.74 In such
circumstances, scheduled intraday
margin calls may not be sufficient to
ensure that a CCA collects margin to
cover its exposure to its participants. To
ensure strong risk management in such
circumstances, CCAs need to have the
ability to make unscheduled intraday
margin calls. It would not be
appropriate to mandate that CCAs only
make scheduled intraday margin calls,
and, therefore, the Commission is not
adopting such a requirement to require
scheduled intraday margin calls.
However, the Commission
understands the need for market
participants to plan for the potential
resources needed to meet intraday
margin calls. To that end, the amended
Rule 17Ad–22(e)(6)(ii)(C) states that a
CCA must establish policies and
procedures regarding at least two
particular circumstances in which a
CCA would make intraday margin calls,
that is, when risk thresholds specified
by the CCA are breached and when
products cleared or markets served
display elevated volatility, as discussed
in Part II.A.2.b infra. For example, a
CCA could specify that its risk threshold
is breached when the difference
between a member’s start of day margin
and a calculation of its intraday margin
based on its new positions exceeds a
predetermined percentage or dollar
amount. Thus, market participants
should be able to plan for their potential
resource needs to meet intraday margin
calls because, as discussed in Part
II.A.2.b.ii infra, a CCA is required to
have certain transparency around its
margin model. This transparency will
allow a market participant to
understand those specified
circumstances in which a CCA would
make intraday margin calls and would
therefore allow the market participant to
make arrangements for additional
liquidity in such circumstances, such
74 For example, if a CCA schedules intraday
margin collection at noon every day, there may be
instances when thresholds are triggered after that
scheduled time, and the CCA would then make an
unscheduled margin call to avoid significant
exposure being carried overnight.

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as, for example, securing additional
financing to cover such margin calls.

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ii. Need for Clear Thresholds and
Transparency
Commenters also requested that the
Commission revise the proposal to
mandate that a CCA define its criteria
for any unscheduled intraday margin
call in advance of any unscheduled
intraday margin call and to require
additional disclosures regarding
intraday margin calls.75 These
commenters stated that requiring clear
and transparent policies regarding the
conditions under which a CCA might
make an intraday margin call, both on
a scheduled and unscheduled basis,
would enhance participants’ ability to
prepare for these margin calls and
understand any potential demands on
their liquidity arising from such a call.76
The Commission agrees with the
commenters that it is essential that a
CCA determine and clearly
communicate ex ante in what
circumstances it would make both
scheduled and ad hoc intraday margin
calls. However, as discussed further
below, CCAs already are subject to such
requirements in preexisting Rule 17Ad–
22(e)(6)(ii) and (e)(23) and 17 CFR
240.19b–4 (‘‘Rule 19b–4’’). Further, by
specifying two instances in which CCAs
must establish, implement, maintain
and enforce policies and procedures to
collect intraday margin, the
amendments being adopted in this
release will identify for clearing
participants conditions under which a
CCA would make an intraday margin
call.77
First, with respect to the commenters’
request to require that CCAs determine
the circumstances for intraday margin
calls, a CCA already is required, under
preexisting Rule 17Ad–22(e)(6)(ii), to
have certain policies and procedures
regarding intraday margin. These
policies and procedures are the
framework that a CCA uses when
determining whether to make intraday
75 The Associations at 2; Better Markets at 8; ICI
at 10–11; SIFMA at 9.
76 The Associations at 2–3 (requesting ‘‘clear and
transparent policies with regards to the conditions
under which a [CCA] might call intraday margin’’);
Better Markets at 8 (requesting ‘‘full transparency
for triggers of intraday margin calls’’); SIFMA at 9
(requesting ‘‘published triggers and thresholds to
calculate both start of day and intraday margin
requirements’’); ICI at 11 (requesting a CCA
‘‘communicate to market participants the thresholds
that would trigger both scheduled and ad hoc [sic]
intraday margin calls’’).
77 The Commission is adding paragraph divisions
to Rule 17Ad–22(e)(6)(ii) to better delineate the
sections of the rule, for clarity. The portion of the
rule text regarding the authority and operational
capacity to make intraday margin calls is in Rule
17Ad–22(e)(6)(ii)(C).

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margin calls, and these policies and
procedures must identify the
circumstances in which a CCA would
make intraday margin calls.78 This
requirement will be strengthened by the
amendments adopted in this release,
which provide more specificity that the
CCA must have policies and procedures
to be able to make intraday margin calls
as frequently as circumstances warrant
and in two particular circumstances
identified in the rule. Specifically, the
amendments to preexisting Rule 17Ad–
22(e)(6)(ii) require that a CCA have
written policies and procedures to cover
its credit exposures to its participants by
establishing a risk-based margin system,
which, among other things, includes the
authority and operational capacity to
make intraday margin calls ‘‘as
frequently as circumstances warrant’’
including in two particular situations:
when risk thresholds specified by the
CCA are breached and in times of
elevated volatility. This requirement
should ensure that the CCA develops ex
ante policies and procedures to
determine risk thresholds for intraday
margin and when it considers volatility
to be elevated above typical levels in a
manner specific to the products cleared
and the markets served. Because these
amendments would identify specific
circumstances in which a CCA must
have the authority and operational
capacity to make intraday margin calls
which would be part of a CCA’s overall
disclosure requirements regarding its
margin methodology, as discussed
further below,79 these amendments
should improve participants’ ability to
understand when they may be subject to
additional margin calls. This improved
understanding should further allow
participants to be better able to prepare
to provide additional financial resources
in anticipation of additional margin
calls.80
Second, with regard to the
commenters’ request to clearly
communicate ex ante the circumstances
in which a CCA would make intraday
margin calls, the Commission agrees
that such ex ante transparency is
essential for a CCA’s participants, but
disagrees that any additional
requirements are necessary to achieve
such transparency. A CCA’s participants
already have such transparency for
several reasons. As a registered clearing
78 This framework is not required to foreclose or
prohibit the use of any discretion in such
determinations, as discussed further in Part
II.A.2.b.iii, infra.
79 See infra notes 81–100 and accompanying text
(discussing several Commission requirements that
promote disclosure and transparency).
80 RWP Proposing Release, supra note 18, at
34714.

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agency, a CCA is a self-regulatory
organization (‘‘SRO’’) under the
Exchange Act,81 subject to the
provisions of section 19(b) of the
Exchange Act which requires public
notice and an opportunity for public
comment on any rule changes that an
SRO seeks to adopt.82 In addition, a
CCA potentially is a ‘‘designated
financial market utility’’ (alternatively, a
‘‘systemically important financial
market utility’’ or ‘‘SIFMU’’) subject to
section 806(e) of the Dodd-Frank Act
regarding advance notice of material
changes to its rules, procedures, or
operations that could materially affect
the nature or level of risks presented.
Further, the CCA Standards impose
requirements related to transparency
and disclosure to its participants.
A CCA’s margin methodology, which
would include, among other things, the
criteria used to determine whether to
make intraday margin calls, constitutes
a material aspect of its operations,
meaning that it is part of a CCA’s stated
policies, practices, or interpretations
under Exchange Act Rule 19b–4.83 As
such, a CCA’s margin methodology is
subject to the filing obligations
applicable to SROs under section 19(b)
of the Exchange Act regarding any
proposed rule or proposed change to its
rules.84 The proposed rule filing process
provides transparency into an SRO’s
proposed changes, through notice and
comment. An SRO is obligated to file its
proposed rule changes in a manner
consistent with the requirements in
Form 19b–4, which is intended to elicit
information necessary for the public to
81 15 U.S.C. 78c(a)(26) (‘‘The term ‘self-regulatory
organization’ means any [. . .] registered clearing
agency’’).
82 See, e.g., infra note 87 (discussing such changes
that previously have been considered by the
Commission); infra note 119 (describing
Commission rules that promote transparency
regarding margin practices at registered clearing
agencies).
83 17 CFR 240.19b–4(a)(6)(i) (defining ‘‘stated
policy, practice, or interpretation’’ to include, inter
alia, ‘‘[a]ny material aspect of the operation of the
facilities of the self-regulatory organization’’).
Additionally, Rule 19b–4 would also apply to
certain statements that a CCA issues concerning its
margin methodology. Specifically, this rule would
cover any CCA statement ‘‘made generally available
to the membership of [. . . the CCA] that
establishes or changes any standard, limit, or
guideline, with respect to: (a) the rights, obligations,
and privileges of its membership; or (b) the
meaning, administration, or enforcement of an
existing rule.’’ 17 CFR 240.19b–4(a)(6)(ii).
84 15 U.S.C. 78s(b)(1) (requiring each SRO to ‘‘file
with the Commission, in accordance with such
rules as the Commission may prescribe, copies of
any proposed rule or any proposed change in,
addition to, or deletion from the rules of such selfregulatory organization’’); see also 17 CFR 240.19b–
4. In addition, a stated policy, practice, or
interpretation of an SRO (e.g., written policies and
procedures) would generally be deemed to be a
proposed rule change. See 17 CFR 240.19b–4(c).

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provide meaningful comment on the
proposed rule change and for the
Commission to determine whether the
proposed rule change is consistent with
the requirements of the Exchange Act
and the rules and regulations
thereunder.85 The Commission then
publishes all proposed rule changes for
comment. In this way, the rule filing
process promotes transparency to
market participants and the public by
ensuring notice is provided regarding a
CCA’s new initiatives or changes to
governance, operations, and risk
management.86 With respect to a CCA’s
margin methodology, the rule filing
process should provide transparency
about how and when a CCA would
calculate margin, including on an
intraday basis, which is consistent with
the requirements sought by commenters.
The Commission has considered
numerous proposed rule changes
regarding CCAs’ margin methodologies.
Notably, these proposed rule changes
have addressed CCAs’ intraday margin
policies and procedures, and these
proposed rule changes have identified
thresholds and criteria that a CCA
would use in determining whether to
make an intraday margin call, similar to
what the commenters have requested.87
85 See General Instructions for Form 19b–4, at
Instruction B, https://www.sec.gov/files/form-19b4general-instructions.pdf. The Form 19b–4 specifies
the contents that must be included in a proposed
rule change filing includes, among other items, a
statement of purpose for the proposed rule change,
which describes the reasons for adopting the
proposed rule change, any problems the proposed
rule change is intended to address, the manner in
which the proposed rule change will operate to
resolve those problems, the manner in which the
proposed rule change will affect various persons
(e.g., brokers, dealers, issuers, and investors), and
any significant problems known to the SRO that
persons affected are likely to have in complying
with the proposed rule change. Id. at Information
to Be Included in the Completed Form, Item 3(a).
The SRO must also include in its proposed rule
change the complete text of the proposed rule. Id.
at Information to Be Included in the Completed
Form, Item 1(a). The SRO may request confidential
treatment of any portion of its filing, see 17 CFR
240.24b–2, but it would still have to comply with
the requirements of Form 19b–4 with respect to
describing the contents of the proposed rule change
for public comment.
86 See RWP Proposing Release, supra note 18, at
34711.
87 See, e.g., Notice of Filing of Amendment No.
1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment
No. 1, To Implement Changes to the Required Fund
Deposit Calculation in the GSD Rulebook, Release
No. 34–83362 (June 1, 2018), 83 FR 26514 (June 7,
2018) (File No. SR–FICC–2018–001) (approving
proposed rule change to provide transparency with
respect to GSD’s existing authority under GSD Rule
4 to calculate and assess intraday margin amounts,
by identifying the three criteria that GSD uses to
calculate the intraday amount due ((i) the dollar
threshold, which evaluates whether a member’s
intraday VaR Charge equals or exceeds a set dollar
amount when compared to the VaR Charge that was
included in the most recent margin collection: (ii)

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The notice and comment process
provided by section 19(b) of the
Exchange Act therefore provides for
transparency into a CCA’s margin
methodology, including input from
participants.
In addition, when a CCA is a
SIFMU,88 it is also subject to the
regulatory framework of the Clearing
Supervision Act.89 Once designated by
FSOC, CCAs that are SIFMUs are
required to publicly file 60-days
advance notice with the Commission of
changes to rules, procedures, and
operations that could materially affect
the nature or level of risk presented by
the designated clearing agency
the percentage threshold, which evaluates whether
the intraday VaR Charge equals or exceeds a
percentage increase of the VaR Charge that was
included in the most recent collection; and (iii) the
coverage target, which evaluates whether a member
is experiencing backtesting results below a 99%
confidence level), and stating that FICC assesses
intraday margin when all three criteria are breached
and, under certain market conditions when the
thresholds in (i) and (ii) are breached); FICC
Important Notice GOV1244–22 (Apr. 11, 2022)
(stating that, consistent with its Rule 4 authority,
GSD will assess an Intraday Supplement Fund
Deposit on a Netting Member if (i) a change in the
Netting Member’s Intraday VaR Charge equals or
exceeds $1 million when compared to its most
recent VaR Charge calculation, (ii) the Netting
Member’s Intraday VaR Charge equals or exceeds
100% of its most recent VaR Charge calculation,
and (iii) the Netting Member’s backtesting coverage
is below 100%. Additionally, Netting Members who
breached the thresholds for (i) and (ii) and have
fewer than 100 trading days in a rolling 12-month
period will be assessed an Intraday Supplemental
Fund Deposit regardless of their backtesting
coverage); Order Approving Proposed Rule Change
to Adopt Intraday Volatility Charge and Eliminate
Intraday Backtesting Charge, Release No. 34–97129
(Mar. 13, 2023), 88 FR 16681 (Mar. 20, 2023) (File
No. SR–NSCC–2022–009) (adopting an intraday
volatility charge as part of NSCC’s margin
methodology that would increase the margin
collected from members whose trading portfolios
experience large and unexpected intraday
volatility).
88 Specifically, the Clearing Supervision Act
provides for the enhanced regulation of a CCA that
qualifies as a ‘‘financial market utility’’ that the
FSOC designates as ‘‘systemically important’’ (a
‘‘designated financial market utility’’). See 12 U.S.C.
5462(6)(A) (defining a ‘‘financial market utility’’ to
include ‘‘any person that manages or operates a
multilateral system or the purpose of transferring,
clearing, or settling payments, securities or other
financial transactions among financial institutions
or between financial institutions and the person’’)
and 12 U.S.C. 5462(4)(defining a ‘‘designated
financial market utility’’ to mean ‘‘a financial
market utility’’ that FSOC has designated as
‘‘systemically important’’); see also 12 U.S.C. 5463
(discussing FSOC’s ability to designate entities as
‘‘systemically important’’). On July 18, 2012, FSOC
designated four CCAs as systemically important
financial market utilities: The Depository Trust
Company (‘‘DTC’’); Fixed Income Clearing
Corporation (‘‘FICC’’); National Securities Clearing
Corporation (‘‘NSCC’’); and The Options Clearing
Corporation (‘‘OCC’’). FSOC, 2012 Annual Report:
Appendix A: Designation of Systemically Important
Financial Market Utilities (July 18, 2012), https://
home.treasury.gov/system/files/261/2012-AnnualReport.pdf.
89 See 12 U.S.C. 5461 et seq.

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(‘‘advance notice’’), and, pursuant to the
Commission’s rules, the Commission
shall provide for prompt publication of
such an advance notice, and then the
public has the opportunity to comment
on such an advance notice.90 Rule 19b–
4(n) defines the term ‘‘materially affect
the nature or level of risk presented’’ to
mean matters as to which there is a
reasonable possibility that the change
could affect the performance of essential
clearing and settlement functions or the
overall nature or level of risk presented
by the designated clearing agency, and
it further provides examples of such
potential changes as including, among
other things, changes that could
materially affect risk management or
financial resources of the designated
clearing agency.91 When adopting this
requirement, the Commission identified
changes to the ‘‘methods for making
margin calculations’’ as among the
additional examples of such matters.92
Therefore, any changes to the intraday
margin policies and procedures of a
CCA that has been designated as a
SIFMU could also be subject to the
advance notice process if the changes
constitute a material change to the
nature or level of risk presented by the
CCA, and the advance notice process
would bring additional transparency
into such changes.
Moreover, under the CCA Standards,
a CCA is obligated to establish,
implement, maintain and enforce
written policies and procedures
reasonably designed to provide for
publicly disclosing all relevant rules
and material procedures, including key
aspects of its default rules and
procedures.93 Such public disclosures
generally should include a discussion of
a CCA’s margin methodology, which
could include how the CCA determines
intraday margin, and they should, in
turn, allow a market participant to
understand how a CCA calculates
margin, including any margin add-ons
90 The Clearing Supervision Act defines a
‘‘designated clearing entity’’ to include a
‘‘designated financial market utility’’ that is a
clearing agency registered with the Commission (of
which a CCA is a subset). See 12 U.S.C. 5462(3).
The Clearing Supervision Act defines the
Commission as the ‘‘Supervisory Agency’’ for the
four designated clearing agencies that are CCAs (i.e.,
DTC, NSCC, FICC, and OCC). See 12 U.S.C.
5462(8)(A)(i). The Commission published a final
rule concerning the filing and publication of
advance notices for designated clearing agencies in
2012. See 17 CFR 240.19b–4(n); Release No. 34–
67286 (June 28, 2012), 77 FR 41602 (July 13, 2012)
(File No. S7–44–10) (‘‘Filing of Advance Notices’’),
https://www.govinfo.gov/content/pkg/FR-2012-0713/pdf/2012-16233.pdf.
91 17 CFR 240.19b–4(n)(2)(i), (ii).
92 See Filing of Advance Notices, supra note 90,
at 41620.
93 17 CFR 240.17ad–22(e)(23)(i).

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and cross-margin arrangements with
other clearing agencies. In addition,
under Rule 17Ad–22(e)(23)(ii), these
policies and procedures must provide
sufficient information to enable
participants to identify and evaluate the
risks, fees, and other material costs they
incur by participating in the CCA.94
Rule 17Ad–22(e)(23)(iv) also requires
that a CCA produce a comprehensive
public disclosure that describes its
material rules, policies, and procedures
regarding its legal, governance, risk
management, and operating framework
(a ‘‘Disclosure Framework’’), accurate in
all material respects at the time of
publication, that includes, among other
things, a standard-by-standard summary
narrative for each applicable standard
set forth in paragraphs (e)(1) through
(23) of the CCA Standards with
sufficient detail and context to enable a
reader to understand the CCA’s
approach to controlling the risks and
addressing the requirement in each
standard.95 Therefore, a CCA must issue
a public document addressing each of
the CCA Standards, including those
with respect to margin under Rule
17Ad–22(e)(6).96 A CCA generally
should consider whether its disclosures
regarding its margin methodology,
through its Disclosure Framework and/
or other publicly available documents,
allows participants to understand how
the model reacts to market conditions
and to assess with some reasonable
degree of certainty whether it will be
subject to a margin call and in what
amount. In addition, a CCA generally
should consider whether it could
provide a public-facing margin
calculator to allow its participants, and
94 17

CFR 240.17ad–22(e)(23)(ii).
CFR 240.17ad–22(e)(23)(iv).
96 See DTC, Disclosure Framework for Covered
Clearing Agencies and Financial Market
Infrastructure (Mar. 2024), https://www.dtcc.com/-/
media/Files/Downloads/legal/policy-andcompliance/DTC-Disclosure-Framework-2024Q1.pdf; FICC, Disclosure Framework for Covered
Clearing Agencies and Financial Market
Infrastructure (Mar. 2024), https://www.dtcc.com/-/
media/Files/Downloads/legal/policy-andcompliance/FICC-Disclosure-Framework-Q12024.pdf; ICE, Disclosure Framework (July 31,
2023), https://www.ice.com/publicdocs/clear_
credit/ICEClearCredit_DisclosureFramework.pdf;
LCH, Comprehensive Disclosure (July 31, 2024),
https://www.lch.com/system/files/media_root/
LCH%20SA%20-%20Comprehensive%20
Disclosure%20as%20required%20by%20SEC%20
Rule%2017Ad-22%28e%29%2823%29_
2022%20Q2_2024.pdf; NSCC, Disclosure
Framework for Covered Clearing Agencies and
Financial Market Infrastructure (Mar. 2024), https://
www.dtcc.com/-/media/Files/Downloads/legal/
policy-and-compliance/NSCC-DisclosureFramework-Q1-2024.pdf; OCC, Disclosure
Framework for Financial Market Infrastructures
(July 25, 2024), https://www.theocc.com/getmedia/
4664dece-7172-42a5-8f55-5982f358b696/pfmidisclosures.pdf.

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market participants more generally, to
understand the potential amount of any
intraday margin calls on their portfolios,
including with respect to add-on
charges and any applicable cross-margin
arrangements.
In light of the existing requirements
with respect to transparency in the SRO
rule filing process, the advance notice
process, and Rule 17Ad–22(e)(23), the
Commission does not believe additional
mandatory disclosures are necessary at
this time. For example, every CCAs’
Disclosure Framework discusses the
CCAs’ margin methodologies.97 Several
CCAs have published documents further
outlining their margin methodologies,
including the formulas used in
calculating margin.98 A CCA generally
should consider whether it provides
such information, i.e., the formulas used
in calculating margin, to market
participants, such that a market
participant could make such
calculations on its own. Finally, at least
one CCA has developed a public
calculator to provide market
participants with the ability to calculate
potential margin obligations on a
simulated portfolio, for given positions
and market value, using its Value at
Risk methodology.99 Although not a
substitute for a market participant’s
ability to understand a CCA’s margin
methodology on its own, such a public
calculator is a helpful tool for
determining how a CCA’s margin
methodology operates, particularly if
the calculator is able to provide
information related to add-on charges
and any applicable cross-margin
arrangements. A CCA generally should
consider whether it sufficiently
identifies in its Disclosure Frameworks
and any other documentation that it
makes available the circumstances
required under the amendments
adopted to Rule 17Ad–22(e)(6)(ii)
regarding when a CCA must collect
intraday margin. Commenters requested
that the Commission require a CCA’s
intraday margin model to be transparent
such that a CCA’s participants could
anticipate a CCA’s future intraday
margin calls.100 As discussed above, a
CCA should generally consider whether
it sufficiently identifies when Rule
17Ad–22(e)(6)(ii) would require an
intraday margin call. Such transparency
97 See

id.
e.g., https://www.theocc.com/riskmanagement/margin-methodology; https://
www.dtcc.com/-/media/Files/Downloads/legal/
policy-and-compliance/GSD-Clearing-FundMethodology-Overview.pdf.
99 https://www.dtcc.com/managing-risk/stresstesting-and-liquidity-risk-management/ccfl-publiccalculator.
100 See supra note 80 and accompanying text.
98 See,

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could improve the ability of a CCA’s
participants to understand when
participants may be subject to
additional margin calls. However,
participants cannot expect to be able to
predict every intraday margin call with
complete certainty, and being able to do
so may create moral hazard that would
undermine the CCA’s ability to manage
risk effectively.
Finally, one commenter stated that
CCAs should proactively engage with
clearing members ahead of applying
intraday margin calls to alleviate the
potential liquidity risk for clearing
members.101 The Commission
acknowledges that it could be helpful
for a CCA to engage with its clearing
members regarding potential upcoming
intraday margin calls. Given the
potentially fluid nature of
circumstances necessitating the need for
an intraday margin call and the
possibility that such engagement would
not be possible in a time of market
stress, imposing such engagement as an
obligation would not be appropriate.
However, a CCA generally should
consider whether its written policies
and procedures provide for engagement
with a CCA ahead of applying an
intraday margin call, as circumstances
permit.
iii. Determinations by CCAs To Collect
Intraday Margin
Several commenters addressed the
role of discretion in the proposed
requirement for a CCA to have the
authority and operational capacity to
make intraday margin calls as frequently
as circumstances warrant, including
when risk thresholds specified by the
CCA are breached or when the products
cleared or markets served display
elevated volatility.102 Specifically,
while generally supportive of the
proposal, several commenters sought
confirmation that a CCA could use
discretion when deciding to issue
intraday margin calls.103 These
101 SIFMA at 9. This commenter also suggested
that the Commission should require that a CCA
provide the Commission (and to the extent possible,
its clearing participants) with an explanation for
any discretionary intraday margin calls. Id. at 10.
102 See DTCC; ICE; OCC; CCP12.
103 DTCC at 4 (requesting additional clarity
regarding a CCA’s discretion and flexibility and
stating that a CCA must maintain the discretion and
flexibility to determine if intraday margin calls are
required based on the totality of all circumstances
the CCA may consider relevant and appropriate);
ICE at 2 (stating that a CCA should be allowed the
discretion on when and how to use its authority to
make intraday margin calls under the particular
circumstances); OCC at 4 (seeking explicit
confirmation that a CCA may ‘‘exercise judgment
when determining whether and when to actually
make intraday margin calls, based on all relevant
circumstances and using predefined criteria);

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commenters stated that such discretion
was necessary to allow the CCA to
consider the potential procyclical
impacts of an intraday margin call and/
or any financial stability impacts.104 In
this context, procyclicality refers to
‘‘changes in risk-management practices
that are positively correlated with
market, business, or credit cycle
fluctuations and cause or exacerbate
financial instability.’’ 105 For example,
margin calls during periods of declining
asset prices may cause participants to
sell assets, putting further negative
pressure on asset prices and the
market.106 Such events could negatively
affect other CCA participants, as well as
other CCAs and their markets.107
As discussed above, a CCA’s margin
methodology includes the criteria that a
CCA uses to determine whether to make
intraday margin calls.108 Because a
CCA’s margin methodology constitutes
aspects of the CCA’s stated policies,
practices, or interpretations under Rule
19b–4, a CCA is required to file a
proposed rule change when the CCA
revises its margin methodology
(including, for example, revisions
CCP12 at 2 (supporting the proposed approach to
intraday margin, but also stating that a CCA needs
the ability to exercise discretion when issuing
intraday margin calls, including the ability to tailor
[its] intraday margin call processes to the
characteristics of the market it clears (e.g., market
structure)); see also Davidson at 11. But see id. at
9 (explaining that a CCA would only have an
‘‘occasional need’’ for an unscheduled intraday
margin call’’ for only ‘‘truly extreme market
moves’’); and 10 (warning that unfettered issuances
of intraday margin calls could become ‘‘liquidity
sinks’’ and ‘‘absorb[ ] liquidity like a giant sponge’’).
104 DTCC at 4 (stating discretion is necessary
when considering issuing an intraday market call to
consider various factors, such as persistent
exposure to a participant during normal market
conditions, general market conditions, and any
possible procyclical effects a margin collection may
trigger); ICE at 2 (stating that discretion is needed
for a CCA to consider the procyclical effects of any
possible intraday margin call, such as ‘‘exacerbating
credit and liquidity concerns with clearing
members,’’ or ‘‘in extreme cases[,] causing market
participant defaults); OCC at 4 (stating that, among
other things, a CCA’s discretion should include
considerations related to anti-procyclicality (by
maximizing predictability of liquidity demands)
and financial market stability); CCP12 at 2 (stating
that this discretion would allow a CCA to consider
any potential intraday margin call’s ‘‘negative
procyclical effects’’ and/or ‘‘impacts to the stability
of the financial system’’).
105 PFMI, supra note 9, at 47; see also Committee
on the Global Financial System, The role of margin
requirements and haircuts in procyclicality (Mar.
23, 2010) at 8 (defining procyclicality as ‘‘the
mutually reinforcing interactions between the
financial and real sectors of the economy that tend
to amplify business cycle fluctuations and cause or
exacerbate financial instability’’), https://
www.bis.org/publ/cgfs36.pdf.
106 See infra Part IV.C.2.a (discussing the
relationship between procyclicality and intraday
margin calls).
107 Id.
108 See supra note 83 and accompanying text.

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related to how its risk management
concerns may affect a CCA’s
determination to issue an intraday
margin call).109 In such a filing, the CCA
would describe how any such revisions
are consistent with the requirements of
Exchange Act and the rules thereunder,
including Rule 17Ad–22(e)(6).
The Commission agrees with these
commenters that a CCA’s policies and
procedures regarding intraday margin
generally should be, under Rule 17Ad–
22(e)(6)(ii), reasonably designed to
address such risk management
concerns, such as procyclicality. The
Commission confirms that a CCA’s
consideration of such concerns (and
more generally, of a CCA’s
understanding of its participants’
activity and overall market conditions)
in its policies and procedures regarding
intraday margin (including a CCA’s
decision to collect or not collect margin
in response to such consideration) is
permissible and consistent with the
requirements of both preexisting Rule
17Ad–22(e)(6)(ii) and the amendments
being adopted in this release. The
requirement to adopt policies and
procedures that include the authority
and operational capacity to make
intraday margin calls as frequently as
circumstances warrant, including when
risk thresholds specified by the CCA are
breached or when the products cleared
or markets served display elevated
volatility,110 should ensure that a CCA
establishes the criteria and thresholds
that it would consider when
determining whether to make an
intraday margin call. Such criteria are
subject to the transparency and
disclosure requirements discussed
above in Part II.A.2.b.ii, and as an SRO,
a CCA is obligated to follow its own
rules. But the CCA’s criteria and
thresholds are not required to be
inflexible or self-executing. A CCA
generally should consider how its
policies and procedures specify what
factors the CCA would consider when
determining when to make an intraday
margin call when thresholds are
breached or there is elevated
volatility.111
109 Id.
110 See supra Part II.A.2.ii (discussing elevated
volatility under Rule 17Ad–22(e)(6)(ii) as when a
CCA considers volatility to be elevated above
typical levels in a manner specific to the products
cleared and the markets served); contra CCA
Standards Adopting Release, supra note 5, at 70815
(stating that what would constitute ‘‘high volatility
[. . .] may vary across asset classes’’).
111 As discussed above, supra note 101, one
commenter sought for the Commission to require
disclosure to the Commission and, if practicable, a
CCA’s participants, of the explanation for any
‘‘discretionary’’ intraday margin calls. SIFMA at 10.
However, such disclosure is not necessary because

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The Commission is adopting this
requirement as proposed.112 A CCA’s
determination to issue intraday margin
calls, consistent with its ex ante policies
and procedures, should improve risk
management outcomes by enabling a
CCA to apply its risk management
expertise to changing intraday
circumstances, such as the extreme
price volatility or significant position
changes recently experienced in January
2021.113 A CCA should be better
positioned to respond to a market event
more effectively by developing policies
and procedures that provide a clear
framework for the timing and collection
of intraday margin, but that also allows
for the CCA to use its expertise (in
specific products and markets) to
analyze the particular facts and
circumstances related to the market
event and the affected market
participants.
Commenters observed the importance
of avoiding procyclicality in margin
calls generally and the importance of
considering the impact an intraday
margin call may have on a CCA’s
participant.114 The Commission agrees
that a CCA generally should consider
these issues when determining whether
to issue an intraday margin call,
consistent with the applicable
regulatory requirement to consider, and
produce margin levels commensurate
with, the risks and particular attributes
of each relevant product, portfolio, and
market, and to calculate margin
sufficient to cover its potential future
exposure to participants in the interval
between the last margin collection and
the close out of positions following a
participant default.115
Therefore, in this analysis, a CCA
generally should consider, consistent
with its policies and procedures, how
its approach to intraday margin aligns
with broader systemic objectives, such
as minimizing potential procyclical
effects and avoiding liquidity drains on
these policies and procedures should clearly
indicate when the CCA would make an intraday
margin call. By contrast, the Commission is
requiring that a CCA document when it determines
not to make an intraday margin call when its
policies and procedures would otherwise indicate
as such. See infra note 118 and accompanying text.
112 The Commission is making several clarifying
changes to Rule 17Ad–22(e)(6)(ii)(C): (1)
capitalizing the first word of the rule text to read
‘‘Monitors’’; (2) adding after the word ‘‘including’’
the language ‘‘in the following circumstances’’,
followed by a semi-colon; (3) adding (1) and (2) to
separate the two circumstances described in the
rule text; and (4) adding the word ‘‘and’’ following
the text of the rule.
113 See supra note 17 and accompanying text
(further discussing the response to heightened
volatility in GME and other equity securities).
114 SIFMA at 8–9.
115 17 CFR 240.17ad–22(e)(6)(i), (iii).

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its participants. For example, a CCA
may choose not to issue an intraday
margin call triggered by the thresholds
set forth in its policies and procedures
(i.e., when risk thresholds specified by
the CCA are breached or when the
products cleared or markets served
display elevated volatility) if, in the
CCA’s judgment, the intraday call is not
required to effectively manage the risks
posed to the CCA. A CCA’s decision not
to issue an intraday margin call could,
therefore, avoid unnecessarily
worsening market conditions by
fostering procyclicality, and drawing on
its members’ capital more than needed
(i.e., avoiding ‘‘liquidity sinks’’).116
A commenter also stated that the
Commission should require that a CCA
provide to the Commission, and to the
extent possible, its clearing members, an
explanation of the reasons for
discretionary intraday margin calls
because such explanation would allow
for an evaluation of whether the need to
make such a call might have been
averted by improved procedures.117 The
Commission does not agree that, as the
commenter suggests, an obligation to
provide an explanation and disclosure
is necessary when a CCA makes an
intraday margin call, because its
policies and procedures already must
identify and document the
circumstances in which such a call
would be made. However, a CCA should
be subject to an obligation to document
when it, consistent with its policies and
procedures, determines not to make an
intraday margin call in circumstances
identified in such policies and
procedures. A requirement to document
when a CCA determines not to make
such an intraday margin call, pursuant
to its written policies and procedures, is
broadly consistent with the goal
identified by the commenter: that the
CCA should be able to evaluate the
implementation of its policies and
procedures with respect to intraday
margin. By keeping a record of such
instances in which a CCA determines
not to make an intraday margin call,
pursuant to its written policies and
procedures, it should be easier for a
CCA to review its determination not to
make an intraday margin call and to
determine whether a breach of the
thresholds that triggered an intraday call
could have been averted by changed
procedures. It also should better allow
the CCA to holistically consider the
procyclical impacts of intraday margin
116 See infra notes 559–563 and accompanying
text (further discussing the economic impact of
procyclical margin calls and considerations that a
CCA may undertake in evaluating when to make or
not make a call).
117 SIFMA at 9, 10.

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calls, which, as commenters stated,
should be considered as part of a CCA’s
analysis about such calls.
Therefore, the Commission is further
amending Rule 17Ad–22(e)(6)(ii) to add
paragraph (e)(6)(ii)(D) to require that a
CCA’s risk-based margin system
‘‘[d]ocuments when the covered clearing
agency determines not to make an
intraday margin call pursuant to its
written policies and procedures
required under paragraph
(e)(6)(ii)(C)’’.118
A CCA generally should review, on a
regular basis, any documentation
created pursuant to this requirement of
Rule 17Ad–22(e)(6)(ii)(D). Such
documentation can be used to identify
the CCA’s rationale for not making an
intraday margin call. In addition, a CCA
generally should consider whether (and
how) to disclose the information
required under this documentation
requirement to its participants, to
provide additional transparency to its
participants about when a CCA chooses
not to make intraday margin calls,
including whether such disclosure is
necessary pursuant to Rule 17Ad–25(j),
which requires that the CCA establish,
implement, maintain, and enforce
written policies and procedures
reasonably designed to require the board
of directors to solicit, consider, and
document its consideration of the views
of participants and other relevant
stakeholders of the registered clearing
agency regarding material developments
in its risk management and operations
on a recurring basis.119 Consistent with
this obligation under Rule 17Ad–25(j), a
CCA generally should consider how best
to solicit the views of participants and
other relevant stakeholders regarding
intraday margin calls, which could
include how they were applied in the
past by the CCA.
c. Other Comments
The Commission proposed
requirements related to monitoring for
intraday exposure and providing further
specificity as to the circumstances when
an intraday margin call could be made.
However, one commenter addressed
three additional issues related to more
granular details within the calculation
of an intraday margin call. First, this
commenter addressed the nature of an
intraday margin call, stating that any
margin determination, including any
intraday determination, should be made
with respect to a clearing member’s
current positions and the current value
of those positions, to the extent
118 See
119 17

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CFR 240.17ad–25(j).

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practicable.120 A CCA generally should
determine margin based on its
participants’ positions, including a
participant’s total portfolio (that is, not
just positions at end of day or
intraday).121
Second, this commenter also
requested that a CCA net against each
other any amounts owing to a clearing
member from, on the one hand, initial
margin and, on the other hand, variation
margin.122 Third, this commenter also
requested that intraday margin calls be
bidirectional to return margin cash or
collateral to a CCA’s participants.123
In response to these points, the
Commission reiterates that the
circumstances that could give rise to
intraday margin calls at a CCA may vary
significantly (e.g., intraday volatility,
large changes in participant positions),
and may present varied challenges.
Accordingly, although there may be
circumstances where it would be
appropriate for a CCA to take the
approach suggested by the commenter,
the Commission’s approach to Rule
17Ad–22(e) is to provide flexibility to
CCAs, subject to their obligations and
responsibilities as SROs under the
Exchange Act, to design and structure
their policies and procedures to take
into account the differences among
clearing agencies and the markets and
products it clears. Accordingly, the
Commission is not adopting any
requirements in response to this
commenter.
This commenter also stated that the
establishment of intraday margin
120 SIFMA at 9. The Commission understands this
commenter to be referring to the difference between
initial margin, which is typically collected to cover
potential changes in the value of each participant’s
position (that is, potential future exposure) over the
appropriate close-out period in the event that the
participant defaults, as compared to variation
margin, which is collected and paid out to reflect
current exposures resulting from actual changes in
market prices and is typically calculated by
marking open positions to current market prices.
See, e.g., PFMI, supra note 9, at 51. The commenter
stated that an intraday call should clearly separate
the initial margin and variation margin components
of such a call. SIFMA at 9.
121 See, e.g., CPMI–IOSCO Resilience Guidance,
supra note 14, sec. 5.2.22 (‘‘A CCP faces the risk
that its exposure to its participants can change
rapidly as a result of intraday changes in prices,
positions, or both; ie adverse price movements, as
well as participants building larger positions
through new trading (and settlement of maturing
trades). For the purposes of addressing these and
other forms of risk that may arise intraday, a CCP
should address and monitor on an ongoing basis
how such risks affect all components of its margin
system . . .’’).
122 SIFMA at 9.
123 Id. at 7–8, 10; Davidson at 2, 11 (stating that
such a bidirectional flow would allow the
participants to avoid ‘‘unnecessary liquidity timing
gaps’’); see also The Associations at 2 (requesting
prompt return of margin to clearing members and
clients to alleviate liquidity constraints).

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
procedures cannot be viewed separately
from the establishment of margin
procedures as a whole, and that the
reduction of ‘‘surprises’’ with respect to
intraday margin depends on having
transparent margin procedures generally
and on having the start of day margin be
as near correct as possible (meaning that
the margin collected at the established
start of day time period, as opposed to
an intraday margin call, should be as
accurate as possible).124 The commenter
provided several suggestions regarding
the calculation of margin more
generally.125 The Commission proposed
requirements related to monitoring for
intraday exposure and providing further
specificity as to when the CCA must
consider an intraday margin call. The
suggestions provided by the commenter
relate to granular details within the
calculation of margin. Rule 17Ad–
22(e)(6) already contains requirements
related to these issues raised by the
commenter, most notably, that the
CCA’s risk-based margin system must
consider, and produce margin levels
commensurate with, the risks and
particular attributes of each relevant
product, portfolio, and market, and
calculate margin sufficient to cover its
potential future exposure to participants
between the last margin collection and
the close out of positions following a
participant default, and use an
appropriate method for measuring credit
exposure that accounts for relevant
product risk factors and portfolio effects
across products.126 Although there may
be circumstances where it would be
appropriate for a CCA to incorporate
policies and procedures such as those
suggested by the commenter, the
Commission’s approach to Rule 17Ad–
22(e) is to provide flexibility to CCAs,
subject to their obligations and
responsibilities as SROs under the
Exchange Act, to design and structure
their policies and procedures to take
into account each clearing agency’s
unique characteristics. In addition, the
transparency requirements discussed in
Part II.A.2.b.ii apply to all components
of a CCA’s margin model, including
those discussed by the commenter.
One commenter recommended that
the Commission require a CCA to
disclose particular aspects of its risk
models used in the calculation of initial
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124 SIFMA

at 7.
at 7–8 (discussing the development and
maintenance of margin models; accurate, robust
pricing; margin period of risk; calibration scenarios/
lookback periods; margin add-ons, such as
concentration and liquidity risks; offsets; antiprocyclicality measures; margin returns; and
interoperability).
126 17 CFR 240.17ad–22(e)(6)(i), (iii), (v).
125 Id.

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margin.127 As discussed supra in Part
II.A.2.b.ii, CCAs are already required to
provide disclosure of key aspects of
their margin models under Exchange
Act Rule 17Ad–22(e)(23)(iv) and to file
their rules as part of the SRO and/or
SIFMU rule filing processes, which
further provides transparency.128
Therefore, additional disclosure
requirements are not required because
of the current requirements that a CCA
must disclose key aspects of its margin
model.
Another commenter stated that a CCA
should be required to publish regular
statistics in a consistent format as to the
performance of margin requirements,
including how many clearing members
were subject to margin calls of what
size, did clearing members go into a
margin deficit, and how frequently.129
However, CCAs already include, as part
of their public disclosures under Rule
17Ad–22(e)(23)(iv)(C), a description of
basic data and performance statistics on
their services and operations, such as
basic volume and value statistics by
product type, average aggregate intraday
exposures to its participants, and
statistics on the CCA’s operational
reliability.130 As such, the Commission
is not adopting any additional
disclosure requirements. However,
CCAs generally provide such public
information regarding their margin
models’ performance as part of their
periodic disclosures.131 For example,
these disclosures include, with respect
to margin, identification of the number
of times over the past 12 months that
margin coverage held against any
account fell below the actual mark-tomarket exposure of that member
account based on daily backtesting
results and, in the event of a breach of
initial margin coverage, a report on the
size of the uncovered exposure, both of
which are data points consistent with
the commenter’s request to identify
whether clearing members went into a
margin deficit and how frequently.132
Accordingly, the Commission is not
adopting additional requirements.
However, a CCA generally should
consider what disclosures regarding its
policies and procedures for margin
collection can be useful to market
127 The

Associations at 3.
CFR 240.17ad–22(e)(23)(iv).
at 10.
130 See supra note 96 and accompanying text.
131 Id.
132 See, e.g., DTCC, ‘‘Fixed Income Clearing
Corporation and National Securities Clearing
Corporation Public Quantitative Disclosures for
Central Counterparties: Q2 2024’’ (Aug. 29, 2024) at
13, https://www.dtcc.com/-/media/Files/
Downloads/legal/policy-and-compliance/CPMIIOSCO-Public-Quantitative-Disclosures-Q22024.pdf.
128 17

129 SIFMA

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91011

participants to facilitate their
understanding of the performance of its
margin model.
B. Inputs to Margin System
1. Proposed Amendment to Rule 17Ad–
22(e)(6)(iv)
In the RWP Proposing Release, the
Commission proposed to amend Rule
17Ad–22(e)(6)(iv) to strengthen its
requirements that a CCA have policies
and procedures reasonably designed to
cover its credit exposures to its
participants by establishing a risk-based
margin system that, among other things,
uses reliable sources for its price data
and uses procedures for addressing
circumstances in which price data are
not readily available or reliable.133
Specifically, the Commission proposed
expanding the rule’s scope beyond price
data to also include other substantive
inputs to a CCA’s risk-based margin
system,134 meaning that the CCA’s
procedures would also have to address
when such a substantive input is not
readily available or reliable.135 The
unavailability or unreliability of any
substantive input to a CCA’s margin
system could potentially affect the
CCA’s ability to calculate margin.136
Citing as justification the current
requirement of ‘‘reliable sources’’ of
price data,137 the Commission stated
that there is a need to use reliable
sources for substantive inputs other
than price data.138 In response, the
Commission proposed to expand this
requirement to substantive inputs other
than price data.139 The Commission
stated that this proposal ‘‘should help
ensure that the CCA can continue to
calculate and collect margin’’ pursuant
to its obligations under Rule 17Ad–
22(e)(6).140
The Commission also proposed two
new requirements on a CCA’s backup
procedures when price data and other
133 RWP Proposing Release, supra note 18, at
34713.
134 See id. at 34715 (stating that ‘‘substantive’’
refers to ‘‘any inputs used by the covered clearing
agency that are necessary for the risk-based margin
system to calculate margin’’).
135 Id. at 34714.
136 Id.
137 Id. (explaining that a reliable source of timely
price data was necessary because a CCA’s ‘‘margin
system needs such data to operate with a high
degree of accuracy and reliability, given the risks
that the CCA’s size, operation, and importance pose
to U.S. securities markets’’).
138 Id.
139 Id. at 34714–15 (‘‘The Commission is therefore
proposing to amend Rule 17Ad–22(e)(6)(iv) to
expand its scope beyond price data to encompass
other substantive inputs to its risk-based margin
system and to impose requirements on a [CCA] to
have procedures when such substantive inputs are
not readily available or reliable’’).
140 Id. at 34714.

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substantive inputs are not readily
available or reliable. First, the
Commission proposed these procedures
to help ensure that the CCA can meet its
obligations under Rule 17Ad–
22(e)(6).141 Second, the Commission
proposed that these procedures must
include either: (i) the use of price data
or other substantive input from an
alternate source; or (ii) the use of an
alternate risk-based margin system that
does not similarly rely on the same
unavailable or unreliable substantive
input.142
In proposing this amendment, the
Commission included the following
guidance: an alternate source ‘‘generally
should meet the same level of reliability
of the primary source;’’ and an
‘‘alternate risk-based system needs to be
an alternate margin model that does not
rely on the same data source that is
unavailable or unreliable’’ to ensure to
compliance with Rule 17Ad–22(e)(6).143
The Commission also stated that an
alternate risk-based margin system
would be subject to the requirements of
17 CFR 240.17ad–22(e)(6)(vi) and (vii),
with respect to monitoring, review,
testing, verification, and model
validation.144 Additionally, the
Commission stated that a CCA should
‘‘consider its reliance on any third party
sources for purposes of its risk-based
margin system and consider whether an
alternate system or source of data or
other inputs that is internal to the CCA,
and does not rely upon any third party
provider, would be appropriate.’’ 145
The Commission is adopting the
requirement as proposed, with minor
modifications discussed in Part II.B.2
below. The Commission is also making
clarifying technical changes.146
141 Id.

at 34715.

142 Id.

2. Discussion of Comments
a. Inclusion and Definition of
Substantive Inputs
As discussed above, the Commission
proposed expanding the scope of Rule
17Ad–22(e)(6)(iv) beyond price data to
also include substantive inputs to a
CCA’s margin methodology.147 Based on
its supervisory experience, the
Commission understands that such
substantive inputs could include: (i)
portfolio size; (ii) volatility, (iii)
sensitivity to various risk factors that are
likely to influence security prices; (iv)
duration; (v) convexity; and/or (vi) the
results of models run by third parties.148
Several commenters addressed this
proposed modification to Rule 17Ad–
22(e)(6)(iv).149 One commenter agreed
generally with the proposed extension
of the rule’s scope to include
‘‘substantive inputs.’’ 150 The
commenter supported extending the
requirement for ‘‘reliable sources’’ to
include substantive inputs because a
CCA’s margin systems need ‘‘to operate
with a high degree of accuracy and
reliability, given the risk that [its] size,
operation, and importance posed to the
securities market.’’ 151
Several commenters requested that
the Commission provide more guidance
regarding its statement about what
inputs may be ‘‘substantive.’’ 152 One
commenter requested that ‘‘the term
‘substantive’ as used in this context be
further refined to avoid confusion over
the inputs that are ‘necessary’ and those
that are ‘non-consequential.’ ’’ 153 In
addition, several commenters stated that
the CCA should determine what
constitutes a substantive input.154 One
such commenter also stated that, if the
Commission prescribed a definition of
‘‘substantive input,’’ a CCA may be
forced to ‘‘obtain, often at great expense,

143 Id.
144 Id.

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145 Id.
146 Specifically, the Commission is: (1) adding
paragraph markers (in the form of capital letters) to
separate the clauses of the rule text into (A), (B),
and (C); (2) changing the punctuation from a comma
to a semi-colon and deleting the word ‘‘and’’ at the
end of paragraph (e)(6)(iv)(A); (2) adding
parenthesis around the text ‘‘and, with respect to
price data, sound valuation models’’, deleting the
comma at the end of that language, and changing
the period to a semi-colon at the end of paragraph
(e)(6)(iv)(B); (3) adding additional paragraph
markers (1) and (2) to paragraph (e)(6)(iv)(C) before
each of the two alternatives listed in this paragraph
(i.e., ‘‘the use of price data or substantive inputs
from an alternate source; or’’ and ‘‘if it does not use
an alternate source, the use of a risk-based margin
system that does not rely on the unavailable or
unreliable substantive input;’’) and capitalizing the
first word in each new paragraphs (e)(6)(iv)(C)(1)
and (2) (‘‘The’’ and ‘‘If’’, respectively); (4) adding a
clarifying, internal cross-reference (‘‘such
procedures under paragraph (e)(6)(iv)(B)’’) in
paragraph (e)(6)(iv)(C); and (5) replacing the word
‘‘shall’’ in new Rule 17Ad–22(e)(6)(iv)(C) (i.e.,

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‘‘Such procedure under paragraph (e)(6)(iv)(B) of
this section shall’’) with ‘‘must’’ to use more plain
language.
147 In addition, to improve clarity and consistency
of terms, the Commission proposed technical edits
standardizing references to ‘‘price data’’ in Rule
17Ad–22(e)(6)(iv), which currently refers to both
‘‘price data’’ and ‘‘pricing data,’’ to refer only to
price data. The Commission previously used the
two words interchangeably in preexisting Rule
17Ad–22(e)(6)(ii). RWP Proposing Release, supra
note 18, at 34714 n.59. The Commission received
no comments on this proposed technical change of
‘‘pricing data’’ to ‘‘price data’’ in this provision and
is adopting as proposed.
148 RWP Proposing Release, supra note 18, at
34714.
149 See Better Markets at 8–9; CCP12 at 2; DTCC
at 5; The Associations at 8.
150 See Better Markets at 8–9.
151 Id. at 8.
152 See DTCC at 5; CCP12 at 2; The Associations
at 8.
153 DTCC at 5.
154 Id.; CCP12 at 2.

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alternate data sources for inputs with
limited utility and minimal or no
impact on margin calculations.’’ 155
However, another commenter stated
that the Commission’s rules around
substantive inputs should be principles
based, identifying one such principle
that ‘‘every input that affects margin
requirements by [x]% is deemed
substantive.’’ 156
The Commission is not making any
amendments to define what constitutes
a substantive input. A CCA is
responsible for developing its own
policies and procedures, including its
margin methodology, and it is best
positioned to determine what
constitutes a substantive input into its
margin methodology. As stated in the
RWP Proposing Release, ‘‘substantive’’
for the purposes of Rule 17Ad–
22(e)(6)(iv), ‘‘refers to any inputs used
by the CCA that are necessary for the
risk-based margin system to calculate
margin’’ and ‘‘is meant to distinguish
from other potential inputs that may not
be consequential to the calculation of
margin.’’ 157 Accordingly, as requested
by some commenters, the Commission
confirms that a CCA has the discretion
to determine what is a ‘‘substantive’’
input, based on its knowledge of its riskbased margin system, as compared to
those that it determines to be nonconsequential.158 When establishing
and maintaining its risk-based margin
system, each CCA must have the ability
to consider its own unique
characteristics and circumstances, as
well as those of the market it serves.159
Rather than have the Commission define
the term ‘‘substantive’’ prescriptively for
each CCA, this discretion corresponds
with the Commission’s principles-based
approach in Rule 17Ad–22(e), which
helps each CCA effectively meet the
evolving risks and challenges in the
markets that each CCA serves.160
Therefore, no further clarifications or
guidance are necessary to distinguish a
substantive input from those inputs that
are non-consequential.
Further, the Commission is not
adopting any amendments to Rule
17Ad–22(e)(6)(iv) to incorporate the
principle that ‘‘every input that affects
margin requirements by [x]% is deemed
substantive.’’ 161 This type of
requirement would not be principles155 CCP12

at 2.
Associations at 8.
157 RWP Proposing Release, supra note 18, at
34715.
158 See DTCC at 5; CCP12 at 2; The Associations
at 8.
159 See CCA Standards Adopting Release, supra
note 5, at 70800–01.
160 See id. at 70800.
161 The Associations at 8.
156 The

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
based and instead would prescribe a
particular scope of what constitutes
‘‘substantive,’’ which the Commission
does not seek to do. Based on its
supervisory experience, the Commission
understands that a wide range of margin
models exists among the CCAs. This
wide range of margin models exists due
to each CCA’s different participants,
different products cleared, and different
markets served. Given these distinctions
among the CCAs, and consistent with
the principles-based approach in Rule
17Ad–22(e) more generally, the
Commission believes it would be
inappropriate to include in Rule 17Ad–
22(e)(6)(iv) a quantitative threshold
defining those inputs that would be
‘‘substantive.’’ Such a specific
percentage threshold likely would fail to
identify all the inputs for all CCAs’
margin models that are necessary to
ensure every CCA’s margin model can
meet the requirements of Rule 17Ad–
22(e)(6) (i.e., covering its credit
exposures to its participants). Therefore,
the Commission is not adopting
modifications responsive to the
commenter requesting ‘‘substantive’’ to
correspond to a percentage impact on
margin requirements.

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b. Use of an Alternate Source or an
Alternate Risk-Based Margin System
As proposed, the changes to Rule
17Ad–22(e)(6)(iv) required that the
procedures for when price data or
substantive inputs are not readily
available or reliable must include the
use of price data or substantive inputs
from an alternate source or, if it does not
use an alternate source, the use of an
alternate risk-based margin system (that
does not similarly rely on the
unavailable or unreliable substantive
input).162
One commenter expressed support for
this proposed requirement,163 and other
commenters acknowledged the
importance of ensuring that a CCA’s
risk-based margin system be able to
perform even when certain sources of
pricing data or other inputs become
unavailable.164
However, several commenters
disagreed with the requirement of a sole
means of contingency (that is, the use of
alternate sources) and stated that CCAs
should have the flexibility to develop
their own backup procedures and/or
appropriate substitutions for
162 RWP Proposing Release, supra note 18, at
34715.
163 Better Markets at 9 (stating that this proposed
requirement would ensure that the backup
procedures available to a CCA ‘‘are sufficiently
distinct from the impaired data source that they
will serves as reliable alternatives’’).
164 See OCC at 4; ICE at 2; CCP12 at 2.

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unavailable inputs in their margin
models, depending on the products
cleared and the markets served.165
These commenters stated that it may not
always be possible to have a ‘‘like-forlike’’ substitution of an alternate
source.166 One commenter stated that
the Commission should not restrict
choices in an emergency situation by
requiring that an alternate source be
independent of the third-party provider,
and that CCAs should simply have a
‘‘credible fallback’’ in the event of
unavailable price data or substantive
inputs.167 Another such commenter
recommended that the proposal be
modified to allow for ‘‘substantive
inputs from an alternate source, and/or
of appropriate alternate inputs.’’ 168
In response to the commenters who
sought revisions to the proposed
requirement’s obligation to use an
alternate source, the requirement of an
alternate source does not mean that
such an alternate source must be
external to a CCA or that the alternate
source must be of the same nature as the
original substantive input (that is, the
alternate source need not be a ‘‘like-forlike’’ substitute). As stated in the RWP
Proposing Release, ‘‘alternate source[s]
generally should meet the same level of
165 DTCC at 4 (stating that a CCA should have
‘‘the flexibility to develop reasonable backup
procedures and contingency plans for these types
of circumstances, which will depend on the cleared
products and market structure at issue, and may not
in all cases include the use of third-party secondary
vendors or data sources’’); OCC at 5 (stating that a
CCA should be permitted to use its informed
judgment to determine the appropriate substitutions
for unavailable inputs in its margin system, which
would ensure that CCAs have sufficient flexibility
to address the need for alternative data sources in
a manner that addresses the Commission’s policy
objectives, is tailored to the markets served and
products cleared by the [CCA], and is not
unnecessarily burdensome).
166 DTCC at 4–5 (stating that requiring an
alternate source would not always be the most
practical or effective means to ensure a CCA meets
its participants’ credit obligations under Exchange
Act Rule 17Ad–22(e)(4), due to the possible absence
of an alternate source of pricing data or other
substantive inputs (e.g., because of industry
consolidation among vendors), and the inability to
use discretion to develop a solution to unavailable
price data or other substantive input); OCC at 4
(stating that alternate sources may not exist, or may
be prohibitively expensive or technically difficult to
implement when compared to the impact of the
input on the margin model). One such commenter
suggested that a CCA may find it appropriate if its
policies and procedures incorporated the use of an
alternative pricing vendor, where applicable, or in
the absence of such an alternative provider,
pursuant to the CCA’s policies and procedures to
ensure that timely pricing data is applied, with
such procedures including, for example, recording
‘‘the last available price’’ in the CCA’s pricing
database with such price consumable to applicable
participants (citing to its recent update to its
Clearing Agencies’ Securities Valuation
Framework). Id. at 5.
167 The Associations at 9.
168 OCC at 5.

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reliability of the primary source,
whether that alternate is sourced from
an external provider or created
internally.’’ 169 By acknowledging that
an alternate source may be created
internally, the Commission recognized
that an alternate source means, simply,
an alternate to the primary input and
does not require an entirely
independent, third-party source to
provide the same input. Similarly, the
recognition that the alternate source
may be created internally means that the
Commission also recognized that the
alternate source may, in fact, be the
result of internal policies and
procedures that the CCA designs to
develop an internal alternate source and
meet the needs of its margin
methodology.
Further, in response to the
commenters seeking flexibility to
develop their own backup procedures,
this requirement does not prevent a
CCA from using its discretion to
determine the most appropriate
substitution for any price data or
substantive input to its risk-based
margin system.170 This requirement also
does not preclude the use of policies
and procedures that establish a
methodology or approach to determine
the appropriate price,171 so long as, as
discussed in Part II.B.2.c infra, the CCA
can still meet the obligations of Rule
17Ad–22(e)(6), including meeting its
credit obligations to its participants.172
Therefore, revisions to or deletion of the
rule text regarding alternate sources,
including those suggested by one
commenter to allow for ‘‘substantive
inputs from an alternate source, and/or
of appropriate alternate inputs,173 are
not necessary, as the rule text does not
require an externally provided alternate
source.
One commenter stated that the
Commission should ‘‘refocus[ ]’’ the
final rule on policies and procedures, as
opposed to requiring policies and
procedures that include an alternate
source or risk-based margin system.174
The Commission agrees that the
169 RWP Proposing Release, supra note 18, at
34715 (emphasis added).
170 Id.
171 For example, one CCA commenter stated that
its existing policy provided that backup pricing
may more accurately be sourced from an alternative
pricing vendor or may also be determined, in the
absence of an alternative pricing vendor, pursuant
to the CCA’s applicable policies and procedures to
ensure that timely pricing data is applied, with
such procedures including, for example, using the
last available price which is consumable to
applicable participants. DTCC at 5.
172 RWP Proposing Release, supra note 18, at
34715.
173 See OCC at 5.
174 CCP12 at 2.

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requirement should allow for flexibility
in how CCAs address the unavailability
or unreliability of an input to their
margin model. The requirement being
adopted does not mandate that a
specific alternate source be used, but
rather that the CCAs have policies and
procedures to ensure that some alternate
source is available, even if that source
is determined internally by the CCA.
With respect to the requirement of a
potential alternate risk-based margin
system, one commenter stated that
requiring CCAs to develop and maintain
an entire alternate risk-based margin
system would be prohibitively
expensive and operationally
burdensome.175 However, the
Commission disagrees with the
commenter’s characterization that such
costs are necessary because the
proposed rule does not require the
development and maintenance of a
second risk-based margin system
separate from its current risk-based
margin system, as discussed below.176
Another commenter suggested that the
Commission should remove the
requirement of a potential alternate riskbased margin system from the rule
text.177 The Commission disagrees that
the proposed rule requires a second
risk-based margin system separate from
a CCA’s current risk-based margin
system, and the Commission is
modifying the term ‘‘alternate risk-based
margin system’’ to make this point
clear.178 Specifically, the proposed
requirement for backup procedures
when substantive inputs ‘‘are not
readily available or reliable’’ should
help a CCA ensure it ‘‘can continue to
calculate and collect margin
commensurate with, the risks and
particular attributes of each relevant
product, portfolio, and market, as
required under Rule 17Ad–
22(e)(6)(i).’’ 179
Similarly, another commenter
disagreed with the proposed additional
requirement that a CCA have advance
plans ‘‘to use an alternate risk-based
margin system because of the
unavailability or unreliability of a
particular input,’’ which ‘‘would impose
a significant burden on a [CCA] solely
for the purpose of addressing a problem
with an input that may be
transitory.’’ 180 The commenter stated
that it ‘‘is not aware of circumstances
where a [CCA] has been unable to
175 OCC

at 5.
176 See infra notes 178 and 186 and
accompanying text.
177 ICE at 2–3.
178 See infra note 187 and accompanying text.
179 Id.
180 ICE at 2.

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address a problem with an input price
through its normal business practices
and procedures.’’ 181 The commenter
also stated that it ‘‘does not believe that
the Commission has articulated a
problem (other than a theoretical one)’’
that the proposal is designed to address
and ‘‘has not recognized the
considerable costs to’’ CCAs, clearing
firms, and other market participants
‘‘that would be required to develop and
implement alternate margin models to
address a remote and theoretical
problem with price or other data
inputs.’’ 182 The commenter suggested
that this clause be removed from the
rule text.183 In addition, one commenter
requested that the Commission confirm
that any final rule does not create an
expectation that CCAs should develop
an alternate risk-based margin
system.184
The Commission disagrees with the
commenter that the failure of a CCA’s
margin model (i.e., its risk-based margin
system) due to an unavailable or
unreliable input is a ‘‘theoretical’’
problem. Rather, the unavailability or
unreliability of a substantive input
could impact a CCA’s ability to
establish, implement, maintain, and
enforce a risk-based margin system that
Rule 17Ad–22(e)(6) requires. Moreover,
contrary to the commenter’s assertion,
the Commission is not requiring that
CCAs develop and implement alternate
margin models, but rather, is requiring
that the CCA establish, implement,
maintain and enforce written policies
and procedures to address particular
issues that could affect the functioning
of its margin model. The requirement
also allows for the use of an alternate
source in the existing risk-based margin
system, and a CCA may determine the
alternate source using its own policies
and procedures.185 An alternate source
from a third-party provider is not
required. More generally, this
requirement is designed to expand the
scope of the preexisting rule and ensure
that a CCA establishes, implements,
maintains and enforces written policies
and procedures to address the
unavailability of a substantive input to
its margin model and meet its
obligations under Rule 17Ad–22(e)(6).
As stated in the RWP Proposing Release,
when substantive inputs are unavailable
181 Id.

at 3.

182 Id.
183 Id.
184 CCP12 at 3 (stating that the development of
such an alternate system would require a CCA to
effectively maintain two very distinct margin
systems, which is likely very resource intensive and
time consuming).
185 RWP Proposing Release, supra note 18, at
34715.

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or unreliable, CCAs must be able to
continue to calculate and collect margin
commensurate with, the risks and
particular attributes of each relevant
product, portfolio, and market.186
Additionally, the Commission analyzed
the costs of the requirement in Part IV,
infra, and in the RWP Proposing
Release. Given the analysis, the
Commission disagrees with the
commenter’s suggestion to remove the
clause from the proposal.
The Commission is making several
technical changes to the rule text to
clarify that an alternate risk-based
margin system is not required in all
instances. Specifically, the Commission
deletes the word ‘‘alternate’’ from ‘‘an
alternate risk-based margin system’’ in
Rule 17Ad–22(e)(6)(iv)(C)(2) (and
changes ‘‘an’’ to ‘‘a’’ before ‘‘risk-based
margin system’’ for grammatical
reasons). This revision responds to
commenters’ concerns that the rule
requires that a CCA develop an alternate
risk-based margin system separate from
a CCA’s current risk-based margin
system.187 The rule does not include
such a requirement. The Commission is
also adding the term ‘‘either’’ after
‘‘must include’’ to clarify that satisfying
either paragraph (e)(6)(iv)(C)(1) or (2)
fulfills paragraph (e)(6)(iv)(C)’s
requirement.188
c. Obligation To Meet a CCA’s
Obligations Under Rule 17Ad–22(e)(6)
The proposed amendment to Rule
17Ad–22(e)(6)(iv) also provided that the
procedures discussed in Part II.B.2.b
must ensure that the CCA is able to meet
its obligation to cover credit exposures
to its participants under Rule 17Ad–
22(e)(6).189 In the RWP Proposing
Release, the Commission explained that,
by specifying how these procedures
must perform (i.e., to allow a CCA to
continue to cover its credit exposures),
this proposed amendment helps ensure
that a CCA adopts sufficiently robust
procedures.190 As such, this proposed
amendment would, with respect to both
186 Id.

at 34714.
supra notes 175, 184 and 177 and
accompanying text.
188 The Commission also removes from Rule
17Ad–22(e)(6)(iv)(C) the word ‘‘similarly’’ from
between the words ‘‘not’’ and ‘‘rely’’ (i.e., ‘‘the use
of a risk-based margin system that does not rely on
the unavailable or unreliable substantive input’’) to
remove redundancy (as the word ‘‘similarly’’ was
unnecessary to convey the meaning that the
prohibited reliance was on the unavailable or
unreliable substantive input in question). The
Commission also revises the reference to ‘‘the
unavailable or unreliable substantive input’’ to
‘‘substantive inputs that are unavailable or reliable’’
for the same reasons.
189 RWP Proposing Release, supra note 18, at
34715.
190 Id.
187 See

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price data and other substantive inputs,
require that such procedures should
address circumstances in which price
data or substantive inputs are not
readily available or reliable, in order to
ensure that the CCA be able to meet its
requirements under Rule 17Ad–22(e)(6)
and cover its credit exposures to its
participants.191
The Commission received no
comments on this requirement and is
adopting as proposed.
C. Contents of Recovery and Orderly
Wind-Down Plans

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The Commission received several
overarching comments on proposed
Rule 17Ad–26 that were generally
supportive of the approach, particularly
the addition of new and more specific
requirements applicable to a CCA’s
RWP. One commenter stated that a
detailed RWP is essential, as the
inability of a CCA to recover from severe
losses, or the disorderly wind-down of
a CCA, could have significant
repercussions not only for the sector in
which the CCA operates but for the
markets and the economy as a whole.192
The commenter also stated that CCAs
must have comprehensive RWPs
because even sound risk management
may not prevent a CCA’s default in
extreme circumstances.193 The
commenter continued by stating the
obvious strength of recovery and orderly
wind-down planning is the ex ante
development of a strategy to maintain as
a going concern the critical operations
of the CCA, even in the face of losses
that would otherwise have caused its
insolvency, or to ensure the orderly
transfer of functions.194 The commenter
stated that not aligning RWPs to
uniform requirements introduces risk,
and that the proposed rule mitigates that
risk by requiring all RWPs to
incorporate at least nine specific
elements.195 Another commenter
explained that CCAs face no meaningful
competitive pressure when they are the
sole clearing agency for the products
they clear and can be a source of
systemic risk.196 The commenter stated
that, in such cases, to improve CCAs,
regulatory mandates must effectively
codify existing best practices to enhance
resiliency and create a level playing
field for resiliency, and that such
improvements will only occur if the
191 Id.
192 Better

Commission imposes specific regulatory
requirements.197
One commenter cautioned that the
proposed upgrades and focus on RWP
design and testing may create
unrealistic expectations and overreliance on RWPs. The commenter also
stated that care is needed to ensure that
confidence in such plans is well
grounded and that the efficient
implementation of RWPs is properly
stressed, accounting for rapidly evolving
market risk and for the ever-increasing
speed of market-moving data.198 In the
Commission’s view, effective planning
can help preserve financial stability and
ensure the continuity of critical CCP
and CSD functions for the markets
served by CCAs, and the availability of
tools and resources in the RWP
generally reserved for recovery and
wind-down scenarios would not lead to
an ‘‘over-reliance’’ on such tools in
practice. In practical terms, default
management, recovery, and wind-down
exist as distinct points across a
spectrum from normal market
conditions to highly stressed market
conditions. As such, a CCA would
deploy its RWP either (i) in a default
scenario, only after its business-as-usual
default management tools had failed to
close out any defaulting portfolios and,
likely, after the CCA had fully
exhausted its prefunded resources, or
(ii) in a non-default scenario, after
resources set aside for business risk
(e.g., six months of operating expenses)
or for other purposes had been
exhausted. Commission rules impose a
high standard for resilience in normal
and stressed market conditions across
both default and non-default loss
scenarios, consistent with the
international standards set forth in the
PFMI, of which planning for recovery
and orderly wind-down is but one part
of a multi-part and comprehensive
regulatory framework. Given this
dynamic, CCAs would not have
incentives to ‘‘activate’’ their RWPs
early.
More generally, the Commission
agrees with commenters expressing the
view that thoughtful recovery and winddown planning is necessary, even when
effective risk-management measures are
in place, because of the potential
systemic risk implications of the failure
of a CCA. Given the evolving nature of
recovery and orderly wind-down
planning, as well as the annual review
and testing requirements included in
Rule 17Ad–26, the concern that adding

Markets at 10.

193 Id.

197 Id.

194 Id.

198 Letter from Erkki Liikanen, Co-Chair, and
Simon Johnson, Co-Chair, CFA Institute Systemic
Risk Council (Aug. 30, 2023) (‘‘CFA’’) at 5.

195 Id.
196 SIFMA

at 10–11.

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more robust requirements for
development and testing of RWPs will
lead to ‘‘over-reliance’’ on RWPs is
misplaced. Effective RWPs, with robust
consideration of scenarios, triggers, and
processes for testing and board
approval, help promote recovery. Such
planning for recovery is essential
because, as other commenters have
stated, the wind-down of systemic
functions often would not leave
alternative providers of clearance and
settlement services to support continued
market function.199 To reach the stage
where a CCA would consider
implementing its RWP, in the context of
a default loss, the CCA would have to
incur default losses greater than the
financial resources maintained pursuant
to policies and procedures required by
Rule 17Ad–22(e)(4),200 or in a nondefault loss context, incur losses greater
than the liquid net assets funded by
equity held pursuant to the policies and
procedures required by Rule 17Ad–
22(e)(15)(ii) to cover potential business
losses.201 As such, neither CCAs nor
market participants are in danger of
‘‘over-reliance’’ on the policies and
procedures that undergird RWPs. In
addition, although many systemic
functions are not currently offered by
alternative providers, RWPs can, in
establishing robust policies and
procedures for orderly wind-down, help
facilitate the orderly transfer of systemic
functions to a new entity to maintain
clearance and settlement services for the
market served.
199 See, e.g., Davidson at 1. This concern
regarding the feasibility or advisability of winddown in the context of CCAs is discussed further
in Part II.D.1.c.
200 See 17 CFR 240.17ad–22(e)(4)(i) (requiring a
CCA to maintain sufficient financial resources to
cover its credit exposure to each participant fully
with a high degree of confidence); see also 17 CFR
240.17ad–22(e)(4)(ii) (requiring a CCA that provides
CCP services and is either systemically important
in multiple jurisdictions or a clearing agency
involved in activities with a more complex risk
profile to maintain additional financial resources at
the minimum to enable it to cover a wide range of
foreseeable stress scenarios that include, but are not
limited to, the default of the two participant
families that would potentially cause the largest
aggregate credit exposure for the CCA in extreme
but plausible market conditions); 17 CFR 240.17ad–
22(e)(4)(iii) (requiring a CCA that is not subject to
Rule 17Ad–22(e)(4)(ii) to maintain additional
financial resources at the minimum to enable it to
cover a wide range of foreseeable stress scenarios
that include, but are not limited to, the default of
the participant family that would potentially cause
the largest aggregate credit exposure for the CCA in
extreme but plausible market conditions).
201 See 17 CFR 240.17ad–22(e)(15)(ii) (requiring a
CCA, at a minimum, to hold liquid net assets
funded by equity equal to the greater of either six
months of the CCA’s current operating expenses, or
the amount determined by the board of directors to
be sufficient to ensure a recovery or orderly winddown of the CCA).

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Another commenter stated that the
RWP Proposing Release has not met the
burden of proof required by the
Administrative Procedure Act. More
specifically, the commenter stated that
the Commission has not demonstrated
that the rule amendments are necessary
or in the public interest because the
proposed amendments are to existing
rules that already more than adequately
cover the areas in question, and there
have been no examples of CCAs or
clearing agency participants that failed
or of CCAs that executed recovery plans
or parts thereof. 202 The commenter
further explains that the existing SRO
rules of the CCAs relating to RWPs have
been approved by the Commission, and
that the Commission has conducted
multiple examinations of CCAs under
those rules, where any deficiencies
found have been subject to, or are in the
process of, review and remediation.
Although rare, CCPs both in the U.S.
and abroad have experienced highly
stressed market conditions that led to
participant defaults, and CCP failures
have occurred outside the U.S.
Examples of such participant defaults
include three CCP failures in other
jurisdictions in recent history, as well as
the market stress that CCPs faced in
response to the 1987 market break and
in response to the beginning of the
COVID–19 pandemic in 2020.203 These
defaults and failures could happen
again and underscore the importance of
the Commission’s ongoing efforts to
ensure effective supervision and
regulation of CCAs following the
enactment of the Dodd-Frank Act, as
discussed in Part I.204 These examples
also reinforce the possibility that even a
robust and resilient CCA holding a
sizeable pool of prefunded resources
and other liquid resources may
experience stressed market conditions
or other events so extreme that the
resources it has reserved for potential
loss scenarios will prove insufficient,
potentially necessitating actions beyond
202 Davidson

at 1–3.
e.g., Staff Report on the Regulation of
Clearing Agencies (Oct. 1, 2020) at 18, n.93, https://
www.sec.gov/files/regulation-clearing-agencies100120.pdf (describing recent examples of
participant defaults); Bank for International
Settlements (‘‘BIS’’), CCP Failure: A Rare but
Present Danger (Dec. 16, 2018), https://www.bis.org/
publ/qtrpdf/r_qt1812z.htm (describing three CCP
failures over the last 50 years); ‘‘The October 1987
Market Break, A Report by the Division of Market
Regulation’’ (Feb. 1988), https://
www.sechistorical.org/collection/papers/1980/
1988_0201_MarketBreak_01.pdf (describing the
market stress associated with the 1987 market crash
and the stress it placed on CCPs at the time).
204 See supra Part I and notes 5–13, 23–40, and
accompanying text (discussing the rationale for the
proposed rules and the statutory authority for the
regulation of clearing agencies).

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203 See,

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‘‘business-as-usual’’ default
management. By establishing
requirements related to core services
and service providers, the identification
of scenarios, triggers, and tools for
recovery and orderly wind-down, and
robust processes for implementation,
notification, testing and board review
and approval, new Rule 17Ad–26 helps
ensure that CCAs can successfully plan
for, and navigate highly stressed or
extreme market conditions, where
events may occur or conditions
deteriorate rapidly.205
Pursuant to the Exchange Act, the
Commission is directed to facilitate the
ongoing development of the national
system for clearance and settlement,
which includes ensuring effective risk
management at CCAs. As discussed
throughout the RWP Proposing Release,
and in this release, the Commission has
proposed and is now adopting new Rule
17Ad–26 to codify certain elements that
have emerged across some RWPs that
must be included in all RWPs to help
ensure a CCA can effectively allocate
uncovered losses, manage liquidity
shortfalls, and address capital shortfalls
arising from other causes. As such, new
Rule 17Ad–26 sets forth these elements.
While existing RWPs at CCAs may
contain several of these elements, new
Rule 17Ad–26 requires each CCA to
have every element in its RWP. As
previously discussed,206 new Rule
17Ad–26 also promotes three important
objectives consistent with its statutory
mandates: (i) bolstering the existing
RWPs at CCAs; (ii) codifying some
existing RWP elements to ensure that
these elements remain in the plans over
time; and (iii) establishing that the RWP
of any new CCA would contain each of
the elements specified in the rule. In so
doing, the Commission is establishing a
higher minimum standard for the
quality and effectiveness of RWPs,
designed to help ensure that planning
for recovery and orderly wind-down is
effective and can promote financial
stability in periods of market stress. The
Commission will continue to review
rule filings and advance notices
submitted by CCAs under the rules
adopted in this release to help ensure
the regulatory framework is an effective
tool that can advance the evolving
process of recovery and resolution
planning for CCPs and other CCAs.
Below the Commission addresses
comments regarding specific elements
of proposed Rule 17Ad–26.207
205 See RWP Proposing Release, supra note 18, at
34709.
206 See supra note 39 and accompanying text.
207 The Commission is making one technical edit
to the preamble language for Rule 17Ad–26,

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1. Core Services: Rule 17Ad–26(a)(1)
Proposed Rule 17Ad–26(a)(1) required
a CCA to identify and describe in its
RWP the CCA’s critical payment,
clearing, and settlement services and
address how the CCA would continue to
provide such critical services in the
event of a recovery and during an
orderly wind-down, including the
identification of the staffing necessary to
support such critical services and
analysis of how such staffing would
continue in the event of a recovery and
during an orderly wind-down.
In the RWP Proposing Release, the
Commission explained that the first step
in effective recovery and orderly winddown planning must be identification of
the critical services provided to market
participants because market participants
rely on these services to facilitate
payment, clearing, and settlement in the
U.S. securities markets. The
Commission also stated that such
planning helps ensure that RWPs focus
on a CCA’s ability to provide these
services on an ongoing basis, even
under stress.208 Furthermore, the
Commission stated its belief that the
CCA generally should consider the
impact that any interruption to
particular services would have on the
CCA’s participants and the smooth
functioning of the market it serves, as
well as whether the service is available
from any substitute provider. In the
proposed rule, ‘‘critical’’ referred to the
importance of the service to participants
and to the proper functioning of the
markets, where an inability to provide
the service would implicate financial
stability concerns. As such, the
Commission also proposed definitions
of ‘‘recovery’’ and ‘‘orderly wind-down’’
focused on the need to continue to
provide the critical payment, clearance,
and settlement services provided by a
CCA through the recovery or winddown event.209
Several commenters generally
supported the requirement to identify
the critical payment, clearance, and
settlement services provided by a CCA
and address how the CCA would
continue to provide such critical
services.210
replacing ‘‘shall’’ with ‘‘must’’ to use more plain
language, as well as align with the approaches in
other recently adopted rules for clearing agencies at
17 CFR 240.17ad–25 and 240.17ad–27.
208 RWP Proposing Release, supra note 18, at
34718.
209 See proposed Rule 17Ad–26(b).
210 See SIFMA at 14 (‘‘strongly supports the
requirement that Clearing Agencies ensure that they
are able to maintain access to services’’); ICE at 3
(‘‘supports the requirement to identify critical
payment, clearing, and settlement services and to
address continued use of such services during a

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
a. Replacing ‘‘Critical’’ With ‘‘Core’’
The Commission is modifying the
final rule to refer to ‘‘core payment,
clearance, and settlement services’’
rather than ‘‘critical payment, clearance,
and settlement services’’ (hereinafter,
referred to as ‘‘core services’’) to
improve clarity and consistency with
terminology in other rules, such as Rule
17Ad–25(i),211 which concerns the
governance of ‘‘service providers for
core services.’’ Furthermore, the use of
‘‘core’’ as opposed to ‘‘critical’’ helps
distinguish a CCA’s obligations under
Rule 17Ad–26 from those under 17 CFR
242.1000 through 242.1007 (‘‘Regulation
SCI’’), which addresses, in the context
of clearing agencies subject to the rule,
‘‘critical systems’’ that support
clearance and settlement.212
Use of the descriptive term ‘‘core’’
rather than ‘‘critical’’ does not affect the
Commission’s guidance stated in the
RWP Proposing Release on identifying
those services.213 Accordingly, when
identifying a core service, the CCA
generally should consider the impact
that any interruption to a particular
service would have on the CCA’s
participants and the smooth functioning
of the markets that it serves, as well as
whether the service is available from
any substitute provider.214

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b. Modification to ‘‘Staffing’’ Element
Several commenters stated that
identifying staffing or staffing resources
is a necessary part of addressing how a
CCA may continue providing its core
services.215 One of those commenters
stated that it is not necessary to identify
specific personnel or positions required
to be maintained, and a CCA should
recovery or wind-down’’); OCC at 6 (‘‘agrees that
identification of critical services and planning for
their continuation in a recovery or orderly winddown should be the core content of a CCA’s RWP’’).
211 17 CFR 240.17ad–25(i).
212 See 17 CFR 242.1000 (defining ‘‘Critical SCI
systems’’); see also RWP Proposing Release, supra
note 18, at 34719 (acknowledging there would
likely be some connection between what a CCA
identifies as its critical services for purposes of
inclusion in its RWP and what it identifies as
‘‘critical SCI systems’’ for purposes of Regulation
SCI, but inclusion of a critical service in a CCA’s
RWP would have no impact on the CCA’s
obligations under Regulation SCI).
213 RWP Proposing Release, supra note 18, at
34718.
214 Id.
215 OCC at 6 (agreeing that any consideration of
how a CCA will continue its core services
necessarily requires consideration of how to plan to
retain the necessary staff for such efforts); ICE at 3
(recognizing that it is necessary to identify staffing
resources to implement RWPs); The Associations at
13 (agreeing that emphasis should be placed on
determining staffing requirements); SIFMA at 14
(strongly supporting the requirement that CCAs
ensure that they are able to maintain access to
services, including personnel services, in a default
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have flexibility to determine the staff
needed in a particular situation,
including taking into consideration the
availability and willingness of
personnel to perform services at the
time of a recovery or wind-down.216 The
commenter suggested the proposed rule
be amended to clarify that the CCA is
not required to identify specific
personnel or positions required to be
maintained.217 Similarly, another
commenter stated that lists of specific
employees may become dated quickly
due to a shift in responsibility or normal
attrition.218 Another commenter stated,
given the volume of employee turnover
and new initiatives, personnel
designations likely change with
regularity, making specific
identification of personnel in the RWP
superfluous.219
The Commission agrees with the
commenters that identifying specific
personnel or employees is not necessary
in planning and recognizes that changes
may occur in the staffing at a CCA.
However, it is important for planning
purposes to identify those positions,
roles, or personnel functions that are
necessary for the continuation of core
services, regardless of who or how many
staff fills the role in ordinary
circumstances, to avoid unnecessary
disruptions. As such, the Commission is
modifying the final rule from the
proposal to refer to the identification of
‘‘staffing roles’’ instead of ‘‘staffing,’’ the
latter of which could have been
interpreted as requiring the
identification of specific individuals.
Several commenters responded to the
clause requiring ‘‘analysis of how such
staffing would continue in the event of
a recovery and during an orderly winddown.’’ One commenter stated that the
process for preparing to retain and
incentivize critical employees under
adverse circumstances is the critical
piece of information necessary for the
CCA and its supervisory and resolution
authorities.220 The commenter stated
that what is most important in this
aspect of planning are the retention
tools the CCA uses, how it considers
retention when setting and negotiating
employment terms with essential
personnel, and how it tracks the terms
of each such employee’s
employment.221 The commenter
suggested a minor wording change to
proposed Rule 17Ad–26(a)(1) to state
‘‘analysis of how the CCA prepares for
216 ICE

220 OCC

at 14.
at 6.
225 To eliminate extraneous words and align the
text grammatically, the Commission has replaced
the phrase ‘‘analysis of’’ with ‘‘analyze.’’ See infra
note 228 and accompanying text (describing other
grammatical changes to the rule text).

at 6.
at 6.

at 6.

221 Id.

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222 Id.
224 Davidson

217 Id.
219 Davidson

such staffing to continue in the event of
a recovery and during an orderly winddown.’’ 222 Another commenter stated
that it is important to have sufficient
going concern resources to allow a CCA
to retain its key personnel, claiming that
the inability to keep personnel from
leaving after a prior high profile
insolvency event in the 2008 financial
crisis contributed to large losses.223
Another commenter stated that not even
the most lucrative employment
agreements can be sufficient to retain
highly in-demand skilled employees on
a ‘‘sinking ship,’’ and furthermore stated
that certain CCAs have organized labor
agreements in place with many
employees that would require time
consuming renegotiation to satisfy this
clause in the proposed rule.224
To address the above concerns
regarding the potentially unpredictable
or evolving circumstances of
employment during a recovery or winddown event, the Commission is
modifying the clause related to
analyzing the continuation of staffing
roles in a recovery and during an
orderly wind-down. The clause has
been modified in the final rule to state
‘‘analyzing how such staffing roles
necessary to support such core services
would continue in the event of a
recovery and during an orderly winddown.’’ 225 In response to commenters
generally focused on concerns that a
CCA could not guarantee the
circumstances of employment during a
recovery or wind-down event, the rule
only requires that a CCA conduct an
analysis, through which it would be
able to identify potential challenges and
potential ways to address those
challenges. The final rule does not
require the CCA to guarantee or compel
specific staff or personnel to remain in
place. Rather, the requirement promotes
preparation for recovery and winddown events, helping to ensure that
from a staffing perspective the necessary
roles or functions have been identified
and established so that core services can
continue uninterrupted. As one
commenter stated, there may be
organized labor agreements in place
with employees. Pursuant to the final
rule, to address such circumstances, a
CCA is required in its RWP to analyze
any such arrangements to see whether
and how they might impact staffing
during a recovery or an orderly wind223 SIFMA

at 3.

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down, consistent with the terms of the
rule requirement. The rule does not
require a CCA to renegotiate such
arrangements.
In addition, and separate from the
requirements in Rule 17Ad–26(a)(1), a
CCA is required by Rule 17Ad–
22(e)(15)(ii) to have written policies and
procedures to cover potential general
business losses by holding liquid net
assets funded by equity equal to the
greater of either six months of the
covered clearing agency’s current
operating expenses, or the amount
determined by the board of directors to
be sufficient to ensure a recovery or
orderly wind-down of critical
operations and services of the covered
clearing agency.226 As such, a CCA
generally should estimate the potential
costs associated with ensuring its core
services, which could include the
staffing necessary to support those
services, to ensure that it can meet the
requirements in Rule 17Ad–22(e)(15)
related to implementing the recovery or
orderly wind-down of critical
operations and core services.
One commenter suggested a ‘‘process’’
approach to retain employees with an
associated wording change in the
rule.227 By focusing on ‘‘roles’’ in the
final rule, the modified rule text
achieves the same result. In addition to
the substantive change from ‘‘staffing’’
to ‘‘staffing roles necessary to support
such core services’’ discussed above, the
Commission has made technical edits to
the rule text to add paragraph markers
(i) and (ii), aligning the text
grammatically.228

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2. Service Providers: Rule 17Ad–26(a)(2)
Proposed Rule 17Ad–26(a)(2) required
the RWP of a CCA to identify and
describe any service providers upon
which the CCA relies to provide the
services identified in paragraph (a)(1) of
proposed Rule 17Ad–26, specify to what
services such service providers are
relevant and address how the CCA
would ensure that such service
providers would continue to perform in
the event of a recovery and during an
orderly wind-down, including
consideration of contractual obligations
with such service providers and
whether those obligations are subject to
alteration or termination as a result of
226 Pursuant to Rule 17Ad–22(e)(15)(iii), these
liquid assets are in addition to resources held by the
CCA to cover participant defaults or other risks
covered by Rules 17Ad–22(e)(4)(i) through (iii), as
applicable, and to cover the liquidity risks
identified in Rules 17Ad–22(e)(7)(i) and (ii).
227 OCC at 6.
228 Specifically, the phrase ‘‘the identification of’’
has become ‘‘by: identifying’’ and ‘‘analysis of’’ has
become ‘‘analyzing.’’ See supra note 225 (describing
other grammatical changes to the rule text).

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initiation of the recovery and orderly
wind-down plan.
The Commission, based on its
supervisory experience, has observed
that CCAs rely upon some service
providers to deliver core services.229 For
those service providers that are
necessary for the provision of core
services, the failure of those service
providers to perform could pose
significant operational risks and have
substantial effects on a CCA’s ability to
provide core services. In a recovery or
wind-down event, the continued
performance of such a service provider
would be essential for the continuity of
core services. Thus, the Commission
proposed to require a CCA to identify
and describe the subset of its service
providers necessary to ensure the
continued delivery of core services
throughout a recovery or wind-down
event.
Final Rule 17Ad–26(a)(2) refers to ‘‘its
written agreements’’ instead of
‘‘contractual obligations’’ for the reasons
discussed in the modifications to the
definition of ‘‘service provider for core
services’’ in final Rule 17Ad–26(b) in
Part II.D.2, infra.230 The Commission is
also making technical changes to Rule
17Ad–26(a)(2) by adding paragraph
markers to separate the clauses of the
rule text into paragraphs (a)(2)(i) and
(ii).
The Commission received comments
on proposed Rule 17Ad–26(a)(2) and is
making the modifications to the rule
discussed below.
a. Identify and Describe Service
Providers for Core Services
One commenter, agreeing with the
Commission that continued
performance of a service provider as
part of the RWP would be essential,
stated that the requirements of proposed
Rule 17Ad–26(a)(2) and the related
proposed definition of ‘‘service
provider’’ in proposed Rule 17Ad–26(b)
are circular in nature and overly broad,
resulting in too many service providers
being captured and the requirement
being overly burdensome.231
Specifically, the commenter stated that
the phrases ‘‘. . . upon which the
covered clearing agency relies to
provide the services identified in
paragraph (a)(1) of this section . . .’’ in
proposed Rule 17Ad–26(a)(2) and ‘‘. . .
in any way related to the provision of
229 RWP Proposing Release, supra note 18, at
34719.
230 The Commission is also modifying in final
Rule 17Ad–26(a)(2) the clause ‘‘and whether those
obligations’’ to ‘‘and whether the obligations under
those written agreements’’ for consistency with the
written agreements modification.
231 DTCC at 5–6.

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critical services, as identified by the
covered clearing agency in paragraph
(a)(1) of this section . . .’’ in the
definition of ‘‘service provider’’ in
proposed Rule 17Ad–26(b) are
superfluous and unnecessary, and thus,
both are not needed.232 The commenter
further stated that by including the term
‘‘in any way’’ as well as ‘‘relies’’ in these
two sections of the proposed rules, the
Commission broadened the scope of
‘‘service provider’’ to a point that
renders the term functionally useless for
identifying those service providers that
are critical to the business operations of
a CCA.233 By contrast, another
commenter stated that the term as used
in proposed Rule 17Ad–26(a)(2) appears
to limit the subset of providers to be
addressed in the RWP.234
Commenters differed in their
interpretation of these phrases in
proposed Rule 17Ad–26(a)(2) and the
definition of ‘‘service provider’’ in
proposed Rule 17Ad–26(b). The phrase
‘‘upon which the covered clearing
agency relies to provide the services
identified in paragraph (a)(1) of this
section’’ has been deleted in final Rule
17Ad–26(a)(2) to avoid any duplication
of, or inconsistency with, the definition
of ‘‘service providers for core services’’
in final Rule 17Ad–26(b).235 Along with
the modifications to the definition of
‘‘service provider for core services’’ in
final Rule 17Ad–26(b) discussed in Part
II.D.2 infra, the scope of service
providers captured is appropriate for
recovery and orderly wind-down
planning purposes.
b. Ensure Continued Performance of
Service Providers for Core Services
One commenter disagrees that CCAs
can reasonably ‘‘ensure’’ that there will
be continuation of services by service
providers.236 The commenter stated that
it interprets Rule 17Ad–22(e)(15)(ii) to
require a CCA to have sufficient
resources to continue to pay service
providers through the entirety of an
execution of a CCA’s RWP, and
therefore states that this existing
requirement should adequately address
232 Id.

at 5.
at 6.
234 OCC at 6.
235 To improve grammar and clarity, the
Commission has also modified the phrase ‘‘specify
to what services such service providers are
relevant’’ to ‘‘specifying which core services each
service provider supports’’ in final Rule 17Ad–
26(a)(2).
236 DTCC at 8–9 (The commenter stated that the
proposed requirement ‘‘overestimates the
negotiating leverage that CCAs have when entering
contracts with service providers or assumes that
CCAs would be able to unilaterally require service
providers to continue performance during a
recovery or orderly wind-down.’’).
233 Id.

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
the Commission’s goals for this aspect of
the proposal and recommends that the
Commission revise proposed Rule
17Ad–26(a)(2) by removing any
requirement that a CCA ‘‘ensure’’
continuation of services.237
Alternatively, the commenter requested
that the Commission adopt a standard
that acknowledges these limitations of a
CCA to ensure continued performance
of service providers and that requires a
CCA to establish, implement, maintain,
and enforce written policies and
procedures reasonably designed to
facilitate considerations of contractual
provisions with service providers that,
subject to continued payment by the
CCA (or successor) obligates them to
continue to perform in the event of a
recovery or during an orderly winddown.238
Another commenter stated it ‘‘does
not believe it is possible for a CCA to
‘ensure’ that a service provider would
perform.’’ The commenter also stated
that a CCA can and should analyze
whether a service provider has any
termination rights or other contractual
basis for not performing in a recovery or
wind-down situation. The commenter
also stated that a CCA should assess and
document how it would handle the
situation where a service provider has a
right to terminate or otherwise not
perform in a recovery or wind-down
situation.239 Accordingly, the
commenter suggested that proposed
Rule 17Ad–26(a)(2) be modified to
require a CCA evaluate whether the
service provider would continue to
perform in the event of a recovery or
orderly wind-down and address how
the CCA would handle any termination
or alternation of performance by the
service provider.
The Commission acknowledges that,
while a CCA can, and generally should,
include provisions in its written
agreements so that it can contractually
require that a service provider for core
services continues to perform during a
recovery or wind-down, a CCA may not
be able to compel a service provider to
continue to perform in all
circumstances. However, as proposed,
Rule 17Ad–26(a)(2) addresses planning
for a recovery or wind-down scenario by
requiring written policies and
procedures reasonably designed to
address how a CCA would ensure that
service providers for core services
would continue to perform in the event
of a recovery and during an orderly
237 DTCC

at 9.

238 Id.
239 ICE

at 4.

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wind-down.240 Thus, even though a
CCA may not be able to compel a
service provider to continue performing
in all circumstances, such planning and
any related contractual provisions
designed to continue performance under
the contract help limit the potential for
abrupt or unanticipated disruptions in
services during a recovery or winddown event.241 Achieving this
requirement would likely involve an
evaluation of whether the service
provider would continue to perform in
the event of a recovery or orderly winddown and address how the CCA would
handle any termination or alteration of
performance by the service provider. As
previously discussed above, a CCA
generally should consider when and
how to include provisions in its written
agreements with service providers that
acknowledge and help ensure that
service providers can continue to
perform their services during a recovery
or wind-down event to avoid potential
disruptions in core services. In so doing,
a CCA generally should consider the
terms to which its service providers may
be willing or unwilling to agree, so that
the CCA can evaluate its options
effectively and develop its written
agreement accordingly. As this
requirement concerns actions taken at
the planning stage and does not require
a CCA to compel another entity to act,
the Commission is not making further
modifications to Rule 17Ad–26(a)(2).
One commenter, while agreeing that
proposed Rule 17Ad–26(a)(2) identifies
a key component of planning for
recovery and orderly wind-down, stated
that the Commission would best
accomplish its objective of ensuring
continued performance by service
providers for core services by amending
the proposed rule to focus on the CCA’s
relevant processes for third-party
engagement and management rather
than on conditions at a snapshot point
in time, as the nature of a CCA’s
relationship with a service provider, the
services provided, and the roster of
relevant service providers necessarily
evolves over time.242 The commenter
recommended slightly altering the
language of the relevant portion of
proposed Rule 17Ad–26(a)(2) to state
the following:
240 The requirements of Rule 17Ad–26 lay out
necessary elements of a RWP, while the
requirement for the RWP itself resides in Rule
17Ad–22(e)(3)(ii), which requires reasonably
designed written policies and procedures.
241 A CCA designated systemically important
generally should consider also whether and how
such agreements may be impacted by the resolution
or transfer of services conducted by the resolution
authority pursuant to Title II.
242 OCC at 6.

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91019

. . . address the process by which how the
CCA seeks to would ensure that service
providers would continue to provide such
critical services in the event of a recovery
and during an orderly wind-down, including
consideration and tracking of contractual
obligations with such service providers and
whether those obligations are subject to
alteration or termination as a result of
initiation of the recovery and orderly
winddown plan.’’ 243

As stated by the commenter, a CCA’s
roster of service providers for core
services evolves over time as does the
relationship with each such service
provider and the services provided by it.
However, a CCA is not required to
outline any process or other means it
uses to track relationships with service
providers for core services in its RWP.
Accordingly, final Rule 17Ad–26(a)(2)
requires only the identification and
description of such service providers,
and a CCA has discretion on how to
address any changes or updates to the
service providers, which could be
addressed in the reviews of a CCA’s
RWP required by final Rule 17Ad–
26(a)(9).244
One commenter raised the possible
interaction with the U.S. Bankruptcy
Code in connection with the transfer of
critical services to another legal entity
as part of an orderly wind-down
strategy.245 The commenter stated that
the Bankruptcy Code would stay any
vendors from terminating their
agreements subject to getting paid,
which could allow for an assignment to
the other legal entity.246 According to
the commenter, this effectively would
address the concern without an
unnecessary and overly prescriptive
rule.247
The Commission agrees that, in a
scenario involving the transfer of
services from a CCA to another legal
entity, bankruptcy proceedings may
facilitate continuity of services by, for
example, staying any vendors from
terminating their agreements. The
Commission also acknowledges that,
during a recovery or wind-down, service
providers, affected participants, or other
stakeholders in the CCA may attempt to
initiate bankruptcy proceedings
themselves for any number of reasons.
Ultimately, the requirements in Rule
17Ad–26 are designed to promote
effective planning for a recovery or
243 Id.

at 7.
addition, board oversight of service
provider relationships is subject to the requirements
of Rule 17Ad–25(i), 17 CFR 240.17ad–25(i), which
can also help ensure that relationships continue
without sudden disruption in the event of a
recovery or wind-down scenario.
245 DTCC at 9.
246 Id.
247 Id.
244 In

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orderly wind-down, and the possibility
of bankruptcy proceedings do not
reduce a CCA’s obligations to plan
effectively.
3. Scenarios: Rule 17Ad–26(a)(3)
Proposed Rule 17Ad–26(a)(3) required
a CCA’s RWP to identify and describe
scenarios that may potentially prevent
the CCA from being able to provide its
critical payment, clearing, and
settlement services identified in
proposed Rule 17Ad–26(a)(1) as a going
concern, including uncovered credit
losses (as described in paragraph
(e)(4)(viii) of 17 CFR 240.17ad–22),
uncovered liquidity shortfalls (as
described in paragraph (e)(7)(viii) of 17
CFR 240.17ad–22), and general business
losses (as described in paragraph (e)(15)
of 17 CFR 240.17ad–22).
Commenters differed on the level of
granularity that was appropriate in the
rule. One commenter stated that it
supported the proposed rule, agreed that
appropriate scenarios will vary across
different CCAs serving different
markets, and stated that the Commission
has provided appropriate discretion to a
CCA to identify the scenarios most
appropriate to its unique
circumstances.248 The commenter also
stated that the Commission should not
identify particular scenarios for a CCA
to address in its RWP.249 The
Commission agrees with this
commenter, and reiterates that the risks
that may potentially prevent a CCA from
being able to provide its core services
vary across different types of CCAs and
even across CCAs of the same type,
resulting in identified scenarios that
differ from CCA to CCA.250
Another commenter stated that the
enumerated list of scenarios in Request
for Comment No. 22 in the RWP
Proposing Release 251 is comprehensive
and in line with international standard
setting guidance and further stated that
the list should be considered a
minimum, and supported a more
granular list of scenarios that a CCA
should consider.252 The Commission is
not including such a further list of
specific scenarios in final Rule 17Ad–
26(a)(3). The rule requires a CCA to
identify and describe scenarios for
uncovered credit losses, uncovered
liquidity shortfalls, and general business
losses.253 Under these broad categories,

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248 OCC

at 8.

249 Id.
250 RWP Proposing Release, supra note 18, at
34721.
251 Id. at 34725.
252 The Associations at 15 (citing CPMI–IOSCO
Recovery Guidance, supra note 25, at 2.4.5).
253 See generally, PFMI, supra note 9, at 3.15.1
(describing. as a general matter, the commonly

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each CCA must identify scenarios
considering the unique circumstances of
CCA, including the market served and
products cleared. Furthermore, a more
granular list of scenarios may not be
appropriately applied to all CCAs,
considering the variance in the
circumstances each individual CCA
faces, and such a prescriptive approach
with a granular list of scenarios would
be contrary to the principles-based
approach to Rule 17Ad–22(e), which
contains the requirement for a CCA to
have a RWP.254 The commenter also
stated that it could be a worthwhile
analysis to see if plans would still be
viable under a combination of scenarios,
as there is potential for simultaneous
shocks to occur.255 A CCA, considering
the unique circumstances faced by it,
may identify combinations of scenarios
in its analysis to achieve the
requirements of final Rule 17Ad–
26(a)(3). The discretion to consider
combinations of scenarios arising from
the potential of simultaneous shocks
best remains with a CCA in its planning
for a recovery or orderly wind-down. In
addition, the commenter recommended
that the Commission consider greater
transparency around the distinction
between default and non-default losses
and the tools used under these
scenarios.256 However, information
available in current rulebooks of the
CCAs and through the SRO rule filing
and advance notice processes provides
transparency on the RWPs of CCAs,
including how a CCA would address a
default or non-default loss and the tools
available in such scenarios.257 As a
understood meaning of ‘‘general business risk’’ in
the context of FMIs, as follows: ‘‘General business
risk refers to the risks and potential losses arising
from an FMI’s administration and operation as a
business enterprise that are neither related to
participant default nor separately covered by
financial resources under the credit or liquidity risk
principles. General business risk includes any
potential impairment of the FMI’s financial position
(as a business concern) as a consequence of a
decline in its revenues or an increase in its
expenses, such that expenses exceed revenues and
result in a loss that must be charged against capital.
Such impairment can be caused by a variety of
business factors, including poor execution of
business strategy, negative cash flows, or
unexpected and excessively large operating
expenses. Business-related losses also may arise
from risks covered by other principles, for example,
legal risk (in the case of legal actions challenging
the FMI’s custody arrangements), investment risk
affecting the FMI’s resources, and operational risk
(in the case of fraud, theft, or loss).’’).
254 See CCA Standards Adopting Release, supra
note 5, at 70800.
255 The Associations at 15.
256 Id.; see also ICI at 6, 8 (similarly requesting
clear delineation between default and non-default
loss scenarios).
257 See, e.g., RWP Proposing Release, supra note
18, at 34712 n.41; see also supra notes 81–100
(discussing the provisions of the SRO rule filing
and advance notice processes, as well as other

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result, additional mechanisms to
promote transparency are not necessary,
as a clearing member or market
participant may obtain from these
publicly available documents a general
understanding of the scenarios a CCA
has identified for default and nondefault losses and the tools that could
be used under such scenarios.
One commenter stated that the
requirement of explicit consideration in
the recovery plan of what might lead to
each scenario coming into being and
how the scenario might take shape
(including prerequisite contemplated
market conditions) imposes a small
burden on compliance and risk
functions in the entity while creating
greatly-enhanced transparency to
investors and regulators around how,
how quickly, and under what
conditions the entity may fail to meet
obligations.258 The Commission agrees
that explicit consideration of what
might lead to a scenario coming into
being and how the scenario might take
shape are important elements of
identifying and describing scenarios,
and accordingly, Rule 17Ad–26(a)(3)
requires a CCA to both identify and
describe such scenarios.259 In
identifying and formulating the
description of such scenarios, the CCA
can share information and analysis with
its participants and other key
stakeholders to develop its own
Commission rules that facilitate disclosure to
clearing participants).
258 Letter from Muth, dated June 10, 2023
(‘‘Muth’’) at 3.
259 RWP Proposing Release, supra note 18, at
34721 (explaining that the set of scenarios would
include scenarios arising from a participant default
and from events not related to a participant default,
and that potential scenarios not related to a
participant default could include the realization of
investment or custody losses, the failure of a third
party, such as a settlement bank, to perform a
critical function for the covered clearing agency, or
scenarios caused by a systems compliance and
integrity (SCI) event or other significant operational
disruption, such as a significant cybersecurity
incident); id. (explaining that each scenario
generally should be analyzed individually in the
recovery plan, with the analysis including: a
description of the scenario; the events that are
likely to trigger the scenario; the covered clearing
agency’s process for monitoring such events; the
market conditions, operational and financial issues,
and other relevant circumstances that are likely to
result from the scenario; the potential financial and
operational impact of the scenario on the covered
clearing agency and its participants, internal and
external service providers, and relevant affiliated
companies, both in an orderly and stressed market
(e.g., where markets are unavailable or there are
limited solvent counterparties); and the specific
steps that the covered clearing agency would expect
to take if the scenario occurs or appears likely to
occur, including, without limitation, any
governance or other procedures that may be
necessary to implement the relevant tools or use the
relevant resources and to ensure that such
implementation occurs in sufficient time to achieve
the intended effect).

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understanding, as well as the
understanding of its participants and
other key stakeholders, regarding the
potential causes of recovery and winddown scenarios. Various mechanisms
under other Commission rules may
facilitate this process, such as those
requiring testing of its RWP,260
consideration by its risk management
committee of matters related to the
RWP,261 and general solicitation of
stakeholder viewpoints regarding risk
management topics.262 As discussed
further in Part IV.C.1 and V.B, the
burden associated with such planning is
appropriate considering the risks
associated with the potential failure of
a CCA.
Consistent with the above discussion,
the Commission is adopting Rule 17Ad–
26(a)(3) as proposed, except that it has
replaced the term ‘‘critical payment,
clearing, and settlement services’’ with
‘‘core services’’ consistent with the
modifications to uses of ‘‘critical’’
services as discussed in Part II.C.1.
4. Triggers: Rule 17Ad–26(a)(4)

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Proposed Rule 17Ad–26(a)(4) required
a CCA’s RWP to identify and describe
criteria that would trigger the
implementation of the recovery and
orderly wind-down plans and the
process that the CCA uses to monitor
and determine whether the criteria have
been met, including the governance
arrangements applicable to such
process.
One commenter proposed that the
Commission provide a list of triggers
that are required to be covered in the
RWP and another list of triggers that a
CCA should consider for inclusion in
the RWP.263 In contrast, another
commenter stated that prescribing bright
line, quantitative triggers that would
apply to all CCAs, irrespective of their
unique structures and the features of the
markets they serve and products they
clear, would run the risk of creating
market instability by potentially forcing
a CCA to initiate its RWP even when the
CCA has not yet made the determination
that it is necessary.264 For that reason,
the commenter stated that it supports
the Commission’s determination to
allow CCAs to identify appropriate
triggers for their individual
260 See infra Part II.C.8 (further discussing the
requirements for RWP testing in new Rule 17Ad–
26(a)(8)).
261 See infra note 366 (further discussing
requirements related to the risk management
committee in Rule 17Ad–25(d)(2)).
262 See infra note 367 (further discussing
requirements for soliciting stakeholder viewpoints
in Rule 17Ad–25(j)).
263 The Associations at 17.
264 OCC at 8.

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circumstances.265 The Commission is
not specifying a list of triggers in the
rule for inclusion in an RWP. As stated
in the RWP Proposing Release, for some
circumstances, the trigger is obvious
(e.g., uncovered default losses),266 and
the Commission is not explicitly
including such triggers in the final rule
because it has already required in Rule
17Ad–26(a)(3) that CCAs identify and
describe scenarios based on the most
obvious types of triggers (e.g.,
uncovered default losses, as well as
uncovered liquidity shortfalls and
general business losses) and also
included each of these triggers in the
definitions of ‘‘recovery’’ and ‘‘orderly
wind-down’’ to ensure that CCAs
consider these types of circumstances
throughout the development of their
RWPs.267 For other circumstances, as
the Commission stated in the RWP
Proposing Release, a CCA may have to
employ more judgment to develop
appropriate triggers,268 and discretion
should be afforded to a CCA in the
planning process to develop these
triggers instead of having the
Commission delineate a list of triggers
that a CCA should consider. This view
generally aligns with the latter
commenter, in that the final rule
provides for a CCA to identify
appropriate triggers for its individual
circumstances.269 The Commission
further agrees with the latter commenter
that the risk of having bright-line
triggers could result in forcing a CCA to
initiate its RWP even when the CCA has
not yet made the determination that it
was necessary, which could lead to
market instability.
Regarding CCA discretion to trigger
the RWP, one commenter proposed that
the general assumption should be that
triggers are automatic, unless the CCA
makes the determination that discretion
is appropriate for a certain trigger.270
The Commission disagrees and is not
requiring in the rule that triggers
execute automatically. As suggested by
the commenter,271 automatically
triggering a RWP without discretion
could adversely affect market stability.
In the RWP Proposing Release, the
Commission stated that the
identification of triggers does not mean
that such triggers should be selfexecuting; instead, the importance of
265 Id.
266 RWP Proposing Release, supra note 18, at
34721.
267 See infra Part II.D (further explaining the
definitions of ‘‘recovery’’ and ‘‘orderly winddown’’).
268 Id.
269 See supra note 264.
270 The Associations at 18.
271 See supra note 264.

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identifying triggers lies in ensuring that
a CCA considers and identifies ex ante
when it would initiate its RWP.272 The
Commission also stated that it believes
that the RWP must identify and describe
the process that the CCA uses to
monitor and determine whether the
criteria have been met, including the
governance arrangements applicable to
such process.273 The final rule provides
a CCA with discretion to consider this
guidance and to identify and describe
triggers appropriate to its RWP and
whether any such triggers are automatic
or discretionary.
The Commission is replacing the
word ‘‘would’’ with ‘‘could’’ in final
Rule 17Ad–26(a)(4) to avoid any
presumption that triggers are selfexecuting and to reiterate the
Commission’s statement in the RWP
Proposing Release that the identification
of triggers ‘‘does not mean that such
triggers should be self-executing.’’ 274
5. Tools: Rule 17Ad–26(a)(5)
Proposed Rule 17Ad–26(a)(5) required
the RWP of a CCA to identify and
describe the rules, policies, procedures,
and any other tools or resources the
CCA would rely upon in a recovery or
orderly wind-down. The Commission is
adopting Rule 17Ad–26(a)(5) as
proposed.275
In the RWP Proposing Release, the
Commission stated that the proposed
requirement to describe rules, policies,
procedures, and any other tools or
resources that may be used in advance
for certain situations would provide
some level of predictability in such a
situation and avoid unexpected actions
because it would allow participants to
understand the potential of tools or
resources that could be used, including
whether any of the tools would require
participant involvement or resources
(such as a cash call).276 While stating
that rules, policies, procedures, and any
other tools or resources should address
shortfalls arising from the stress
scenarios identified by the CCA, the
Commission declined to prescribe
particular tools, such as tear-up or
margin haircutting, that a CCA would be
272 RWP Proposing Release, supra note 18, at
34721.
273 Id.
274 Id.
275 To improve grammar and clarity, the
Commission is adopting a technical amendment to
the final rule text. Specifically, the Commission is
removing use of the word ‘‘upon,’’ and adding the
phrase ‘‘on which,’’ such that final Rule 17Ad–
26(a)(5) states: ‘‘Identify and describe the rules,
policies, procedures, and any other tools or
resources on which the covered clearing agency
would rely in a recovery or orderly wind-down.’’
276 Id. at 34722.

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required to include in its RWP.277 The
Commission stated its belief that this
proposed requirement preserved
discretion for each CCA to consider the
full range of available recovery tools and
select those most appropriate for the
circumstances of the CCA, including the
products cleared and the markets
served.278
a. Discretion for CCAs in Selection of
Tools
One commenter stated that the rule
should preserve discretion for each CCA
to consider the full range of available
recovery tools and select those most
appropriate for the circumstances of the
CCA.279 Another commenter agreed
with the Commission’s decision not to
mandate or prescribe the use of tools in
certain situations and ‘‘believes that
[CCAs] should have the discretion to
determine the appropriate mix of tools
to be used.’’ 280 Another commenter
‘‘believe[s] that the clearing agency
should be free to select the right or most
appropriate tools for the markets and
products it clears without any
regulation constraints.’’ 281 The
Commission generally agrees with these
commenters and is adopting the rule as
proposed, which allows for discretion
by a CCA in the selection of tools that
are most appropriate for the
circumstances of the CCA.
One commenter stated that the
proposal would continue to provide
CCAs with ‘‘unbridled authority to
inappropriately allocate default losses to
non-defaulting customers through tools
such as partial tear-ups (PTUs) or
variation margin gains haircutting
(VGMH).’’ 282 The commenter further
stated that the Commission should
prescribe the tools that a CCA must use
during recovery or wind-down, claiming
that specifying the tools a CCA must
deploy in those scenarios would be
most effective at protecting nondefaulting customers’ assets, a critical
priority of an RWP in the commenter’s
view.283 The commenter added that
‘‘[u]nfortunately, the proposals continue
to provide broad discretion to a clearing
entity to determine its recovery and
orderly wind-down tools, which
277 Id.

284 Id.

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278 Id.

at 6.
RWP Proposing Release, supra note 18, at
34712, n. 41.
286 15 U.S.C. 78s(b)(2)(C).
287 See, e.g., Release 34–83916 (Aug. 23, 2018), 83
FR 44076 (Aug. 29, 2018) (SR–OCC–2017–020)
(finding that the proposed rule change concerning
OCC’s recovery tools was consistent with section
17A(b)(3)(F) of the Exchange Act and Rules 17Ad–
22(e)(2)(i), (iii), and (v), (e)(4)(viii) and (ix), (e)(13),
and (e)(23)(i) and (ii) thereunder).
288 CCA Standards Adopting Release, supra note
5, at 70809.
289 Id.
285 See

279 OCC at 8. The commenter added that ‘‘a robust
dialogue between CCAs, industry participants, and
international standard-setting bodies concerning
resolution tools is ongoing, and the Commission
should avoid preempting with prescriptive
rulemaking the development of consensus and
common understanding that can emerge from such
a dialogue.’’ OCC at 9.
280 ICC at 4.
281 The Associations at 16.
282 ICI at 7.
283 Id. at 3, 6–7.

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effectively sanctions the use of tools that
may result in the inappropriate
allocation of non-defaulting customers’
assets.’’ 284
A CCA does not have ‘‘unbridled
authority’’ to select the tools in its RWP.
The selection of tools in each RWP has
been and is subject to the SRO rule
filing process, which provides for public
comment and Commission review and
approval before inclusion of a tool in
the RWP.285 Under section 19(b)(2)(C) of
the Exchange Act,286 the Commission
will approve, and has approved,287
proposed rule changes concerning the
availability of a tool where the
Commission finds that the proposed
rule change is consistent with the
requirements of the Exchange Act and
the applicable rules and regulations
thereunder.
The Commission also disagrees that
prescribing the tools a CCA must deploy
in recovery and wind-down scenarios
would be most effective at protecting
non-defaulting customers’ assets. As the
Commission has previously explained, a
‘‘one-size-fits-all’’ approach specifying
recovery and orderly wind-down tools
is not productive, and it is not possible
to assess the utility of a particular tool
in isolation without considering the
context of RWP as a whole and the
particular circumstances of a CCA.288
Furthermore, the discretion afforded a
CCA in developing the tools available
for use in its RWP would not enable the
CCA to engage in the ‘‘inappropriate’’
allocation of non-defaulting customers’
assets. Instead, tools included in its
RWP to allocate losses to non-defaulting
customers may be necessary to prevent
the potential transmission of systemic
risk, and the planning facilitated by the
RWP helps the CCA weigh the strengths
and weaknesses of respective tools. In
this way, the CCA has considered ex
ante the set of tools that will be the most
appropriate to address different
scenarios.289 Accordingly, when a CCA
has determined to allocate losses to nondefaulting customers, it has likely
passed the point where other resources
or tools are available to address the loss.
Although a certain tool may appear
drastic in the way that it allocates

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losses, such allocation may be
appropriate to prevent the systemic
transmission of risk in extreme
circumstances.
b. Safeguards, Prescriptions, and
Limitations on Tools and Resources
One commenter stated that ‘‘recovery
tools and provisions should be designed
in a way that allows clearing
participants to limit their liability to the
CCA and to ensure that recovery tools
can only be used in a limited manner (in
time and dollar value) to ensure that the
impact of such tools is predictable and
reliable during stress, and do not further
destabilize the market.’’ 290 The
commenter further stated that ‘‘limited
use of recovery tools under regulatory
oversight, in the interest of the whole
market’’ warrants codification.291
Another commenter stated that certain
recovery tools and procedures involve
allocating losses to its clearing members
or market participants, and therefore the
tools must be transparent, predictable,
and implemented with appropriate
limitations and oversight so that the
tools do not inappropriately assign
losses to clearing members and market
participants in a way that is
destabilizing.292 The commenter
continued that it is important to ensure
that loss allocation procedures
appropriately balance the incentives of
a CCA’s owners and market participants
to manage risk effectively and prevent a
crisis from occurring.293 The commenter
stated loss allocation procedures should
be well defined and that a CCA should
not have autonomy to allocate losses
away from its shareholders.294
As discussed in the prior section,
certain tools may appear drastic in the
way that they allocate losses. Because of
this, the Commission agrees with
commenters that transparency and
predictability regarding the use of tools
for recovery and wind-down is
important. However, the Commission
disagrees that additional rule text
changes are necessary because
transparency regarding the tools that
may be used in a recovery or winddown scenario, and a level of
predictability regarding the use of such
tools, are already provided through
existing rules.295 When a CCA proposes
290 The Associations at 5. The commenter added
that RWPs need to ensure that clearing participants’
liability is limited and that certain tools can be used
within monetary and time limits. Id. at 10.
291 Id. at 12.
292 SIFMA at 12.
293 Id.
294 Id.
295 See supra notes 81–100 and accompanying
text (discussing in further detail these Commission
rules and processes facilitating input from and

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to add or modify the tools available in
its RWP, such modifications are subject
to Commission review and approval,
pursuant to the SRO rule filing and
advance notice processes, which
includes public notice and an
opportunity for public comment and, if
approved, an approval order describing
how the modifications are consistent
with the Exchange Act.296 Furthermore,
to achieve compliance with existing
Rule 17Ad–22(e)(23), a CCA is obligated
to establish, implement, maintain, and
enforce written policies and procedures
reasonably designed to provide for
publicly disclosing all relevant rules
and material procedures, including key
aspects of its default rules and
procedures, and provide sufficient
information to enable participants to
identify and evaluate the risks, fees, and
other material costs they incur by
participating in the CCA.297 Such
policies and procedures should provide
participants with relevant rules and
procedures to evaluate the risks, fees,
and other material costs that
participants could incur in a recovery or
wind-down scenario. In addition, new
requirements in Rule 17Ad–26 related
to scenarios, triggers, tools, testing, and
implementation of the RWP also help
ensure that the CCA is providing
transparency to its participants and
others as to whether and when certain
tools may be used, based on the
scenarios developed by the CCA and in
a way that is informed by periodic
testing of the RWP, which includes
participation by a subset of clearing
participants and other relevant
stakeholders.
Regarding the limitations sought by
certain commenters, any appropriate
limitations on tools proposed for
inclusion in a CCA’s RWP would be
addressed through the SRO rule filing
process, where specific tools would be
subject to Commission review and
approval, as well as public comment.
Furthermore, to approve the addition of
such tools, the proposed rule change
must be consistent with the
requirements of the Exchange Act and
any advance notice must also be
consistent with the standard for advance
notices set forth in the Dodd-Frank
Act.298 Among the rules and regulations
transparency to clearing participants and other key
stakeholders).
296 See id. (discussing these processes in further
detail); see also RWP Proposing Release, supra note
18, at 34712 n.41 (providing citations to existing
RWPs approved by the Commission, which
includes the current set of tools in each).
297 17 CFR 240.17ad–22(e)(23)(i), (ii).
298 See supra notes 81–100 and accompanying
text (discussing in further detail these Commission
rules and processes facilitating input from and

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applicable to a CCA is Rule 17Ad–
22(e)(2)(vi), which requires a CCA to
establish, implement, maintain, and
enforce written policies and procedures
reasonably designed to consider the
interests of participants’ customers,
securities issuers and holders, and other
relevant stakeholders of the CCA.299 To
the extent that participants oppose the
use of a tool either as a general matter
or under certain conditions, a CCA
would be obligated under Rule 17Ad–
22(e)(2)(vi) to consider those concerns
when modifying its RWP to include
such a tool. Such required
considerations, which would include
input from clients of clearing
participants, securities issuers, transfer
agents, and other market infrastructure
to which the CCA is linked, generally
should help ensure that a CCA
considers and includes limitations on
certain tools included in the RWP where
appropriate and consistent with its
obligations under the Exchange Act.
Ultimately, whether limitations on
specific tools will be appropriate
depends on the circumstances in which
the tools would be deployed, and so the
Commission is not adopting limitations
as to specific tools in this release.
Regarding the comment related to a
CCA having the ‘‘autonomy’’ to allocate
losses away from its shareholders, as
explained above, whenever a CCA seeks
to add or modify a tool available in its
RWP, the CCA must obtain prior
Commission approval for any tools that
it may deploy in a recovery or winddown scenario through the previously
described SRO rule filing and advance
notice processes, which provide for
public notice and comment. In those
processes, a CCA is attempting to gain
approval of tools to have in place in
advance of a recovery or wind-down
scenario to prevent the losses incurred
by the CCA from becoming a
transmission mechanism for systemic
risk. This necessarily requires the CCA
to seek an appropriate balance between
affording participants predictability and
certainty, on one hand, and ensuring
that the CCA can effectively manage risk
to continue its risk mitigating function
within the broader financial system, on
the other.300 While a CCA will retain
discretion consistent with its rules,
policies, and procedures regarding the
ways to implement its RWP if a recovery
or wind-down scenario arises, the CCA’s
discretion to allocate losses to its
participants will always be limited by

the requirements of the Exchange Act
and Commission rules and regulations
thereunder. Accordingly, a CCA would
not have complete autonomy to allocate
losses away from its shareholders.
c. Specific Limitations or Bans on
Certain Tools
Several commenters requested the
Commission place limitation on or ban
certain recovery tools. Two commenters
generally stated that partial tear-ups
should be subject to appropriate
limitations and restrictions.301 One
commenter stated that forced allocation
should be completely barred.302 For
variation margin gains haircutting,
commenters generally stated that the
Commission should place restrictions
on the time and amount, and that this
tool should only be deployed with
regulatory approval.303 Commenters
generally requested that the
Commission ban initial margin
haircutting.304 For assessments on
clearing members to replenish
resources, commenters generally stated
that there needs to be a maximum
amount for assessments set at a
reasonable level that is defined ex
ante.305
The CCAs under the Commission’s
supervision vary in markets served,
products cleared, and ownership
structures. These differences, among
others, make it imprudent for the
Commission to ex ante ban or explicitly
limit certain tools, for the same reasons
discussed in Part II.C.5.b, supra,
regarding whether safeguards,
prescriptions, and other limits on tools
and resources generally are appropriate.
Rather, by establishing new
requirements related to scenarios,
triggers, tools, testing, and
implementation of the RWP, Rule
17Ad–26 helps ensure that the CCA is
providing transparency to its
participants and others as to whether
and when certain tools may be used,
based on the scenarios developed by the
CCA and in a way that is informed by
periodic testing of the RWP, which
includes participation by a subset of
clearing participants and other relevant
stakeholders.
d. Level of Specificity of Description in
RWP
In the RWP Proposing Release, the
Commission stated that the requirement
to describe rules, policies, procedures,
301 SIFMA

at 13; The Associations at 16–17.
at 13.
303 Id.; The Associations at 10, 16–17.
304 SIFMA at 12; The Associations at 11, 12, 16–
17.
305 SIFMA at 5, 12, 19, 20–21; The Associations
at 12.
302 SIFMA

transparency to clearing participants and other key
stakeholders).
299 17 CFR 240.17ad–22(e)(2)(vi).
300 See CCA Standards Adopting Release, supra
note 5, at 70829.

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and any other tools or resources that
may be used in advance for certain
situations would provide some level of
predictability in such a situation and
avoid unexpected actions because it
would allow participants to understand
the potential of tools or resources that
could be used, including whether any of
the tools would require participant
involvement or resources (such as a
cash call).306 The Commission also
provided guidance for a CCA to
generally consider when it is identifying
and evaluating the appropriateness of
tools and other resources for a particular
recovery scenario or an orderly winddown that may be included in its
RWP.307 Furthermore, the Commission
laid out nine items that a CCA generally
should consider when analyzing the
tools to be included in its RWP.308
One commenter strongly supported
the proposed requirement to describe
tools a CCA would use in a recovery or
wind-down scenario. 309 Another
commenter stated that the Commission
should require CCAs to provide further
specificity on the use of recovery tools
in the RWP to provide transparency and
predictability for their clearing
members, market participants, and the
broader market and to ensure that these
tools are not procyclical.310 Several
commenters stated that the Commission
should make the guidance provided in
the RWP Proposing Release
mandatory.311
Requiring further specificity on the
use of recovery tools in the RWP is not
necessary as information on the
recovery tools of a CCA is publicly
available. As previously explained
above, when a CCA proposes to add or
modify the tools available in its RWP,
such modifications are subject to
Commission review and approval,
pursuant to the SRO rule filing and
advance notice processes, which
includes public notice and an
opportunity for public comment and, if
approved, an approval order describing
how the modifications are consistent
with the Exchange Act.312 Furthermore,
to achieve compliance with existing
Rule 17Ad–22(e)(23), a CCA is obligated
to establish, implement, maintain, and
enforce written policies and procedures
306 RWP Proposing Release, supra note 18, at
34722.
307 Id.
308 Id.
309 ICI at 4, 5, n.15.
310 SIFMA at 12.
311 Id.; The Associations at 19; ICI at 5, n.15.
312 See supra notes 81–100 and accompanying
text (discussing in further detail these Commission
rules and processes facilitating input from and
transparency to clearing participants and other key
stakeholders).

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reasonably designed to provide for
publicly disclosing all relevant rules
and material procedures, including key
aspects of its default rules and
procedures (which includes the tools
that would be deployed pursuant to the
RWP), and provide sufficient
information to enable participants to
identify and evaluate the risks, fees, and
other material costs they incur by
participating in the CCA. With this
information, clearing members, market
participants, and the broader market can
consider whether such tools are
procyclical.
With respect to the comment stating
that tools should not be procyclical,
whether a tool is procyclical will
necessarily depend on the way it is
designed and applied, the products to
which it is applied, and the market in
which it would be used. In Part
II.A.2.b.iii, the Commission discussed
how a CCA might need to consider
procyclical effects when collecting
intraday margin, and commenters
expressed support for ensuring that
CCAs had appropriate discretion to
apply margin to avoid procyclical
effects. Similarly to that context, the
Commission believes that discretion to
select tools is a better approach than
prescribing limits or imposing bans on
certain tools in Rule 17Ad–26.
Providing such discretion helps enable
CCAs to apply their expertise and
consider the range of tools they have
developed in their RWPs for addressing
a recovery or wind-down scenario that
may minimize procyclical effects.
In the case of a recovery or winddown scenario, procyclical effects may
facilitate the unnecessary onward
transmission of systemic risk. As such,
when a CCA seeks to add or modify the
tools available in a recovery or winddown scenario, those modifications
would be subject to the proposed rule
change and advance notice processes,
where the specific facts and
circumstances of a particular CCA (such
as its organizational structure, markets
served, or products cleared) and public
comments on the proposed modification
can help the Commission and the CCA
identify whether any tools would be
inappropriate, or appropriate only with
certain limitations, consistent with the
CCA’s obligations under the Exchange
Act and the Dodd-Frank Act.313
The guidance in the RWP Proposing
Release to identify and analyze tools for
inclusion in the RWP is not being
incorporated into the text of final Rule
313 See supra notes 81–100 and accompanying
text (discussing in further detail these Commission
rules and processes facilitating input from and
transparency to clearing participants and other key
stakeholders).

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17Ad–26(a)(5). This rule is part of the
framework of rules applicable to CCAs
that takes a principles-based approach,
which does not prescribe specific
arrangements to meet the required
principles.314 Given that each CCA,
serves different markets, clears different
products, and deploys different
ownership structures, the Commission
is not incorporating the guidance into
the rule text.
e. Allocation of Non-Default Losses
One commenter stated that
procedures should clearly distinguish
between treatment of default losses
resulting from the failure of a clearing
member and non-default losses
(‘‘NDLs’’) caused by a CCA’s internal
business decisions.315 The commenter
further stated that financial
responsibility for NDLs should be borne
by the CCA and not by clearing
members and market participants, that
CCAs should be required to specify
tools that would be used in an NDL
scenario, and that a rule is needed to
require CCAs to reserve appropriate
amounts for NDL.316 Another
commenter stated that a CCA’s
rulebooks and RWPs should make clear
that the CCA is responsible for NDLs,
for it is not generally appropriate for
clearing members or participants to bear
NDLs because they are not responsible
for choices that lead to those losses.317
The commenter also stated that
regulators require CCAs to manage,
monitor, and hold sufficient capital
against NDLs to ensure that such losses
do not disrupt a CCA’s ability to
perform obligations, and that RWPs
should be required to demonstrate a
CCA’s ability to cover such NDLs.318
Another commenter strongly
recommended that the Commission
ensure that the RWPs distinguish
between the CCA’s approach to default
and non-default scenarios.319 The
commenter also strongly recommended
that the Commission require that the
recovery tools a CCA uses in a NDL
scenario ensure that the CCA and its
shareholders are fully responsible for
non-default losses, reflecting the
principle that CCA and its shareholders
are responsible for NDLs because such
losses result directly from business
decisions of CCA’s management.320
While the Commission’s regulatory
framework for CCAs does not use ‘‘non314 See CCA Standards Adopting Release, supra
note 5, at 70800.
315 SIFMA at 5.
316 Id. at 5, 12, 16, 18–19.
317 The Associations at 4, 6, 7–8.
318 Id. at 4.
319 ICI at 3.
320 Id. at 6, 7–8.

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default losses’’ to describe losses other
than default losses, existing Rule 17Ad–
22(e)(15) requires a CCA to implement
risk management measures to address
‘‘general business losses,’’ 321 which
generally includes what the commenters
refer to as ‘‘NDL.’’ Having a requirement
specific to address general business loss
does distinguish those losses from other
losses such as default losses.
Rule 17Ad–22(e)(15) requires a CCA
to have policies and procedures
reasonably designed to mitigate the risk
that business losses result in the
disruption of clearing services. Under
these policies and procedures, CCAs are
required to hold liquid net assets
funded by equity sufficient to cover
potential general business losses,
including by holding the greater of
either six months of the covered
clearing agency’s current operating
expenses, or the amount determined by
the board of directors to be sufficient to
ensure a recovery or orderly wind-down
of critical operations and services of the
covered clearing agency.322
Accordingly, Rule 17Ad–22(e)(15)
already requires a CCA to reserve
appropriate resources to address general
business losses and help ensure that the
CCA internalizes financial
responsibility for such losses by
applying its own resources to general
business losses. The particular
mechanisms at each CCA for identifying
the amount and holding appropriate
resources under the rule have been set
by the CCAs through the SRO rule filing
and advance notice processes and are
subject to examination.
Consistent with existing Commission
rules, however, the CCA itself is not
required to be ‘‘fully responsible’’ for
general business losses.323 Rather, such
losses could trigger implementation of a
CCA’s RWP, as Rule 17Ad–22(e)(3)(ii)
includes requirements directed to
planning for recovery and orderly winddown for ‘‘losses from general business
risk.’’ 324 As previously discussed, Rule
17Ad–22(e)(15) requires a CCA to have
policies and procedures for holding
liquid net assets funded by equity
sufficient to cover potential general
business losses, including by holding
the greater of either six months of the
covered clearing agency’s current
321 17

CFR 240.17ad–22(e)(15).
CFR 240.17ad–22(e)(15)(ii).
323 As explained above, CCAs are required to have
policies and procedures for holding sufficient
liquid resources funded by equity to cover, at a
minimum, six months of operating expenses or the
amount determined by the board of directors to be
sufficient to ensure a recovery or orderly winddown. 17 CFR 240.17ad–22(e)(15)(ii); see also
PFMI, supra note 9, at 3.15.
324 17 CFR 240.17ad–22(e)(3)(ii).

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operating expenses, or the amount
determined by the board of directors to
be sufficient to ensure a recovery or
orderly wind-down of critical
operations and services of the covered
clearing agency, as set forth in its RWP.
Where such losses from general
business risk prevent the CCA from
continuing as a going concern and
liquid net assets funded by equity held
pursuant to Rule 17Ad–22(e)(15) have
failed to cover potential business losses,
a CCA may need to implement its RWP
to fully address such losses. In such a
case, the CCA would deploy resources
held pursuant to Rule 17Ad–22(e)(15) to
implement its RWP but may also,325
pursuant to its RWP and any rules for
loss allocation approved pursuant to the
Rule 19b–4 process deploy tools that
draw upon other resources of the CCA,
including mutualized resources, to
avoid it from becoming a transmission
mechanism for systemic risk.
Participation in a clearing agency where
resources, and the loss allocation
mechanisms that draw upon them, have
been mutualized among the CCA and its
participants, necessarily means that the
CCA and its participants have agreed to
mutualize losses, and such loss
allocation mechanisms are explained in
publicly available sources, including the
CCA’s rules, notices and approval
orders published as part of the SRO rule
filing process, and public disclosures
made by the CCAs as required by Rule
17Ad–22(e)(23).326
f. Skin-in-the-Game Requirement
One commenter stated that
Commission rules are needed to ensure
that each CCA contributes equity to its
default waterfall, even if the amount is
not a meaningful loss absorbing
resource, to serve as an additional risk
management tool, and the commenter
provided several accompanying
recommendations to determine the
appropriate amount that should be
required.327 Another commenter stated
that it is important for a CCA to
maintain a second tranche of equity to
apply to losses before the CCA allocates
losses beyond its allocation of losses
above the funded default reserve to
better align the interests of the CCA and
its clearing members.328 Another
commenter stated that tools should
ensure that a CCA designates a material
325 See

17 CFR 240.17ad–22(e)(15).
supra notes 81–100 (discussing in further
detail these Commission rules and processes
facilitating input from and transparency to clearing
participants and other key stakeholders).
327 SIFMA at 5, 12–13, 16, 17–18.
328 The Associations at 5, 11–12.
326 See

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91025

amount of its own capital to cover
default losses.329
The Commission is not adopting a
‘‘skin-in-the-game’’ (‘‘SITG’’)
requirement.330 In the context of a
participant default, SITG may assist a
CCA in addressing the resulting losses
because a CCA will apply a designated
amount of its own equity capital to
address certain losses prior to allocating
any prefunded resources of nondefaulting participants to the loss, or
prior to applying an assessment to nondefaulting participants directing them to
contribute additional resources because
all other prefunded resources of the
CCA have been exhausted.331 The
Commission has considered comments
regarding SITG previously, stating that
such new SITG requirements can help
successfully manage the divergent
incentives of a CCA’s owners and
participants and could be appropriate in
the future.332 While SITG generally can
play a role in helping to ensure the
proper alignment of incentives between
the owners of a clearing agency and its
participants,333 in the context of this
rulemaking regarding the planning for
recovery and wind-down by CCAs, SITG
would be a specific tool that a CCA may
choose to incorporate into its RWP. As
such, the Commission is not adopting a
requirement for SITG to be a specific
tool because the appropriateness of the
tool in the context of planning for
recovery and wind-down by CCAs will
vary depending on the particular design
and implementation of the RWP. Even
though Commission rules for clearing
agencies do not include an explicit
requirement for SITG, CCAs generally
have incorporated SITG into their
respective default waterfalls.334
g. Compensation for Contributing
Clearing Members
One commenter stated that the
externalization of losses to nondefaulting clearing members and market
participants should be treated as
‘‘financing resources’’ recoverable by
those that contributed, which would
make a distinction between loss
329 ICI

at 7.
CA Governance Adopting Release, supra
note 12, at 84504; CCA Standards Adopting Release,
supra note 5, at 70806.
331 See CCA Standards Adopting Release, supra
note 5, at 70806.
332 CA Governance Adopting Release, supra note
12, at 84504.
333 See CCA Standards Adopting Release, supra
note 5, at 70806.
334 See DTC Rule 4, Section 5 (‘‘Corporate
Contribution’’); FICC Rule 4, Section 7a (‘‘Corporate
Contribution’’); ICC Rule 801(b) (‘‘ICE Clear Credit
contributions’’); LCH SA Article 4.3.3 (‘‘LCH SA
Contribution’’); NSCC Rule 4 (‘‘Corporate
Contribution’’); OCC Rule 101 (‘‘Minimum
Corporate Contribution’’).
330 See

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absorbing and financing resources.335
Another commenter stated that the
Commission should include a
requirement for compensation of
clearing members that cover losses
during a recovery or a wind-down.336
Treatment of resources obtained from
clearing members in a recovery or winddown scenario would be subject to the
CCA’s rules, policies, and procedures,
which would have been approved on an
ex ante basis in the applicable SRO rule
filing and advance notice processes. A
CCA should be afforded discretion to
structure its loss allocation rules,
policies, and procedures in light of the
needs of its unique ownership or
governance structures, provided that
those rules, policies, and procedures are
consistent with the requirements of the
Exchange Act and rules and regulations
thereunder.
As previously discussed, disclosures
that already must be publicly provided
by CCAs under Rule 17Ad–22(e)(23)(ii)
require a CCA to provide participants
with sufficient information to enable the
participants to evaluate the risks, fees,
and other material costs they may incur
by participating in the CCA. With that
information, a participant may
determine whether the CCA would
compensate non-defaulting participants
for contributions made during a
recovery or an orderly wind-down.

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h. Governance
One commenter stated that a CCA’s
RWP should include governance
practices that obtain and address input
from market participants on relevant
risk issues and entail oversight by the
systemic regulator in relation to tools
like partial tear-up that may have
broader market impact.337
Existing Commission requirements
already address this concern for input
and oversight.338 First, the SRO rule
filing and advance notice processes
provide for public notice and comment
allowing for market participants to
provide input on changes to rules,
policies and procedures regarding
recovery tools, and such processes
require review and approval by the
Commission. Second, Rule 17Ad–
22(e)(2) includes requirements designed
to provide for governance arrangements
that clearly prioritize the safety and
efficiency of the CCA, support the
public interest requirements in section
17A of the Exchange Act applicable to
335 SIFMA

at 13, 20–21.
Associations at 4–5, 10–12.
337 SIFMA at 11.
338 See 17 CFR 240.17ad–22(e)(2); 17 CFR
240.17ad–25; see also infra Part IV.B.1 (discussing
the various ownership models across CCAs and
relevant governance arrangements).
336 The

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clearing agencies, and support the
objectives of owners and participants.
Third, the requirement in section
17A(b)(3)(F) of the Exchange Act to have
rules designed, in general, to protect
investors helps ensure that a CCA’s risk
management functions are appropriately
aligned with the goal of risk mitigation
and responsive to the legitimate
concerns of the relevant constituents.
i. Other Comments on Resources
Several comments concerned
resources in general that should be
available in a recovery or a wind-down
scenario. One commenter stated that
rules are needed to require a CCAs to
arrange ex ante resources for use in
RWPs, that the Commission should
require application of equity-funded
assets to implement RWPs, that CCA
capital should be available in full before
entry into resolution, that rules should
be explicit that equity is fully loss
absorbing in resolution and
shareholders claims are fully
subordinate to other creditors, and that
it is critical that resolution authorities
require CCAs to set aside ex ante
resources for recapitalization to be
bailed-in by the resolution authority to
continue to operate the resolved
CCA.339 Another commenter
recommends including disclosures of
external sources of liquidity (lenders,
creditors, liquidity providers) and when
applicable, where they sit in the
waterfall.340
A CCA already is required to hold
equity-funded assets to implement its
RWP under Rule 17Ad–22(e)(15)(ii),
which requires a CCA to hold liquid net
assets funded by equity equal to the
greater of either six months of the CCA’s
current operating expenses or the
amount sufficient to ensure a recovery
or orderly wind-down.341 Other
resources of the CCA available to cover
certain losses before entry into
resolution are those included in the
current rules of the CCAs, which
include SITG contributions 342 and
liquid net assets funded by equity of the
CCA to cover potential business losses
under Rule 17Ad–22(e)(15).343
Comments were received regarding
the resolution of a CCA, and as
described in the RWP Proposing
Release, the FDIC would be appointed
as the resolution authority of a CCA in
the event the CCA was placed into
resolution under Title II.344 Ultimate
339 SIFMA

at 5, 20–21.
Associations at 13.
341 17 CFR 240.17ad–22(e)(15)(ii).
342 See supra note 334.
343 17 CFR 240.17ad–22(e)(15).
344 RWP Proposing Release, supra note 18, at
34712.
340 The

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decisions regarding resolution would be
determined pursuant to the
requirements of Title II,345 and it is
likely that a CCA’s RWP would guide
the resolution authority in evaluating
any decisions to be made in support of
an orderly resolution.
Regarding the disclosures of external
sources of liquidity and where they sit
in the waterfall, a CCA’s rules, SRO rule
filing notices and approval orders, and
disclosures under Rule 17Ad–22(e)(15)
provide transparency regarding the
structure and composition of the default
waterfalls across the CCAs.
6. Implementation: Rule 17Ad–26(a)(6)
Proposed Rule 17Ad–26(a)(6) required
a CCA’s RWP to address how the rules,
policies, procedures, and any other tools
or resources identified in Rule 17Ad–
26(a)(5) would ensure timely
implementation of the recovery and
orderly wind-down plan.
Commenters expressed support for
the rule as proposed.346 One commenter
encourages the Commission to be
internally prepared and in a proactive
position to receive, consider, and
approve any necessary regulatory
requests from CCAs in a timely manner
when RWPs have been implemented.347
As previously discussed, the
Commission engages in ongoing
supervision and oversight of CCAs to
ensure that it is prepared to receive,
consider, and act upon any requests
related to RWPs. As discussed further in
response to comments regarding Rule
17Ad–26(a)(7) below,348 policies and
procedures that ensure the timely
implementation of the RWP pursuant to
Rule 17Ad–26(a)(6) would necessarily
include provisions that ensure timely
notification to affected parties that the
CCA will implement its RWP. Such
affected parties generally should
include clearing participants, service
providers for core services, other key
stakeholders, the Commission, and
other regulatory authorities, as
appropriate.
Another commenter recommended
‘‘the implementation of rigorous
governance around the use of tools or
emergency powers.’’ 349 The
345 See

supra note 26 and accompanying text.
at 9; The Associations at 19–20.
347 DTCC at 13. This concern is also relevant to
the requirement in Rule 17Ad–26(a)(7) to provide
notification to the Commission when a CCA is
‘‘considering’’ implementation of its RWP. See infra
Part II.C.7.
348 See infra Part II.C.7 (further explaining and
distinguishing the requirement for ‘‘timely
implementation’’ in Rule 17Ad–26(a)(6) from the
requirement for notification specifically to the
Commission when a CCA is ‘‘considering
implementing’’ its RWP).
349 The Associations at 19–20.
346 OCC

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Commission has recently adopted rules
intended to bolster the governance of
CCAs through requirements regarding
board composition and director
independence, the nominating and risk
management committees of the board,
conflicts of interest, oversight of service
providers, and the solicitation of
stakeholder viewpoints.350 Through
these existing requirements, as well as
the rule filing and advance notice
requirements applicable to CCAs, the
appropriate governance processes exist
to help ensure that further development
of the RWPs is consistent with the rules
adopted in this release. The
Commission is adopting Rule 17Ad–
26(a)(6) as proposed.
7. Notification to Commission: Rule
17Ad–26(a)(7)
Proposed Rule 17Ad–26(a)(7) required
a CCA’s RWP to include procedures for
informing the Commission as soon as
practicable when the CCA is
considering initiating a recovery or
orderly wind-down. In the RWP
Proposing Release, the Commission
stated it is critical that notice of
potential recovery and wind-down be
provided to the Commission as soon as
practicable.351 The Commission
explained that the systemic risk
concerns raised by a recovery or orderly
wind-down of a CCA are significant.
With notice being provided to the
Commission when a CCA is considering
implementing its RWP, the Commission
has the opportunity to consider whether
the CCA engages the potential recovery
or wind-down event consistent with its
established RWP and the requirements
of Commission rules to help mitigate the
potential onward transmission of
systemic risk and help ensure that a
wind-down, if necessary, is orderly.
Furthermore, such early notice would
help the Commission ensure that it has
information that it can share with other
relevant authorities, such as the
resolution authority, regarding the
potential need for resolution.352 As
discussed in the RWP Proposing
Release, the Commission already
maintains regular contact with each of
the CCAs through its supervisory
program, and this is a communication
channel through which the CCA could
provide notice to the Commission.353
One comment in support of Rule
17Ad–26(a)(6) as proposed stated that it
was important for the Commission to be
in a proactive position to receive,

consider, and approve any necessary
regulatory requests from CCAs in a
timely manner when RWPs have been
implemented.354 Several commenters
asked for clarification or further
guidance on the ‘‘considering initiating’’
phrase in the proposed rule text. One
commenter, agreeing that open
communication is critical, stated that
the ‘‘considering initiating’’ phrase
introduces subjectivity and uncertainty
into the requirement, which could
expose a CCA and its responsible
personnel to potential enforcement
action if their interpretation differs from
the Commission.355 The commenter
recommends changing the phrase to
make the obligation to notify the
Commission when the CCA has
‘‘determined to initiate’’ its RWP.356
Similarly, other commenters stated that
the proposed standard is vague and
could lead to uncertainty about when
the notification is required, and
suggested, for clarity and consistent
application, that the trigger to notify the
Commission should be the formal
decision to implement the plan.357
In requesting that the Commission
remove ‘‘considering’’ from the rule
text, these commenters misconstrue the
purpose of the requirement in Rule
17Ad–26(a)(6) regarding timely
implementation of the RWP with the
requirement in Rule 17Ad–26(a)(7)
regarding notice to the Commission. To
ensure timely implementation of the
RWP under Rule 17Ad–26(a)(6), a CCA
generally should have policies and
procedures that can ensure affected
parties, including clearing participants,
service providers, other relevant
stakeholders, and other market
infrastructure to which it is linked, as
well as the Commission and other
relevant authorities, receive notification
that the CCA has begun to implement
elements of its RWP. However, requiring
a CCA to notify the Commission only
when it has decided to implement its
RWP would limit the Commission’s
ability to evaluate market conditions
and the decision-making process of the
CCA in the time between when it begins
to consider implementing and before it
has decided to implement. Once a CCA
decides to implement its RWP, it will
likely have numerous contractual
obligations to share information
regarding the implementation of its
RWP with its participants, service
providers, other key stakeholders, and
354 DTCC

350 See

CA Governance Adopting Release, supra

note 12.
351 RWP Proposing Release, supra note 18, at
34723.
352 Id.
353 Id.

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at 13; see also supra note 347.
at 9 (explaining that this potential
liability is particularly true if the triggers require an
application of judgment while monitoring
operations and risk on a continuous basis).
356 Id. at 9–10.
357 ICE at 4; CCP12 at 5.
355 OCC

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91027

other market infrastructure to which it
is linked. Given these obligations,
requiring notification only upon
implementation would primarily serve
the purpose of documenting and
announcing the fact of implementation,
rather than the separate but equally
important purpose of informing the
Commission, as market conditions are
deteriorating or other events are
occurring at the CCA that may trigger
implementation of the RWP so that the
Commission can consider whether it too
should take action in response to the
event.
In contrast to Rule 17Ad–26(a)(6)’s
requirement that CCAs provide timely
notice of the RWP’s implementation,
Rule 17Ad–26(a)(7) helps ensure that
the Commission receives advance notice
that stressed market conditions or other
events have raised the potential for
implementation of the RWP. This
requirement for timely notification
when the CCA is considering
implementation of its RWP will
significantly enhance the Commission’s
ability to conduct effective supervision
and market oversight and to share
information on a timely basis, as
appropriate, with other authorities.
While the Commission regularly
engages with CCAs as part of its
supervisory process to anticipate the
need for potential regulatory requests,
Rule 17Ad–26(a)(7) further helps the
Commission should it need to act by
promoting timely advance notification
that a CCA may implement its RWP.
In addition, in contrast to the phase
of a stressed market or other event
where a CCA is considering
implementation of its RWP, once a CCA
has begun to implement its RWP the
ability of the Commission to take steps
of its own, consistent with its
supervisory authority, and to coordinate
with other authorities, may be more
limited because the CCA will already be
taking action in response to the event.
For example, if a CCA is considering
implementation of its RWP to deploy a
certain recovery tool, to allocate losses,
or to replenish resources, the
Commission or other authorities may
evaluate other available actions or tools
that could also address or mitigate
financial stability concerns in response
to market events than the action
planned by the CCA. In this regard, the
Commission can best ensure that actions
appropriate to maintaining financial
stability can be made if it is notified
when a CCA is ‘‘considering’’ action,
rather than when a CCA has already
begun to implement its RWP.
As explained above, commenters also
sought clarification regarding ‘‘consider

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initiating.’’ 358 In response to concerns
that the Commission and the CCA may
differ regarding the exact moment when
a CCA begins to ‘‘consider’’
implementing its RWP, CCAs generally
should seek to provide notification to
the Commission that establishes an
open line of communication, enabling
the Commission, and other relevant
authorities with which the Commission
may be coordinating, time to evaluate
market conditions and the potential
financial stability implications of any
decision under the RWP. The ability for
the Commission or other relevant
authorities to act potentially could help
mitigate the need for a recovery or
wind-down. When market conditions
are deteriorating rapidly, the CCA may
be the first party in a position to identify
a potential scenario that could trigger
implementation of the RWP, and so
providing advance notice to the
Commission can help the CCA, the
Commission, and other potentially
relevant authorities, navigate market
events. Accordingly, a CCA generally
would be ‘‘considering’’ implementing a
recovery when the clearing agency
determines that a market event may
result in uncovered losses, liquidity
shortfalls, or general business losses at
the CCA following end-of-day
settlement, or if the CCA anticipates that
it will need to deploy prefunded
financial resources or liquidity
arrangements following end-of-day
settlement in order to continue meeting
its regulatory obligations.359 Similarly,
if a clearing agency is faced with
circumstances in which its status as a
‘‘going concern’’ may be in doubt
following end-of-day settlement,
resulting in the potential for a
permanent cessation, sale, or transfer of
one of more of its core services, a CCA
would be ‘‘considering’’ implementation
of its orderly wind-down plan.360
Whether a CCA is ‘‘considering’’
implementing its RWP also depends on
governance and decision-making
processes within the CCA, and so CCAs
generally should consider at what levels
decisions regarding RWP can be made
358 The Commission is making a technical
modification to the rule to replace ‘‘initiating’’ with
‘‘implementing.’’ ‘‘Implementing’’ is consistent
with language used in other requirements in Rule
17Ad–26, as well as in the RWP Proposing Release
and in the comments received more generally when
referring to the implementation of the RWP. For
example, Rules 17Ad–26(a)(4), (6), and (8) all use
‘‘implementing’’ rather than ‘‘initiating.’’
359 See, e.g., FSB Analysis, supra note 24, at 1–
2 (analyzing CCP services across seven entities and,
in so doing, identifying hypothetical default and
non-default loss scenarios that would have required
the use of, or exhausted the use of, recovery tools
in some scenarios for some of entities’ service
lines).
360 See id.

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within their organization. For example,
a CCA generally should consider
whether decisions regarding RWP
implementation and Commission
notification are made by senior
management, a specific senior officer, or
the board of directors. The appropriate
governance level may vary depending
on the specific type of event or element
of the RWP. For example, in considering
implementing a recovery, questions
regarding the potential for liquidity
shortfalls may fall primarily to
management or specific senior officers,
whereas decisions regarding cessation
or transfer of the business are likely to
require board input before considering
implementation. Accordingly, the
Commission is retaining the
‘‘considering’’ language as proposed.
Some commenters also expressed
views on the means of notification. One
commenter stated that the notification
should be made in a way that leaves an
audit trail and can be better directed,
avoiding a potential for the notification
to not reach the right destination or
receive the appropriate level of
attention.361 One commenter
recommended that a CCA be permitted
to select the particular means of
communication that would be used to
notify the Commission, including
dedicated phone numbers, email
addresses, or other forms of electronic
communication.362 Because
Commission staff already remains in
regular contact with each of the CCAs as
part of its supervisory program,363 the
purpose of the requirement in Rule
17Ad–26(a)(7), in part, is to facilitate a
line of communication between the
Commission and the CCA regarding the
event, so that the Commission can
evaluate the circumstances of a
potential recovery or wind-down and its
potential transmission of systemic risk.
In this sense, the timeliness of
notification is paramount, while the
form of notification or the process of
notification may vary under the
circumstances so long as the CCA
establishes a line of communication.
Accordingly, the Commission is
modifying the rule in response to these
comments to replace the rule text stating
‘‘Include procedures for informing’’
with ‘‘Require the covered clearing
361 The

Associations at 20–21.
at 12–13; see also Muth at 2 (‘‘In part
because of the complex Venn-diagram-esque
relationship between financial regulators in terms
of both activities and jurisdiction, management may
be misinformed or uninformed as to when, how,
and why to contact regulators who are the ‘relevant
authorities’ under the CCA Standards or what to
communicate that would be illustrative as to the
entity’s predicament.’’).
363 RWP Proposing Release, supra note 18, at
34723.
362 DTCC

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agency to inform.’’ This modification
removes the need to codify specific
notification forms or procedures,
providing the CCA with discretion to
assess the best method for
communication and the level of
formality in the communication that is
most appropriate under the
circumstances, while ensuring that the
timeliness of notification is the primary
focus of the CCA. To ensure an
appropriate audit or record of its
decision, a CCA generally should
consider memorializing the steps that it
took to notify the Commission. In some
circumstances, it may be appropriate to
complete this documentation after the
fact of notification, while in others, as
described by the commenter, it may be
appropriate to document notifications
internally to ensure a proper audit trail.
Any such correspondence with the
Commission constitutes a record of a
clearing agency and would be subject to
the requirements of 17 CFR 240.17a–
1.364
Two commenters stated that the
Commission should require CCAs to
notify clearing participants when the
CCA is considering implementation of
its RWP and when it has done so, in
addition to providing notification to the
Commission.365 Commission rules
already provide for notification to
participants regarding a range of issues,
which generally would include the
implementation of the RWP. As
previously discussed, requirements for
timely implementation of the RWP
under Rule 17Ad–26(a)(6) generally
should include notification to
participants and other stakeholders. In
addition, other rules also promote the
timely sharing of information between
CCAs and clearing participants
regarding their participation in the
clearing agency. For example, Rule
17Ad–22(e)(23)(ii) requires that a CCA
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to provide
sufficient information to enable
participants to identify and evaluate the
risks, fees, and other material costs they
incur by participating in the CCA.
Because implementing a recovery or
orderly wind-down may involve the use
or replenishment of prefunded
resources, as well as the potential
allocation of losses from default or nondefault loss scenarios to participants, a
CCA generally would need to inform its
participants regarding those aspects of a
recovery or wind-down event at the
time of implementation pursuant to
Rule 17Ad–26(a)(6). In addition, a CCA
364 Rule
365 The

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generally should discuss with its
participants and other key stakeholders
planning and development with respect
to the RWP, as well as the results of
testing. Two such venues for discussion
of the RWP are already required by
existing rules, as follows: Rule 17Ad–
25(d), requiring the establishment of a
risk management committee,366 and
Rule 17Ad–25(j), regarding the
solicitation of stakeholder
viewpoints.367 These venues already
require the CCA to share information
regarding risk management topics,
which necessarily would include the
risk management implications of its
RWP, with the risk management
committee and with relevant
stakeholders, respectively. In both cases,
clearing participants would receive
information regarding the RWP and
have an opportunity to provide input
(either as members of the risk
management committee when reviewing
matters regarding the RWP before the
committee, or in providing viewpoints
when solicited by the CCA).
In contrast, the purpose of the
notification requirement in Rule 17Ad–
26(a)(7) is to ensure that the
Commission specifically has timely
information regarding the potential for a
CCA to implement recovery or winddown. As previously discussed above,
this helps ensure that the Commission
can use the information in a timely
manner to consider appropriate
regulatory responses to market events,
as well as to share information, as
appropriate, with other authorities, such
as the resolution authority, that also
may be monitoring stressed market
events alongside the Commission and
may need to consider the potential for
resolution. In addition, pursuant to
clearing agency rules, clearing
participants generally will be notified of
circumstances related to a participant
default, the potential for a portfolio
auction, and the use of default
management tools that may precede a
recovery or wind-down event. While
366 Specifically, Rule 17Ad–25(d)(2) requires that
the risk management committee, in the performance
of its duties, be able to provide a risk-based,
independent, and informed opinion on all matters
presented to the committee for consideration in a
manner that supports the overall risk management,
safety and efficiency of the registered clearing
agency. 17 CFR 240.17ad–25(d)(2).
367 Specifically, Rule 17Ad–25(j) requires that
each registered clearing agency must establish,
implement, maintain, and enforce written policies
and procedures reasonably designed to require the
board of directors to solicit, consider, and
document its consideration of the views of
participants and other relevant stakeholders of the
registered clearing agency regarding material
developments in its risk management and
operations on a recurring basis.

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existing Commission rules,368 as well as
participant agreements or other
arrangements between CCAs and their
participants are likely to facilitate
timely notification regarding the
planning, development, and
implementation of key aspects of the
RWP, as discussed above, it may not be
appropriate in all circumstances for a
CCA to provide advance notice to
participants that it is considering
implementing its RWP because such
notification could increase market stress
or accelerate deteriorating conditions,
precipitating the very recovery or winddown event that, in the absence of such
increase or acceleration, the CCA, the
Commission, or another authority could
take appropriate steps to mitigate and
avoid. Accordingly, the Commission is
not adding a provision specifically
requiring notification that the CCA is
considering implementing its RWP to
clearing participants as part of Rule
17Ad–26(a)(7).
8. Testing: Rule 17Ad–26(a)(8)
Proposed Rule 17Ad–26(a)(8) required
a CCA’s RWP to include procedures for
testing the CCA’s ability to implement
the recovery and wind-down plans at
least every 12 months, including by
requiring the CCA’s participants and,
when practicable, other stakeholders to
participate in the testing of its plans,
providing for reporting the results of the
testing to the CCA’s board of directors
and senior management, and specifying
the procedures for, as appropriate,
amending the plans to address the
results of the testing.
In the RWP Proposing Release, the
Commission explained that a testing
requirement is important since it should
help ensure that a CCA’s RWP will be
effective in the event of an actual
recovery or orderly wind-down.369 The
testing would likely be similar to that
required under Rule 17Ad–22(e)(13), in
that it would test how the RWP would
perform in crisis situations, including
the participation of senior management
and the board of directors. The
Commission stated that testing must
involve the CCA’s participants and,
where applicable, other stakeholders.
This inclusion should help to make sure
that procedures will be practical and
effective in the face of a recovery or
orderly wind-down, noting that
coordination will be required in such a
situation.
The Commission also explained that
testing every 12 months was an
368 See, e.g., supra notes 366–367 and
accompanying text.
369 RWP Proposing Release, supra note 18, at
34723.

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appropriate frequency because annual
testing is already required for many
other aspects of a CCA’s risk
management. Accordingly, a
requirement for testing every 12 months
for RWPs strikes an appropriate balance
between the need to test an RWP and
the desire to avoid duplicative
requirements. The Commission further
stated that a CCA may choose to
conduct this RWP testing in conjunction
with default testing for Rule 17Ad–
22(e)(13) or business continuity testing.
Due to the possibility of leveraging
existing default management testing, the
Commission believed that costs
associated with RWP testing may not be
too high for CCAs and likely would be
moderate for participants, as they are
already involved in the default
management testing.370
a. Support for Testing Requirement
Several commenters expressed their
agreement with or support of the
proposed requirement to annually test
the ability to implement a CCA’s
RWP.371 One commenter agreed with
the importance of ensuring that a CCA’s
RWP is workable for a potential crisis
situation, stating that it is essential for
the CCA, its members and customers,
and regulators all have confidence that
the RWP will operate as designed.372
The commenter also stated that the
value of periodic testing is to reduce the
burden on a CCA when the need for
implementing the RWP arises, a time
when resources may be stretched thin,
ensuring that there is a workable
roadmap to address the situation at
hand.373 Similarly, a different
commenter emphasized that it is critical
for a CCA to be confident that the RWP
would be effective in an actual recovery
or orderly wind-down event.374 Another
commenter agrees that RWP testing is
generally appropriate, provided that
annual RWP testing can be combined
with existing default management
testing.375 One other commenter echoed
this point and agrees that plans need to
be tested on a regular basis, and a test
every 12 months would be in line with
requirements for default testing.376
b. Scope of Testing and Interaction With
Other Testing Requirements
Some commenters sought more clarity
regarding the scope of the ‘‘testing’’
requirement in proposed Rule 17Ad–
370 Id.

at 34735.
at 10; The Associations at 21; ICE at 4;
ICI at 5; CCP12 at 4.
372 OCC at 10.
373 Id.
374 CCP12 at 4.
375 ICE at 4.
376 The Associations at 21.
371 OCC

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26(a)(8), recommending baseline
standards and discretion to test different
scenarios or aspects of the plan each
year.377
Several commenters specifically
stated that CCAs should have discretion
and flexibility to determine an
appropriate approach to testing so that
testing would not become duplicative,
unnecessary, or burdensome.378 One
commenter stated that a new testing
requirement would require significant
investment of time and resources from
a CCA’s most critical personnel, both to
plan and execute the testing, which is
a highly manual process.379 Similarly,
another commenter explained that RWP
testing at CCAs typically includes
various types of exercises, and
suggested that any final rule make clear
that a CCA has discretion to rely on
such practices to satisfy Rule 17Ad–
27(a)(8).380
The definitions in Rule 17Ad–26(b)
regarding ‘‘recovery’’ and ‘‘orderly
wind-down’’ provide much of the
direction that commenters seek
regarding the scope of testing
contemplated under Rule 17Ad–
26(a)(8). Specifically, RWP testing
would involve testing a CCA’s plans for
recovery (e.g., actions the CCA would
take to address an uncovered loss,
liquidity shortfall, or capital
inadequacy, whether arising from a
participant default or other causes,
including actions to replenish any
depleted prefunded financial resources
and liquidity arrangements), and for
wind-down (e.g., actions the CCA would
take in scenarios that exhaust the CCA’s
ability to replenish resources and
necessitate that it effect the permanent
377 Davidson at 5 (explaining that ‘‘testing’’ needs
to be clearly defined, pragmatic, and cost effective,
and that it comes in many varieties, listing among
the different types of testing conducted by CCAs
business continuity tests, margin model and
clearing fund testing and validations, default
management testing, compliance testing, and
internal audit testing); SIFMA at 11 (urging the
Commission to set baseline standards for testing
that would require CCAs to adhere to standards
based on common best practices rather than
establishing voluntary disparate practices); The
Associations at 21 (stating that not every recovery
scenario needs to be tested annually but that a CCA
should pick material and significant scenarios and
endeavor to test different scenarios or different
parts of the plan each year).
378 ICE at 4–5; OCC at 10–11 (identifying its
existing regular and periodic testing efforts (e.g.,
default simulations, table-top exercises, monthly
analysis and monitoring for assessment capability)
used to assess and enhance the operational capacity
and effectiveness of risk management processes and
tools, and stating that they are appropriately
designed to ‘‘help ensure that the RWP will be
effective in the event of an actual recovery or
orderly wind-down’’); DTCC at 10–11; CCP12 at 4–
5.
379 OCC at 10.
380 CCP12 at 4.

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cessation, sale, or transfer of one or
more of its core services).381 As such,
testing of RWPs generally should
include scenarios that consider both
default and non-default scenarios. When
testing the RWP against a default
scenario, the clearing agency generally
should consider the effects of
exhausting prefunded resources, to
ensure that the clearing agency also tests
its ability replenish those resources (i.e.,
complete recovery). In the context of a
default scenario, such a test may have
similar elements to a default
management testing exercise, though it
would necessarily consider steps related
to replenishing prefunded resources
deployed in response to the scenario. In
contrast, testing that considers nondefault losses generally could not
leverage existing testing related to
default management, and so testing
exercises developed for RWPs under
Rule 17Ad–26(a)(8) would also need to
include testing of non-default loss
scenarios to demonstrate that RWP
testing was reasonably designed,
consistent with the rule requirements.
Because of the range of scenarios that
may implicate RWPs, including
scenarios in both default and nondefault scenarios, or a combination
thereof, a CCA retains discretion under
the annual testing requirement to
organize and design its testing scenarios
to ensure that testing exercises produce
effective tests of the elements of the
RWP, in such a way that the CCA can
review its testing results and consider
improvements over time.
With respect to the investment of time
and resources necessary to plan and
execute testing, and the charge that
RWP testing is ‘‘unnecessary’’ or
‘‘burdensome,’’ the commitment of such
time and resources is critical to ensuring
an effective RWP.382 The circumstances
381 More specifically, Rule 17Ad–26(b) defines
‘‘recovery’’ to mean the actions of a covered
clearing agency, consistent with its rules,
procedures, and other ex ante contractual
arrangements, to address any uncovered loss,
liquidity shortfall, or capital inadequacy, whether
arising from participant default or other causes
(such as business, operational, or other structural
weaknesses), including actions to replenish any
depleted prefunded financial resources and
liquidity arrangements, as necessary to maintain the
covered clearing agency’s viability as a going
concern and to continue its provision of core
services, as identified by the covered clearing
agency pursuant to Rule 17Ad–26(a)(1). It defines
‘‘orderly wind-down’’ to mean the actions of a CCA
to effect the permanent cessation, sale, or transfer
of one or more of its core services, as identified by
the CCA pursuant to Rule 17Ad–26(a)(1), in a
manner that would not increase the risk of
significant liquidity, credit, or operational problems
spreading among financial institutions or markets
and thereby threaten the stability of the U.S.
financial system.
382 See infra Part IV.C.1.h (further discussing the
benefits and costs associated with the testing

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in which a CCA may need to implement
its RWP are of such systemic
consequence that CCAs should test their
rules, policies, and procedures so that,
should real world conditions arise, the
CCA is prepared to implement its RWP
in an effective manner, thereby helping
to ensure the CCA does not become a
mechanism for spreading contagion
through the financial system or
otherwise endangering financial
stability. Similar to the way that default
management testing under Rule 17Ad–
22(e)(13) helps a CCA test its close-out
procedures for a defaulted portfolio so
that policies and procedures are
sufficiently developed to promote a
smooth and successful process,383 RWP
testing can help a CCA ensure that its
policies and procedures for recovery
and orderly wind-down are sufficiently
developed and can be effective in
completing loss allocation and
replenishment tasks, in the case of a
recovery, or a cessation of services, in
the case of a wind-down. A CCA that
does not engage in regular testing of its
RWP may find, in a moment where
stressed market conditions are likely to
be extreme and the viability of the CCA
is itself in question, that it is underprepared to implement its plan,
potentially negating the benefits of the
planning process. The Commission
agrees that effective planning for RWP
testing is likely to be a manual process
that draws upon critical personnel
because RWP planning requires careful
consideration of the procedures and
tools upon which a CCA would draw in
extreme market circumstances to
maintain the ongoing viability of the
CCA itself. As such, critical personnel,
who may be directed in the RWP to
make loss allocation or other critical
decisions during a recovery or winddown scenario, generally should
participate in RWP testing conducted by
the CCA to help ensure the design and
execution of testing scenarios resemble,
as well as can be estimated during the
planning and testing process,
anticipated real-world conditions
necessitating a recovery or wind-down.
requirement) and V.B (further discussing the
paperwork burdens associated with Rule 17Ad–26).
383 Separate from any obligations under Rule
17Ad–22(e)(13) with respect to default management
testing, 31 CCPs voluntarily participated in a
default management exercise led by CCP Global in
2023 to share best practices, identify areas for
follow-on work, and highlight insights from the
testing process. Another exercise is planned for
2025. Such efforts suggest that, even where testing
efforts require a commitment of time, personnel and
resources, CCPs are eager to engage in testing as an
effective mechanism to improve their rules, policies
and procedures. CCP Global, Default Simulation
Exercises by CCPs, https://ccp-global.org/
defaultsimulation/ (describing an exercise
completed in 2023).

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Including these critical personnel in
RWP testing may increase the overall
cost of testing but is necessary because
these critical personnel are best
positioned to identify the planning and
procedures that can help ensure timely
and effective implementation under
real-world conditions.
With respect to whether such testing
may be duplicative, commenters also
requested clarification as to the extent
testing under Rule 17Ad–26(a)(8) could
be conducted as part of existing default
management testing required under
Rule 17Ad–22(e)(13) or business
continuity testing required by
Commission rules.384 One commenter
stated that it would not object to the
proposed frequency of annual RWP
testing if it could be combined with
existing default testing.385 Another
similarly stated that the RWP and
default management testing
requirements could be combined into
one, noting that both contemplate
annual testing.386 One commenter,
citing an operational concern in the
potential overlap of the testing
requirements, stated that it is unclear
RWP testing would differ noticeably
from default management testing, and
encouraged combining both to reduce
the potential for duplicative efforts that
would be costly and perfunctory.387
Citing the potential cost-effectiveness of
leveraging existing practices pursuant to
default management testing under Rule
17Ad–22(e)(13), another commenter
stated that the Commission should more
closely harmonize the proposed RWP
testing requirement with the
requirement in Rule 17Ad–22(e)(13),
which would give CCAs flexibility to
design testing procedures to properly fit
the particular markets, cleared products,
and participants that they serve.388
As discussed above, regular, annual
testing is necessary to facilitate the
timely implementation of the RWP
when a recovery or wind-down scenario
arises, as such scenario is likely to
include stressed market conditions
where clearing agency participants have
defaulted or a non-default loss event
that may contribute to market stress,
strained organizational resources at the
CCA, and market events that progress
rapidly. The purpose of such testing is
not to be duplicative; rather, it may well
be complementary to, for example, the
default management testing required by
Rule 17Ad–22(e)(13). Accordingly, as
384 RWP Proposing Release, supra note 18, at
34723–24.
385 ICE at 4.
386 The Associations at 21.
387 CFA at 4.
388 DTCC at 11.

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explained further below, the
Commission is modifying Rule 17Ad–
26(a)(8) to explicitly distinguish default
management testing from RWP testing
because the CCA’s role in default
management would be distinct from its
role implementing a recovery or winddown.
Nonetheless, as one commenter
explained, CCAs may engage in one set
of testing exercises designed to address
multiple testing procedures or
scenarios.389 Such an approach to
harmonizing default management
testing with RWP testing is consistent
with the requirements of the rule;
namely, a CCA can conduct one exercise
with multiple tests, such as one that
tests both default management and
implementation of RWPs. Under Rule
17Ad–26(a)(8), a CCA retains discretion
to conduct a single testing exercise
intended to address multiple testing
requirements under Commission rules,
so long as the testing exercise addresses
the distinct elements of separate testing
requirements, including the possibility
that some RWP testing scenarios would
include non-default losses, as opposed
to losses arising during a CCA’s default
management process.
For example, rather than conducting a
narrow test of ‘‘business as usual’’
default management, a CCA may instead
choose to conduct a more
comprehensive testing exercise
intended to cover not only its rules,
policies and procedures for default
management but scenarios and triggers
for loss allocation that would activate
the need for a recovery or orderly winddown. Such an approach may be more
efficient than conducting RWP testing
that is wholly distinct from default
management testing, given that
participant defaults can be one of the
scenarios or triggers that lead to a
recovery or wind-down scenario. A
more comprehensive testing exercise
may also make it less costly to assemble
a representative set of participants and
other key stakeholders, as well as the
board, producing a more effective
testing exercise. As previously
discussed above, and in contrast to
default management testing, RWP
testing may require consideration of
scenarios and testing of procedures that
go beyond default management because,
for example, recovery includes the
actions taken to address uncovered
losses and replenishment of prefunded
resources,390 and wind-down includes
389 OCC

at 10.
example, in contrast to a default
management exercise, where the CCA likely
assumes it has sufficient resources to close out a
defaulting participant’s portfolio, a recovery plan
390 For

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actions taken when resources have been
exhausted, necessitating the permanent
cessation, sale, or transfer of one or
more of the CCA’s core services.
Accordingly, as discussed above, and
because RWP testing is necessarily
distinct from, if in ways complementary
to, default management testing under
Rule 17Ad–22(e)(13), the Commission is
modifying Rule 17Ad–26(a)(8) at
adoption to add new language stating, as
follows: ‘‘[r]equiring that such testing be
in addition to testing pursuant to
§ 240.17ad–22(e)(13).’’ As previously
explained, this language clarifies that,
although a CCA may choose for
efficiency purposes to combine default
management and RWP testing into a
single exercise, RWP testing should
include testing of the procedures
specific to its RWP.391 In addition, the
existing requirement regarding default
management testing in Rule 17Ad–
22(e)(13) is unchanged; it is not
replaced or superseded by the separate
and distinct requirement for RWP
testing.
c. Participation by Clearing Agency
Participants and Other Stakeholders
In the RWP Proposing Release, the
Commission proposed to require that
RWP testing include participation by
clearing agency participants and, when
practicable, other stakeholders.392 One
commenter stated that involvement of
clearing members is not necessarily
appropriate for certain scenarios or tools
related to general business losses or
other non-default losses, and CCAs
should have flexibility to determine the
appropriate approach to testing and
clearing member involvement in such
generally should be formulated on the presumption
that any uncovered loss or liquidity shortfall will
be borne by the CCA, its owners’ and its
participants’ own resources and provide an
effective means of achieving a matched book, where
applicable, and a means of replenishing financial
resources. See CPMI–IOSCO Recovery Guidance,
supra note 25, at 2.3.1.
391 To improve readability, the Commission is
also adding paragraph headings to the rule and
modifying the first reference to ‘‘recovery and winddown plans’’ to the defined terms, so that it instead
reads ‘‘recovery and orderly wind-down plans.’’ As
such, final Rule 17Ad–22(a)(8) reads in full as
follows: Include procedures for testing the CCA’s
ability to implement the recovery and orderly winddown plans at least every 12 months, including by
(a) requiring the CCA’s participants and, when
practicable, other stakeholders to participate in the
testing of its plans, (b) requiring that such testing
would be in addition to the testing required in
paragraph (e)(13) of 17 CFR 240.17ad–22, (c)
providing for reporting the results of the testing to
the CCA’s board of directors and senior
management, and (d) specifying the procedures for,
as appropriate, amending the plans to address the
results of the testing.
392 RWP Proposing Release, supra note 18, at
34716.

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cases.393 The commenter suggested that
the Commission remove or qualify the
reference to requiring participant
participation in testing.394 Another
commenter stated that direct
participation in testing of participants or
other stakeholders is not necessarily the
most effective way to test and requiring
such participation may distract the CCA
from optimizing its RWP testing.395 The
commenter explained their inclusion
may not be appropriate or beneficial for
aspects of an RWP that do not impact
them and also stated that testing aspects
of an RWP can involve confidential or
highly sensitive information that could
make the inclusion of clearing members
and other stakeholders inappropriate.396
The commenter stated that there are
various other ways in which
participants or other stakeholders can be
educated in default management and
recovery and orderly wind-down
processes.397 In conclusion, the
commenter requested that the
Commission clarify, for the avoidance of
doubt, that testing should not require
any participation of clearing member or
other stakeholders, as CCAs must retain
flexibility to determine how their testing
should be conducted, including whether
and how to include participants and
third-party stakeholders.398 Another
commenter agreed that participants and
other stakeholders should be included
in tests if any action is required from
them as part of the plan; however, such
testing should not become unduly
onerous for market participants and
knowing the significant overlap in
member bases at CCAs, consideration
should be given that testing be done
simultaneously with other CCAs.399 One
commenter stated that it was sensible to
require that key external third parties
participate.400 Another commenter
recommended that the participation of
risk management committees and risk
advisory working groups be required, as
the market participants on those bodies
would possess relevant perspectives and
393 ICE

at 5.

401 ICI

394 Id.
395 CCP12

at 9.
at 9.
403 Id. at 10. In the commenter’s view, participant
action and awareness of the defaulter’s portfolio is
not needed in such a case and would be
counterproductive to the CCA’s need for
confidentiality around its market-facing close-out
activity. The commenter also stated that cashmarket clearing agencies have a relatively large
number of participants, meaning that a prescriptive
mandate for engagement by all participants in
testing would be impractical, cost and resource
intensive, and potentially antithetical to the
underlying goals of testing. Id.
404 Id.
405 Id.
406 Id. at 11.
402 DTCC

at 4.

396 Id.
397 Id.
398 Id.

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input to ensure that the tests are
properly calibrated and administered.401
One commenter stated it does not
believe that it is appropriate to prescribe
a specified approach for the inclusion of
CCA participants and, where applicable,
other stakeholders in the testing of its
RWP.402 The commenter explained that
it is important to recognize the
differences in closing out a defaulting
member at a CCA that clears cashsettled U.S. securities transactions
versus a derivatives clearing agency.403
Additionally, for a CCA with multiple
participant types, the commenter stated
it is unclear how each different type of
participant would participate in annual
testing.404 The commenter recommends
that CCAs be allowed to consider and
implement approaches such as training
and other educational outreach efforts to
members and participants to satisfy any
final requirement the Commission
adopts for RWP testing.405 Instead of
mandating participation, the commenter
recommends that the Commission apply
the same guidance to RWP testing as it
did for default management testing
under Rule 17Ad–22(e)(13)—not specify
that participants be included in the
testing process, but that some or all
participants could be included in some
or all of the testing.406
Mindful of the requirements under
Rule 17Ad–22(e)(13) for testing in the
default management context, and
consistent with the approach taken by
the Commission there, Rule 17Ad–
26(a)(8) has the same requirement for
participant and other stakeholder
involvement in RWP testing.
Accordingly, the rule does not specify
that all clearing agency participants
participate in every test because,
particularly for CCAs with large
numbers of participants or multiple
participant types, it may be impractical
or counterproductive from a testing
perspective and, as explained by
commenters, given the wider range of
topics covered as part of RWP planning,
it may not always be appropriate to
include participants in all aspects of

399 The Associations at 21; see also ICE at 4–5
(expressing concern that additional testing
requirements could be unnecessarily burdensome,
particularly for clearing members who are likely to
have testing obligations at multiple clearing
organizations).
400 Davidson at 6 (key external third parties,
according to the commenter, may include
settlement banks, liquidity providers, clearing
members, technology vendors, market-makers,
exchanges, and trading venues).

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testing.407 Nonetheless, participation in
testing by clearing members helps
ensure that clearing members are
familiar with the CCA procedures that
will be followed in a recovery or winddown scenario, creating positive
feedback where both clearing members
and the CCA can plan, share
experiences, and consider whether
existing plans would, in fact, be viable.
While other efforts by a CCA, such as
trainings and educational outreach to
participants and other stakeholders,
may assist in the preparation for
recovery and wind-down scenarios, and
may also help ensure that participants
participate meaningfully in testing
exercises, training and other education
activities are no substitute for having
participants and other categories of
stakeholders participate in testing.
In designing its testing plan consistent
with Rule 17Ad–26(a)(8), a CCA may
choose to designate in its policies and
procedures certain participants, or
categories of participants, for
participation in certain tests. For
example, in testing of loss allocation
tools, where losses could be assigned to
a participant, it may be useful to include
participants in the testing to allow them
to understand when they can be
expected to bear losses and how those
losses would be absorbed. In testing that
involves business losses or certain types
of non-default losses, it may be less
appropriate to have participants
participate in the testing, though a
recovery or wind-down scenario
involving a cybersecurity event may
benefit from participant testing even if
the loss is categorized as a non-default
loss. In developing testing scenarios, a
CCA may at times also need to use
confidential or highly sensitive
information that could limit its ability to
include clearing participants. In
addition, for testing that implicates the
risk management framework, such as
RWP testing for default loss scenarios, it
may be appropriate to facilitate
participation by the risk management
committee of the board of directors, or
other risk committees or advisory
working groups organized by the CCA.
Over time, a CCA generally should
consider how to help ensure that a wide
range of participants and other
categories of stakeholder have
participated in at least those aspects of
testing that would affect those
participants and other categories of
stakeholder so that the participants and
407 For example, as discussed in Part II.C.8.d
immediately below, testing of orderly wind-down
plans may involve a tabletop exercise with the
board and senior management focused on the
considerations related to, e.g., a bankruptcy filing.

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other stakeholders are well informed as
to the CCA’s policies and procedures
regarding recovery and wind-down. The
requirements of the rule give discretion
to CCAs to identify the appropriate
scenarios, participants, and audiences
for tests, and for the inclusion of
participants and other stakeholders as
appropriate so that the testing
requirement is not unduly onerous,
either on CCAs or their participants and
other key stakeholders.
As with Rule 17Ad–22(e)(13), the
Commission recognizes that under Rule
17Ad–26(a)(8), a CCA may have limited
ability to require participation by all
stakeholders in all circumstances, but a
CCA generally should make efforts to
secure participation of relevant
stakeholders, such as liquidity providers
or settlement banks. It may also
consider including supervisory and
resolution authorities as observers.
Accordingly, the Commission is not
modifying proposed Rule 17Ad–26(a)(8)
to remove requirements related to
participation by clearing members and
other key stakeholders.
d. Testing of Orderly Wind-Down
Processes
One commenter requested that the
Commission provide additional
guidance on how CCAs would
implement the wind-down portion of
their RWPs.408 The commenter asked for
clarification that end-to-end testing
obligations in the proposal do not
require testing of steps related to
effectuating legal processes and related
decision-making, as those steps are
operational in nature and do not lend
themselves to standardized testing
scripts or protocols.409 Other
commenters echoed this statement that
legal processes do not lend themselves
to standardized testing processes,
requesting that CCAs have discretion to
determine whether it is necessary or
feasible to test.410
For the portion of annual testing
pertaining to orderly wind-down, a CCA
generally should consider that elements
of the legal processes associated with a
408 DTCC

at 9.
at 11 (explaining that, as a practical
matter for a CCA, other than internal governance
requirements necessary to determine whether to
trigger the implementation of the orderly winddown plan, implementation would include
preparation of Bankruptcy Court filings, the
provisioning of legal advice as a result of entering
into the bankruptcy process, and then entering into
various agreements and other processes that are
operational in nature).
410 CCP12 at 4–5; OCC at 11, n.27 (stating that
some aspects of an RWP do not lend themselves to
full simulation testing in any event, such as the
contemplation of a potential transaction with an asyet-identified third-party for a merger or
acquisition).

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wind-down may vary depending on the
circumstances of the scenario and so the
CCA may need to decide the order in
which services wind down to help
ensure an orderly process. In deciding
in what order to wind down services, a
CCA generally should consider the steps
it would need to take to help ensure the
wind-down is orderly. Additionally, as
part of its orderly wind-down plan, a
CCA generally should explore the steps
that could achieve recovery and thereby
avoid wind-down, to ensure all
available tools and resources intended
to prevent a wind-down have been
exhausted before implementing the
orderly wind-down of the CCA. Even
though they are operational in nature,
this aspect of testing may differ from
other testing in that it could involve
considering which legal documents to
prepare or file, rather than engaging in
an exercise that progresses through the
CCA’s default waterfall and related
tools. Wind-down testing may also
include, for example, tabletop exercises
with senior management that consider
when and how to execute bankruptcy
proceedings or transfer of core functions
to another entity.411 In addition, a CCA
generally should consider whether
different wind-down scenarios
necessitate that a CCA consider winding
down services in different sequences, so
that the overall wind-down effort
remains orderly across different
scenarios.
e. Board Review and Sharing of Testing
Results
One commenter agreed that testing
results should be provided to the board
and senior management of the CCA to
enable them to effectively oversee the
RWP and its implementation.412
Another commenter stated that testing
results should also be shared with risk
advisory committees to ensure that
participants are educated and can
provide feedback to enhance
procedures, as well as with regulatory
authorities who can review and
challenge the quality of testing
scenarios, outputs, and the adequacy of
resources.413
While the Commission agrees that
CCAs generally should consider ways to
share information effectively throughout
their organizations, as well as with their
participants and regulatory authorities,
other existing requirements already
address the concerns raised by these
411 A CCA designated systemically important also
generally should consider the extent to which
recovery and wind-down scenarios may result in
resolution by the resolution authority pursuant to
Title II.
412 OCC at 10.
413 The Associations at 21.

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commenters. For example, Rule 17Ad–
25(j) establishes an obligation of the
board to solicit and consider viewpoints
of participants and other relevant
stakeholders, such as through risk
advisory committees. Under Rule 17Ad–
25(j), each registered clearing agency
must establish, implement, maintain,
and enforce written policies and
procedures reasonably designed to
require the board of directors to solicit,
consider, and document its
consideration of the views of
participants and other relevant
stakeholders of the registered clearing
agency regarding material developments
in its risk management and operations
on a recurring basis. A CCA generally
should consider material changes to,
and annual testing of, its RWP as
material developments in the CCA’s risk
management and operations under Rule
17Ad–25(j). In addition, Rule 17Ad–
22(e)(23)(ii) also requires a CCA to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to provide
sufficient information to enable
participants to identify and evaluate the
risks, fees, and other material costs they
incur by participating in the CCA.
Under this requirement, a CCA
generally should consider the ways in
which information regarding its RWP,
changes thereto, and testing thereof,
should be provided to participants to
satisfy the requirements of Rule 17Ad–
22(e)(23)(ii). Furthermore, records
related to RWP testing would be
available to the Commission as records
of the CCA pursuant to 17 CFR 240.17a–
1, including the results of testing
provided to the board pursuant to Rule
17Ad–26(a)(8). In addition, as part of its
supervisory program for CCAs,
Commission staff generally do
participate in existing default
management exercises, which also
address matters related to RWPs.
9. Board Approval: Rule 17Ad–26(a)(9)
Proposed Rule 17Ad–26(a)(9) required
a CCA’s RWP to include procedures
requiring review and approval by the
board of the plans at least every 12
months or following material changes to
the CCA’s operations that would
significantly affect the viability or
execution of the plans, with such review
informed, as appropriate by the CCA’s
testing of the plans.
Three commenters supported the
proposed approach.414 In addition, one
414 OCC at 11 (also supporting the fact that the
cadence of testing matches that of board review);
The Associations at 22 (citing the importance of
RWPs to the overall business of the CCA); Davidson
at 12.

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commenter stated that the board should
consult with the risk management
committee when developing or
amending its RWP.415 Commission rules
already require the board of a registered
clearing agency to establish a risk
management committee to assist the
board in overseeing the risk
management of the registered clearing
agency.416 Given that many elements of
the RWP would closely implicate the
risk management of a CCA, and that the
risk management committee is a
committee of the board, a CCA generally
should consider whether and how the
risk management committee should
assist in the review and approval of
material changes to RWPs and review of
RWP testing results. Accordingly,
because Rule 17Ad–26(a)(9) already
requires the board to review and
approve the RWP, it is unnecessary to
separately also require the board to
consult the risk management committee
as part of its review and approval.
Consistent with the above, the
Commission is adopting the rule as
proposed, with two technical
modifications to improve clarity.417
10. Other Comments
a. Harmonization With CFTC Proposal
Several commenters recommended
that the Commission and CFTC
coordinate to ensure that any final rules
are aligned or structured so that dually
registered entities (i.e., CCAs registered
with the Commission and SIDCOs
registered with the CFTC) can efficiently
comply with both Commission and
recently proposed CFTC rules,418 which
two of these commenters stated include
more prescriptive elements than the
Commission’s proposed rules.419
In developing Rule 17Ad–26, and
consistent with its obligations under
Title VIII of the Dodd-Frank Act, the
415 ICI

at 8.
CFR 240.17ad–25(d)(1).
417 The Commission is making two technical
modifications to the rule: for clarity and
grammatical correctness, the final rule text modifies
the phrase ‘‘review and approval by the board of
directors of the plans’’ to ‘‘review and approval of
the plans by the board of directors of the covered
clearing agency’’ and includes an additional comma
after the phrase ‘‘as appropriate’’ and before ‘‘by the
CCA’s testing of the plans.’’
418 ICE at 5; ICI at 5 (also stating that, although
the Commission and CFTC proposals differ
regarding non-substantive matters, such differences
may cause confusion and redundancy regarding the
standards for RWPs and result in inefficiencies and
harmonization would better facilitate compliance
and consistency, certainty, and efficiency); OCC at
5, n.14; The Associations at 12; SIFMA at 5. The
Options Clearing Corporation (‘‘OCC’’) and ICE
Clear Credit (‘‘ICC’’) are each a CCA that is also
registered as a SIDCO with the CFTC. See infra Part
IV.B.1 (further describing each of the CCAs
registered with the Commission).
419 OCC at 5, n.14; ICI at 5.

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Commission has consulted with the
CFTC to ensure that regulatory
requirements are effective and
consistent.420 The Commission’s final
Rule 17Ad–26 is highly aligned with the
CFTC’s proposal. While commenters
have identified some aspects of the
CFTC’s approach that differ in terms of
the level of granularity,
prescriptiveness, or in the use of
particular language, these differences
generally result from differences in
historical approach or regulatory scope
between the Commission and CFTC. For
example, requirements proposed by the
CFTC identify specific scenarios beyond
those described in Rule 17Ad–26(a)(3),
which focuses on scenarios involving
uncovered credit losses, uncovered
liquidity shortfalls, and general business
losses, consistent with other
requirements in Rule 17Ad–22. Such
differences reflect non-substantive
differences in approach between SIDCO
regulations and the Commission’s rules
for CCAs, and it is important for the
Commission’s regulatory framework to
align the new requirements in Rule
17Ad–26 with existing requirements in
Rule 17Ad–22. In addition, the
Commission’s approach reflects the
range of markets served and products
cleared by CCAs and the principlesbased approach generally taken in both
Rule 17Ad–22 and new Rule 17Ad–26.
As with the other requirements set forth
in rules for CCAs, which are also
consistent with comparable CFTC
rules,421 the requirements in Rule
17Ad–26 related to the scenarios that
might be implicated, and the tools that
would be applied, in a recovery or
wind-down scenario necessarily
depend, in part, on the risk profile of
the products cleared and the structure of
the markets served. Accordingly, such
differences in approach as to the
granularity of certain requirements are,
as one commenter stated, nonsubstantive,422 and as such could not
result in conflicting or confusing
regulatory requirements for dually
registered clearinghouses.
420 See supra note 43 (explaining that
Commission staff communicate with the CFTC staff
regularly and has consulted on the respective
proposed rules regarding RWPs specifically).
421 CCA Standards Adopting Release, supra note
5, at 70795 (explaining that ‘‘the Commission has
consulted with the CFTC, FRB, and FSOC in the
development of [Rule 17Ad–22(e)] to, in part, avoid
unnecessarily duplicative or inconsistent regulation
with respect to clearing agencies that are dually
registered’’ and that ‘‘because Rule 17Ad–22(e) and
other comparable regulations—including those of
the CFTC—are based on the same international
standards, the potential for inconsistent regulation
is low’’) (citation omitted).
422 ICI at 5.

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b. International Standards
One commenter, addressing the
discussion in the RWP Proposing
Release stating that CCAs consider new
policy statements from standard-setting
bodies, asked the Commission to
reaffirm that international policy
statements are non-binding guidance
and considering when and how to
implement such non-binding guidance
remains within the discretion of the
CCA.423
As a general matter, international
standing-setting bodies provide
guidance that is helpful for regulatory
authorities to consider when
establishing and implementing changes
to their regulatory frameworks in their
respective jurisdictions. While not
required by the rule, as discussed in the
RWP Proposing Release, CCAs generally
should consider policy statements and
other guidance issued by standardsetting bodies when reviewing and
considering updates to their rules,
policies, and procedures related to
RWPs.424
c. Other Topics
One commenter reiterated its
recommendation that the Commission
impose very restrictive investment and
credit policies for CCA margin and
default funds.425 Preexisting
Commission rules already establish
requirements designed to minimize
custody and investment risk consistent
with international standards.426
Specifically, Rule 17Ad–22(e)(16)
requires a CCA to establish, implement,
maintain and enforce written policies
and procedures reasonably designed to
safeguard the CCA’s own and its
participants’ assets, minimize the risk of
loss and delay in access to these assets,
and invest such assets in instruments
with minimal credit, market, and
liquidity risks.427 This requirement
applies to margin and guaranty fund
contributions held by the CCA on behalf
of its participants.
Another commenter stated that RWPs
should allow for positions to be ported
to other CCAs.428 Preexisting
Commission rules already establish
requirements for segregation and
portability consistent with international
standards.429 Specifically, Rule 17Ad–
22(e)(14) requires a CCA to establish,
implement, maintain and enforce
423 DTCC
424 RWP

at 12.
Proposing Release, supra note 18, at

34724.
425 SRC at 6.
426 See supra note 421 (discussing the same).
427 17 CFR 240.17ad–22(e)(16).
428 The Associations at 5.
429 See supra note 421 (discussing the same).

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written policies and procedures
reasonably designed to enable the
segregation and portability of positions
of a participant’s customers and the
collateral provided to the CCA with
respect to those positions and
effectively protect such positions and
related collateral from the default or
insolvency of that participant.430
One commenter requested that the
Commission and CFTC continue to
move forward with important regulatory
reforms to address several other areas
related to clearinghouses, including CCP
margin methodologies, CCP
transparency and disclosures, CCP
liquidity risk and stress testing, and CCP
capital and SITG.431 Each such topic is
the subject of or closely related to
existing workstreams underway at the
Basel Committee on Banking
Supervision,432 CPMI–IOSCO,433 and
the FSB,434 and Commission staff
currently participate in each.
Another commenter remains
concerned with challenges resulting
from the concentration of exposures at
CCAs, stating that such concentration
could potentially jeopardize the
priorities for efficient clearing,
settlement, and payment functions that
CCAs must ensure pursuant to Title VIII
of the Dodd-Frank Act.435 As discussed
in Part I,436 the Commission has long
acknowledged that, while central
clearing and other important functions
provided by CCAs generally benefit the
markets they serve, CCAs can also pose
systemic risk due in part to the fact that
the clearing function concentrates risk.
To mitigate this potential risk, the
Commission has adopted a series of
rules since the enactment of the DoddFrank Act designed to promote the
resilience of CCAs. These rules include
Rule 17Ad–22(e), which sets forth
standards for CCAs that address all
aspects of a CCA’s operations, including
financial risk management, operational
risk, default management, governance,
and participation requirements.437
These features of the regulatory
framework, made more robust by the
requirements adopted in this release,
help ensure that CCAs benefit the
430 17

CFR 240.17ad–22(e)(14).
at 11.
432 See supra note 14 and accompanying text
(citing papers prepared by CPMI–IOSCO in
coordination with the BCBS on topics related to
CCP margin).
433 See supra notes 14, 25, 29 and accompanying
text (citing guidance prepared by CPMI–IOSCO on
CCP resilience and recovery).
434 See supra notes 24 and 29 and accompanying
text (citing analysis and guidance prepared by the
FSB on CCP resolution).
435 SRC at 4.
436 See supra note 8 and accompanying text.
437 See supra note 12 and accompanying text.

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markets they serve and do not create
contagion events that could pose a
systemic danger to the U.S. financial
system.
D. Defined Terms in Rule 17Ad–26
1. Definition of ‘‘Orderly Wind-Down’’
Proposed Rule 17Ad–26(b) defined
‘‘orderly wind-down’’ to mean the
actions of a CCA to effect the permanent
cessation, sale, or transfer of one or
more of its critical services in a manner
that would not increase the risk of
significant liquidity, credit, or
operational problems spreading among
financial institutions or markets and
thereby threaten the stability of the U.S.
financial system.
In the RWP Proposing Release, the
Commission explained that the
proposed definition would help identify
the specific goals of an orderly winddown: that the actions of a CCA should
not increase the risk of significant
liquidity, credit, or operational
problems spreading among financial
institutions or markets and thereby
threaten the stability of the U.S.
financial system, and that these actions
would serve as a final and binding
solution to whatever circumstance
necessitated the wind-down (i.e., not a
temporary stopgap measure).438 These
considerations help distinguish the
difference between an orderly winddown, as opposed to a wind-down
where the goal is to cease operations as
quickly as possible. As discussed in the
RWP Proposing Release, to be orderly, a
wind-down generally should include
providing notice to participants
sufficient to allow them to transition to
alternative arrangements in an orderly
manner, as well as maintaining the
operation of the CCA’s critical
services.439 Moreover, for a wind-down
involving the sale or transfer of all or a
portion of the CCA to be orderly, the
CCA generally should consider the
separability of the parts of the CCA and
whether there are certain portions of the
CCA’s business that could be sold or
transferred as separate businesses.440
a. Meaning of ‘‘Orderly’’
Two commenters expressed the view
that, despite the best efforts of all
involved, a distressed CCA may be
unable to wind-down in an ‘‘orderly’’
manner without increasing the risk of
significant liquidity, credit, or
operational problems spreading among
financial institutions or markets,
thereby threatening the stability of the
438 RWP Proposing Release, supra note 18, at
34718.
439 Id.
440 Id. at 34718.

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91035

U.S. financial system.441 As the
Commission acknowledged in the CCA
Standards Adopting Release, winddown may not always be advisable, and
strategies based on recovery (rather than
wind-down) may prove more feasible or
workable in certain circumstances.442
Nonetheless, one purpose of Rule
17Ad–22(e)(3)(ii)—and now also of Rule
17Ad–26—is to ensure that CCAs have
developed sufficient plans for both
recovery and orderly wind-down to
facilitate effective engagement and
decision-making with its supervisory
and resolution authorities as they
consider implementing their RWPs. Key
to such engagement is ensuring that
planning by the CCA has considered a
range of scenarios, across circumstances
that include both recovery and winddown. Such planning, therefore,
generally should focus on identifying
strategies that can facilitate wind-down
while mitigating to the greatest extent
possible the risk of significant liquidity,
credit, or operational problems
spreading to other entities. Accordingly,
in the CCA Standards Adopting Release,
the Commission reiterated the
importance of having plans for both
recovery and orderly wind-down,
explaining that a CCA generally should
consider many factors across a range of
potential considerations related to
recovery and wind-down, including
consideration of which options may be
the most workable.443 Importantly, final
Rule 17Ad–26 requires planning for an
orderly wind-down, having considered
significant liquidity, credit, or
operational problems spreading among
financial institutions or markets should
a wind-down become necessary. It also
requires timely implementation of the
RWP so that the CCA, participants in
the clearing agency, and other
stakeholders, including its supervisory
and resolution authorities, can assess
the impact of different scenarios. Such
planning will be most effective when
the CCA considers ways to effect the
permanent cessation, sale, or transfer of
one or more of its services in a manner
that would not increase the risk of
significant liquidity, credit, or
operational problems spreading among
financial institutions or markets and
thereby threaten the stability of the U.S.
441 ICE at 3, n.6 (explaining that while the goal
of any wind-down should be to minimize such
problems, the commenter did not believe the
possibility of increased risk should disqualify a
wind-down from being ‘‘orderly’’); see also DTCC
at 11–12 (stating that it is impossible for either a
CCA or its RWP to ex ante guarantee that contagion
will not occur or that the U.S. financial system will
not be impacted).
442 CCA Standards Adopting Release, supra note
5, at 70808.
443 Id.

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financial system. Accordingly, it is
appropriate for the final rule to require
planning designed to effect an orderly
wind-down that mitigates the risk of
significant liquidity, credit, or
operational problems arising from the
wind-down scenario.
b. Applying a ‘‘Reasonably Designed’’
Standard
One of the commenters recommended
that the Commission modify the
definition to incorporate a ‘‘reasonably
designed’’ standard, suggesting that the
definition be revised to state ‘‘in a
manner that is reasonably designed to
not increase the risk of significant
liquidity, credit, or operational
problems spreading among financial
institutions or markets and thereby
threaten the stability of the U.S.
financial system, while seeking the
continuity of critical services provided
by the CCA and limiting any related
disruptions’’ (emphasis added)
(hereinafter the ‘‘in a manner’’
clause).444
With respect to requiring that an
orderly wind-down be ‘‘reasonably
designed,’’ Rule 17Ad–22(e)(3)(ii)
already applies a ‘‘reasonably designed’’
standard for the development of
RWPs.445 Accordingly, a CCA must
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to, as applicable,
include plans for the recovery and
orderly wind-down of the CCA
necessitated by credit losses, liquidity
shortfalls, losses from general business
risk, or any other losses.446 This
‘‘reasonably designed’’ standard effects
the outcome desired by the commenter,
and adding a second ‘‘reasonably
designed’’ standard into the definition
of ‘‘orderly wind-down’’ would make
the definition less clear, since the
definition itself only defines what
constitutes an ‘‘orderly’’ wind-down.
Accordingly, the Commission is
retaining the ‘‘in a manner’’ clause as
proposed.

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c. Feasibility of Wind-Down
One commenter stated that winddown of a CCA is infeasible because
suitable alternatives do not exist and the
time it would take to establish or
transfer critical functions to a ‘‘bridge’’
or new entity would cause permanent
damage to the markets served by the
CCA.447 When the Commission adopted
444 DTCC
445 17

at 11–12.
CFR 240.17ad–22(e)(3)(ii).

446 Id.
447 Davidson at 1 (‘‘It is simply not possible, as
a practical matter, to ‘resolve’ a systemically
important financial market utility. They must be
‘recovered.’ ’’).

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preexisting Rule 17Ad–22(e), which
includes in paragraph (e)(3)(ii) the
requirement for CCAs to have RWPs, it
addressed comments expressing
concern with the feasibility of winding
down a CCA. As explained above, the
Commission reiterated in the CCA
Standards Adopting Release the
importance of having plans for both
recovery and orderly wind-down,
explaining that a CCA generally should
consider many factors in a range of
potential considerations related to
recovery and orderly wind-down,
including consideration of which
options may be the most feasible or
workable.448 One commenter to the CCA
Standards Adopting Release,
representing three CCAs, stated its view
that, while CCAs should analyze the
feasibility of an orderly wind-down in
their plans and include it when
appropriate, in the commenter’s view,
recovery strategies (rather than winddown) most effectively promote
financial stability, ensure the
continuation of services, and distribute
losses in a fair and economically
efficient manner.449 The Commission
continues to agree that the steps to be
taken in a recovery or wind-down
scenario must promote financial
stability, the continuity of systemically
important services, and the fair and
efficient allocation of losses.450
Consistent with this view, the
requirements related to orderly winddown in Rule 17Ad–26 include
elements focused on planning and
timely implementation, to help ensure
that, if a CCA were to enter recovery or
become unable to continue as a going
concern, the relevant supervisory
authorities, and, in the case of a
resolution, the relevant resolution
authorities, could rely on the planning
set forth in the CCA’s RWPs. Such
elements can help those authorities
evaluate the most effective course of
action under the circumstances while
ensuring that systemically important
functions continue to serve the affected
markets.451 Accordingly, the definition
of ‘‘orderly wind-down’’ seeks to
identify those circumstances where a
permanent cessation, sale, or transfer of
one or more of its critical services could
occur in a manner that would not
increase the risk of significant liquidity,
credit, or operational problems
spreading among financial institutions
448 CCA Standards Adopting Release, supra note
5, at 70808.
449 Id.
450 See supra note 442 (stating the same).
451 For example, the RWP would include
information that can assist the resolution authority
in the context of resolution planning.

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or markets. In this way, although it may
be unworkable to fully wind down
systemically important functions
provided by a CCA such that markets
lose continuity of access to these
functions, planning for the orderly
wind-down of a CCA can help ensure
that the CCA itself, as well as the
markets it serves, have planned for and
developed the mechanisms that can
facilitate the continuity of such
systemically important functions even if
the CCA itself is unable to continue as
a going concern. The Commission is
therefore adopting the definition of
‘‘orderly wind-down’’ in final Rule
17Ad–26 as proposed, with certain
technical modifications to ensure
consistency across the elements of Rule
17Ad–26, as discussed immediately
below.
d. Other Modifications for Consistency
The Commission is modifying the
definition of ‘‘orderly wind-down’’ to
ensure consistency with other
modifications made in Rule 17Ad–26
with respect to the defined term
‘‘service providers for core services,’’ as
discussed above. Accordingly, the
Commission is replacing the reference
to ‘‘critical services’’ in the proposed
definition with ‘‘core services, as
identified by the covered clearing
agency pursuant to paragraph (a)(1) of
this section.’’ As such, final Rule 17Ad–
26(b) defines ‘‘orderly wind-down’’ to
mean the actions of a CCA to effect the
permanent cessation, sale, or transfer of
one or more of its core services, as
identified by the CCA pursuant to Rule
17Ad–26(a)(1), in a manner that would
not increase the risk of significant
liquidity, credit, or operational
problems spreading among financial
institutions or markets and thereby
threaten the stability of the U.S.
financial system.
2. Other Defined Terms and
Introductory Clause
In addition to the definition of
‘‘orderly wind-down,’’ the Commission
proposed definitions for the terms
‘‘affiliate,’’ ‘‘recovery,’’ and ‘‘service
provider.’’
The definition of ‘‘affiliate’’ as
proposed meant a person that directly or
indirectly controls, is controlled by, or
is under common control with the CCA.
The Commission received no comments
on this definition and is adopting the
definition of ‘‘affiliate’’ as proposed.
The definition of ‘‘recovery’’ as
proposed meant the actions of a CCA,
consistent with its rules, procedures,
and other ex ante contractual
arrangements, to address any uncovered
loss, liquidity shortfall, or capital

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
inadequacy, whether arising from
participant default or other causes (such
as business, operational, or other
structural weaknesses), including
actions to replenish any depleted
prefunded financial resources and
liquidity arrangements, as necessary to
maintain the CCA’s viability as a going
concern and to continue its provision of
critical services. The Commission
received no comments on this
definition. To align this definition with
modifications to paragraph (a)(1) of Rule
17Ad–26, as well as corresponding
modifications to the definitions of
‘‘service provider for core services’’ and
‘‘orderly wind-down,’’ the Commission
is modifying the definition of
‘‘recovery’’ at adoption by replacing the
language regarding ‘‘critical services’’
with ‘‘core services, as identified by the
covered clearing agency pursuant to
paragraph (a)(1) of this section.’’
Accordingly, as adopted, the definition
of ‘‘recovery’’ means the actions of a
CCA, consistent with its rules,
procedures, and other ex ante
contractual arrangements, to address
any uncovered loss, liquidity shortfall,
or capital inadequacy, whether arising
from participant default or other causes
(such as business, operational, or other
structural weaknesses), including
actions to replenish any depleted
prefunded financial resources and
liquidity arrangements, as necessary to
maintain the CCA’s viability as a going
concern and to continue its provision of
core services, as identified by the CCA
pursuant to Rule 17Ad–26(a)(1).
The definition of ‘‘service provider’’
as proposed meant any person,
including an affiliate or a third party,
that is contractually obligated to the
CCA in any way related to the provision
of critical services, as identified by the
CCA in 17 CFR 240.17ad–26(a)(1).
Several commenters stated that the
proposed definition was overly broad,
capturing service providers that would
not directly support critical services,
and that it would be burdensome to map
to such a wide scope of service
providers to critical services.452
Commenters made suggestions to
narrow the scope of the definition,
several of which the Commission is
adopting,453 as discussed in Parts II.C.1
and 2.
To narrow the scope of the definition
and consistent with the changes
previously discussed in Parts II.C.1 and
2 regarding Rule 17Ad–26(a)(1) and (2),
the Commission is modifying the
defined term ‘‘service provider’’ to be
452 DTCC

at 6; ICC at 3–4; OCC at 6–7; CCP12 at

453 DTCC

at 7; ICC at 4.

3.

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‘‘service provider for core services.’’ The
Commission is also modifying the
definition to narrow the scope to
include only those services providers
that have a written agreement to
provide, on an ongoing basis, services
that directly support the core services of
the CCA. Specifically, the Commission
is replacing the clause ‘‘any person . . .
that is contractually obligated to the
CCA in any way related to the provision
of critical services’’ with ‘‘any person
. . . that, through a written agreement
for services provided to or on behalf of
the CCA, on an ongoing basis, directly
supports the delivery of core
services[.]’’ 454 These changes closely
link the scope of ‘‘service providers’’
with the requirement in Rule 17Ad–
26(a)(1) to identify core services. The
modifications to the definition also
align the approach in Rule 17Ad–26
with the approach in existing Rule
17Ad–25, which establishes
requirements, in part, for the board of
directors of a registered clearing agency
to oversee service providers for core
services.
Finally, the Commission is also
modifying the introductory clause of
paragraph (b) of Rule 17Ad–26 to state:
‘‘All terms used in this section have the
same meaning as in the Securities
Exchange Act of 1934, and, unless the
context otherwise requires, the
following definitions apply for purposes
of this section[.]’’ This modification
clarifies that the terms defined in Rule
17Ad–26(b) are for the purpose of Rule
17Ad–26 and intended to be consistent
with terms used in the Exchange Act.
III. Compliance Date
The Commission did not receive any
comments regarding compliance dates
for the proposed rule amendments and
new rules being adopted in this
release.455 The Commission is adopting
two compliance dates regarding these
final rule amendments and new rules, as
follows: (1) each covered clearing
agency will be required to file with the
Commission any proposed rule changes
required under Rule 19b–4 and any
Advance Notices required under Title
454 The Commission is also making a technical
edit to the definition of ‘‘service provider for core
services’’ in final Rule 17Ad–26(b): replacing ‘‘in 17
CFR 240.17ad–26(a)(1)’’ with ‘‘pursuant to
paragraph (a)(1) of this section.’’
455 In determining compliance dates, the
Commission considers the benefits of the rules as
well as the costs of delayed compliance dates, and
potential overlapping compliance dates. For the
reasons discussed throughout the release, to the
extent that there are costs from overlapping
compliance dates, the benefits of the rule justify the
costs. See infra sections IV.B. and IV.C.3 in the
Economic Analysis for a discussion of the
interaction of the final rule with certain other
Commission rules.

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VIII of the Dodd-Frank Act and Rule
19b–4(n) no later than April 17, 2025,
and (2) the proposed rule changes and
the Advance Notices must be effective
by December 15, 2025. These
compliance dates provide sufficient
time for CCAs to consider changes to
their rules, policies, and procedures
necessary to ensure consistency with
the rules amended and adopted in this
release because, as discussed above and
further in the Economic Analysis and
Paperwork Reduction Act analysis
below, CCAs generally have policies
and procedures consistent with many of
the elements of the final amendments to
17Ad–22(e)(6) and new Rule 17Ad–26.
As such, while these new requirements
likely require a CCA to review and
update existing policies and procedures,
it does not require a CCA to develop
new systems, technologies, or processes.
Because these rules promote iterative
and incremental updates to existing
policies and procedures, generally based
on existing practices at some or all of
the current set of CCAs, these
compliance dates provide a sufficient
time period to facilitate the filing,
publication, and Commission review
and approval, as appropriate, of any
incremental changes to policies and
procedures consistent with the
processes for proposed rule changes
under Rule 19b–4 and Advance Notices
under Title VIII and Rule 19b–4(n).
IV. Economic Analysis
A. Introduction
The Commission is sensitive to the
economic consequences and effects of
the final rule and amendments,
including their benefits and costs.456
Since the final rule and amendments
could require a CCA to adopt new
policies and procedures, the
Commission acknowledges that the
development and implementation of
those new policies and procedures will
have economic effects.
This section addresses the economic
effects of the final rule and
amendments, including their
anticipated and estimated benefits and
costs and their effects on efficiency,
competition, and capital formation. It is
not feasible to quantify many of the
456 Under section 3(f) of the Exchange Act,
whenever the Commission engages in rulemaking
under the Exchange Act and is required to consider
or determine whether an action is necessary or
appropriate in the public interest, it must consider,
in addition to the protection of investors, whether
the action will promote efficiency, competition, and
capital formation. See 15 U.S.C. 78c(f). In addition,
section 23(a)(2) of the Exchange Act prohibits the
Commission from adopting any rule that would
impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the
Exchange Act. See 15 U.S.C. 78w(a)(2).

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations

benefits and costs. For example, risk
management is an area of key concern
for all clearing agency stakeholders.
Perceptions of risk affect how clearing
agencies are operated, and those
operations, in turn, affect perceptions of
risk. Any change to the policies and
procedures about how clearing agencies
act in times of crisis affects the behavior
of clearing agencies and participants in
complex ways not only during a crisis
but also before the crisis, and those
behavioral changes may affect the
likelihood and severity of a crisis. While
the Commission has attempted to
quantify economic effects where
possible, much of the discussion of
economic effects is qualitative in nature.
The Commission also discusses the
potential economic effects of certain
alternatives to the final rule and
amendments.

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B. Economic Baseline
To consider the effect of the final rule
and amendments, the Commission first
explains the current situation in the
market (i.e., the economic baseline). All
the benefits and costs of the final rule
and amendments are calculated relative
to the economic baseline. The economic
baseline in this analysis considers: (1)
the current market for CCA activities,
including the number of CCAs, the
distribution of participants across these
clearing agencies, and the level of
activity these clearing agencies process;
(2) the current regulatory framework for
CCAs; (3) the current recovery and
orderly wind-down plans of CCAs; and
(4) the current risk-based margin
systems of CCAs. The Commission did
not receive any comments on the
economic baseline.
We have considered the potential
effects on entities that are implementing
other recently adopted rules during the
compliance period for these
amendments. Recently adopted rules
that may place compliance obligations
on some of the same entities with
obligations under these amendments
include the 17 CFR 240.10c–1a (‘‘Rule
10c–1a’’) Adopting Release,457 the CA
457 Reporting of Securities Loans, Release No. 34–
98737 (Oct. 13, 2023) [88 FR 75644 (Nov. 3, 2023)]
(‘‘Rule 10c–1a Adopting Release’’). This rule
requires any covered person who agrees to a
covered securities loan on behalf of itself or another
person to report specified information about the
covered securities loan to a registered national
securities association (currently FINRA is the only
registered national securities association)—or rely
on a reporting agent to do so—and requires the
registered national securities association to make
certain information it receives available to the
public. Covered persons will include market
intermediaries, securities lenders, and brokerdealers, while reporting agents include certain
brokers, dealers, or registered clearing agencies. The
rule’s compliance dates required that the registered

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Governance Adopting Release,458 and
the Treasury Clearing Adopting
Release.459
1. Description of Market
Of the eight registered clearing
agencies, six are currently in
operation.460 Five provide central
national securities association propose rules
pursuant to Rule 10c–1a(f) by May 2, 2024, and the
proposed rules shall be effective no later than Jan.
2, 2025; that covered persons report Rule 10c–1a
information to a registered national securities
association on or by Jan. 2, 2026 (which requires
that the registered national securities association
have implemented data retention and availability
requirements for reporting); and that the registered
national securities association publicly report Rule
10c–1a information by Apr. 2, 2026. See Rule 10c–
1a Adopting Release, section VIII.
458 CA Governance Adopting Release, supra note
12. The CA Governance Adopting Release
establishes Rule 17Ad–25 for new governance
requirements for registered clearing agencies. These
include requirements for independent directors and
for the composition of a registered clearing agency’s
board of directors, nominating committee, and risk
management committee; requirements to identify
and document existing or potential conflicts of
interest involving directors or senior managers, and
mitigate or eliminate and document the mitigation
or elimination of such conflicts; and requirements
for policies and procedures obligating directors to
report conflicts of interest, managing risks from
relationships with service providers, and requiring
boards to solicit, consider, and document their
consideration of the views of participants and other
relevant stakeholders. The compliance date for Rule
17Ad-25 is Dec. 5, 2024, except that the compliance
date for the independence requirements of the
board and board committees in Rules 17Ad–
25(b)(1), (c)(2), and (e) is Dec. 5, 2025. See CA
Governance Adopting Release, section III.
459 Treasury Clearing Adopting Release, supra
note 62. Among other things, the amendments
require CCAs for U.S. Treasury securities to have
written policies and procedures reasonably
designed to require that every direct participant of
the CCA submit for clearance and settlement all
eligible secondary market transactions in U.S.
Treasury securities to which it is a counterparty.
The compliance date was Mar. 18, 2024, for CCAs
to file any proposed rule changes pursuant to Rule
17Ad–22(e)(6)(i) and (e)(18)(iv)(C) and 17 CFR
240.15c3–3 (‘‘Rule 15c3–3’’), which must be
effective by Mar. 31, 2025. With respect to the
changes to Rule 17Ad–22(e)(18)(iv)(A) and (B), (i)
CCAs were required to file any proposed rule
changes regarding those amendments no later than
June 14, 2024, and (ii) those changes must be
effective by Dec. 31, 2025, for cash market
transactions encompassed by section (ii) of the
definition of an eligible secondary market
transaction, and by June 30, 2026, for repo
transactions encompassed by section (i) of the
definition of eligible secondary market transactions.
Finally, the Commission amended the broker-dealer
customer protection rule to permit margin required
and on deposit with CCAs for U.S. Treasury
securities to be included as a debit in the reserve
formulas for accounts of customers and proprietary
accounts of broker-dealers, subject to certain
conditions. Compliance by the direct participants of
a U.S. Treasury securities CCA with the
requirement to clear eligible secondary market
transactions is not required until Dec. 31, 2025, and
June 30, 2026, respectively, for cash and repo
transactions. See Treasury Clearing Adopting
Release, section III.
460 There are two registered but inactive clearing
agencies: Boston Stock Exchange Clearing
Corporation (‘‘BSECC’’) and Stock Clearing

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counterparty (‘‘CCP’’) services,461 and
one provides central securities
depository (‘‘CSD’’) services.462
National Securities Clearing Corporation
(‘‘NSCC’’), Fixed Income Clearing
Corporation (‘‘FICC’’), and Depository
Trust Company (‘‘DTC’’) are all CCAs
that are subsidiaries of Depository Trust
& Clearing Corporation (‘‘DTCC’’). NSCC
offers clearance and settlement services
for equities, corporate and municipal
debt, American depositary receipts,
exchange traded funds, and unit
investment trusts (‘‘UITs’’). FICC’s
Mortgage-Backed Securities Division
(‘‘MBSD’’) provides clearing, netting,
and risk management services for trades
in the mortgage-backed securities
market. FICC’s Government Securities
Division (‘‘GSD’’) provides clearing,
Corporation of Philadelphia (‘‘SCCP’’). Neither has
provided clearing services in well over a decade.
See Self-Regulatory Organizations; The Boston
Stock Clearing Corporation; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
to Amend the Articles of Organization and ByLaws, Exchange Act Release No. 63629 (Jan. 3,
2011), 76 FR 1473, 1474 (Jan. 3, 2011) (BSECC
‘‘returned all clearing funds to its members by
September 30, 2010, and [ ] no longer maintains
clearing members or has any other clearing
operations as of that date. [ ] BSECC [ ] maintain[s]
its registration as a clearing agency with the
Commission for possible active operations in the
future.’’); Self-Regulatory Organizations; Stock
Clearing Corporation of Philadelphia; Notice of
Filing and Immediate Effectiveness of Proposed
Rule Change Relating to the Suspension of Certain
Provisions Due to Inactivity, Exchange Act Release
No. 63268 (Nov. 8, 2010), 75 FR 69730, 69731 (Nov.
15, 2010) (SCCP ‘‘returned all clearing fund
deposits by September 30, 2009; [and] as of that
date SCCP no longer maintains clearing members or
has any other clearing operations. [ ] SCCP [ ]
maintain[s] its registration as a clearing agency for
possible active operations in the future.’’). Because
they do not provide clearing services, BSECC and
SCCP are not included in the economic baseline or
the consideration of benefits and costs. ICE Clear
Europe Limited withdrew its registration in Nov.
2023. See Exchange Act Release No. 98902 (Nov. 9,
2023), 88 FR 78428 (Nov. 15, 2023).
461 A CCP is a type of registered clearing agency
that acts as the buyer to every seller and the seller
to every buyer, providing a trade guaranty with
respect to transactions submitted for clearing by the
CCP’s participants. See supra note 6. A CCP may
perform a variety of risk management functions to
manage the market, credit, and liquidity risks
associated with transactions submitted for clearing.
For example, CCPs help manage the effects of a
participant default by closing out the defaulting
participant’s open positions and using financial
resources available to the CCP to absorb any losses.
In this way, the CCP can prevent the onward
transmission of financial risk. See, e.g., Shortening
the Securities Transaction Settlement Cycle,
Exchange Act Release No. 94196 (Feb. 9, 2022), 87
FR 10436, 10448 (Feb. 24, 2022).
462 A CSD is a type of registered clearing agency
that acts as a depository for handling securities,
whereby all securities of a particular class or series
of any issuer deposited within the system are
treated as fungible. Through use of a CSD, securities
may be transferred, loaned, or pledged by
bookkeeping entry without the physical delivery of
certificates. A CSD also may permit or facilitate the
settlement of securities transactions more generally.
See supra note 6.

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netting, and risk management services
for trades in U.S. Government debt,
including buy-sell transactions and
repurchase agreement transactions. DTC
provides end-of-day net settlement for
clients, processes corporate actions,
provides securities movements for
NSCC’s net settlements, and it provides
settlement for institutional trades.
ICE Clear Credit LLC (‘‘ICC’’) is a CCA
for credit default swaps (‘‘CDS’’), and it
is a subsidiary of Intercontinental
Exchange, Inc. (‘‘ICE’’). LCH SA is
another CCA that offers clearing for
CDS, and it is a France-based subsidiary
of LCH Group Holdings Ltd, which, in
turn, is majority owned by the London

Stock Exchange Group plc. The sixth
CCA, Options Clearing Corporation
(‘‘OCC’’), offers clearing services for
exchange-traded U.S. equity options.
CCAs operate under one of two broad
ownership models. In one model, the
CCA is member-owned,463 while in the
other model, the CCA is publicly
traded.464
CCAs currently operate specialized
clearing services and face limited
competition in their markets.465 For
each of the following asset classes, for
example, there is only one CCA serving
as a central counterparty: exchangetraded equity options (OCC),
government securities (FICC), mortgage-

91039

backed securities (FICC), and equity
securities (NSCC). There is also only
one CCA providing central securities
depository services (DTC). CCA
activities exhibit high barriers to entry
and economies of scale.466 These
features of the existing markets, and the
resulting concentration of clearing and
settlement services within a handful of
entities, inform the Commission’s
examination of the effects of the final
rule and amendments on competition,
efficiency, and capital formation (see
Part IV.C.3). Table 1 summarizes the
most recent data on the number of
participants at each CCA.467

TABLE 1a—NUMBER OF PARTICIPANTS AT CCAS IN AUGUST 2024
CCA

Number of
participants

Subsidiaries of The Depository Trust & Clearing Corporation:
National Securities Clearing Corporation b ...................................................................................................................................
The Depository Trust Company c .................................................................................................................................................
Fixed Income Clearing Corporation (Government Securities Division) d .....................................................................................
Fixed Income Clearing Corporation (Mortgage Backed Securities Division) e ............................................................................
Subsidiaries of Intercontinental Exchange:
ICE Clear Credit f ..........................................................................................................................................................................
Subsidiaries of LCH:
LCH SA (CDSClear Participants Only) g ......................................................................................................................................
The Options Clearing Corporation h .............................................................................................................................................

........................
4,502
877
220
139
31
26
181

a Participant

statistics were taken from the websites of each of the listed clearing agencies in Aug. 2024.
NSCC Member Directories, available at http://www.dtcc.com/client-center/nscc-directories.
c DTCC, DTC Member Directories, available at http://www.dtcc.com/client-center/dtc-directories.
d DTCC, FICC–GOV Member Directories, available at http://www.dtcc.com/client-center/ficc-gov-directories.
e DTCC, FICC–MBS Member Directories, available at http://www.dtcc.com/client-center/ficc-mbs-directories.
f ICE, ICE Clear Credit Participants, available at https://www.theice.com/clear-credit/participants.
g LCH, LCH SA Membership, available at https://www.lch.com/membership/member-search.
h OCC, Member Directory, available at http://www.theocc.com/Company-Information/Member-Directory.

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b DTCC,

CCAs have become an essential part
of the infrastructure of the U.S.
securities markets due to their role as
intermediaries. Over the last several
years, CCAs have become increasingly
important in financial markets as they
clear an increasing fraction of market
transactions.468 For example, in the 12month period from October 2021 to
September 2022, approximately 65
percent, or $1.3 trillion notionally, of all
single-name CDS transactions in the

United States were centrally cleared,469
and the Commission adopted in
December 2023 rule changes which,
among other things, require CCAs for
U.S. Treasury securities to have written
policies and procedures reasonably
designed to require that every direct
participant of the CCA submit for
clearance and settlement all eligible
secondary market transactions in U.S.
Treasury securities to which it is a
counterparty.470 The average daily value

of equities trades cleared by NSCC in
2023 was $1.9 trillion; at FICC, the total
net value of government securities
transactions in 2023 was $2,019 trillion
and the total net par value for mortgage
backed securities in 2023 was $58
trillion; and the total value of
transactions settled by DTC in 2023 was
$446 trillion.471 In addition, in 2023,

463 See, e.g., Release No. 34–52922 (Dec. 7, 2005),
70 FR 74070 (Dec. 14, 2005) (explaining that
participants of DTC, FICC, and NSCC that make full
use of the services of one or more of these clearing
agency subsidiaries of DTCC are required to
purchase DTCC common shares).
464 OCC is owned by certain options exchanges,
which are all publicly traded. ICC is a subsidiary
of ICE (a publicly traded company). LCH SA is a
subsidiary of LCH Group Holdings, Ltd., which is
majority-owned by London Stock Exchange Group
plc (a publicly traded company).
465 See SIFMA at 10.
466 See Alistair Milne, Central Securities
Depositories and Securities Clearing and
Settlement: Business Practice and Public Policy
Concerns, in Analyzing the Economics of Financial
Market Infrastructures 334, 335 (Martin Diehl, et al.

eds., 2016), available at https://doi.org/10.4018/
978-1-4666-8745-5.ch017 (‘‘Clearing and settlement
operations have evolved over time to become
remarkably complex. This complexity creates
business challenges, especially for management of
liquidity, which could potentially have systemic
consequences for the wider financial system. This
complexity may also increase the barriers to entry
that can discourage competition in trade settlement
and securities services.’’).
467 Membership requirements vary across the
CCAs. For example, the self-clearing minimum netcapital requirement is $500 thousand for NSCC,
while OCC’s net capital requirement is $2.5 million.
Multiple memberships by the same firm are much
more common at NSCC than at the other CCAs.
468 See Better Markets at 10 (‘‘Since [the 2008
financial crisis], more and more connections in the
global financial system run through CCPs. This

growing interconnectedness has benefits but also
poses risks.’’). See SIFMA at 2 (‘‘In this regard, the
SEC’s Proposal is increasingly relevant in light of
the SEC’s recent proposal to require increased
clearing of the Treasury market, which would occur
through a single SEC-regulated Clearing Agency.’’).
469 Data from DTCC’s Trade Information
Warehouse, compiled by Commission staff. At the
time of adoption, 2023 data were not available.
470 See supra note 459.
471 See DTCC, Annual Report (2023), available at
https://www.dtcc.com/-/media/Files/Downloads/
Annual%20Report/2023/DTCC-2023-AR-Print.pdf.
The total value of transactions settled in 2021 was
$432 trillion. The proposing release reported the
related statistic of the total value of securities
transactions settled in 2021, which was $152
trillion.

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OCC cleared 11.1 billion options
contracts.472
Central clearing benefits the markets
by significantly reducing participants’
counterparty risk and through more
efficient netting of margin requirements.
Consequently, central clearing also
benefits the financial system by
increasing financial resilience and the
ability to monitor and manage risk.473
The role of a clearing agency in
promoting resilience highlights its
central importance in the functioning of
markets.474 If a CCP is unable to perform
its risk management functions
effectively, it can transmit risk
throughout the financial system.
Similarly, if a CSD is unable to perform
its functions, market participants may
be unable to settle their transactions,
which may transmit risk throughout the
financial system.
Disruption to a clearing agency’s
operations, or failure on the part of a
clearing agency to meet its obligations,
could serve as a source of contagion,
resulting in significant costs not only to
the clearing agency itself and its
participants but also to other market
participants and the broader U.S.
financial system.475 Absent proper risk
472 See OCC, Press Release OCC Reports
December 2023 and Total 2023 Volume Data (Jan.
4, 2024), available at https://www.theocc.com/
newsroom/press-releases/2024/1-03-occ-reportsdecember-2023-and-total-2023-volume-data.
473 See Darrell Duffie, Still the World’s Safe
Haven? Redesigning the U.S. Treasury Market After
the COVID–19 Crisis 15 (Hutchins Center Working
Paper, Paper No. 62, 2020), available at https://
www.brookings.edu/wp-content/uploads/2020/05/
wp62_duffie_v2.pdf (‘‘Central clearing increases the
transparency of settlement risk to regulators and
market participants, and in particular allows the
CCP to identify concentrated positions and crowded
trades, adjusting margin requirements accordingly.
Central clearing also improves market safety by
lowering exposure to settlement failures. . . . As
depicted, settlement failures rose less in March
[2020] for [U.S. Treasury] trades that were centrally
cleared by FICC than for all trades involving
primary dealers. A possible explanation is that
central clearing reduces ‘daisy-chain’ failures,
which occur when firm A fails to deliver a security
to firm B, causing firm B to fail to firm C, and so
on.’’).
474 See generally Albert J. Menkveld & Guillaume
Vuillemey, The Economics of Central Clearing, 13
Ann. Rev. Fin. Econ. 153 (2021).
475 See generally Dietrich Domanski, Leonardo
Gambacorta, & Cristina Picillo, Central Clearing:
Trends and Current Issues, BIS Q. Rev. (Dec. 2015),
available at https://www.bis.org/publ/qtrpdf/r_
qt1512g.pdf (describing links between CCP
financial risk management and systemic risk);
Darrell Duffie, Ada Li, & Theo Lubke, Policy
Perspectives on OTC Derivatives Market
Infrastructure 9 (Fed. Res. Bank N.Y. Staff Rep.,
Paper No. 424, 2010), available at http://
www.newyorkfed.org/research/staff_reports/
sr424.pdf (‘‘If a CCP is successful in clearing a large
quantity of derivatives trades, the CCP is itself a
systemically important financial institution. The
failure of a CCP could suddenly expose many major
market participants to losses. Any such failure,
moreover, is likely to have been triggered by the

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management, a clearing agency failure
could destabilize the financial
system.476 As a result, proper
management of the risks associated with
central clearing helps ensure the
stability of the U.S. securities markets
and the broader U.S. financial
system.477
2. Overview of the Existing Regulatory
Framework
The existing regulatory framework for
clearing agencies registered with the
Commission includes section 17A of the
Exchange Act, the Dodd-Frank Act, and
failure of one or more large clearing agency
participants, and therefore to occur during a period
of extreme market fragility.’’); Craig Pirrong, The
Inefficiency of Clearing Mandates 11–14, 16–17,
24–26 (Policy Analysis Working Paper, Paper No.
655, 2010), available at http://www.cato.org/pubs/
pas/PA665.pdf (stating, among other things, that
‘‘CCPs are concentrated points of potential failure
that can create their own systemic risks,’’ that ‘‘[a]t
most, creation of CCPs changes the topology of the
network of connections among firms, but it does not
eliminate these connections,’’ that clearing may
lead speculators and hedgers to take larger
positions, that a CCP’s failure to effectively price
counterparty risks may lead to moral hazard and
adverse selection problems, that the main effect of
clearing would be to ‘‘redistribute losses
consequent to a bankruptcy or run,’’ and that
clearing entities have failed or come under stress in
the past, including in connection with the 1987
market break); see Glenn Hubbard et al., Report of
the Task Force on Financial Stability, Brookings
Inst., 96 (June 2021), available at https://
www.brookings.edu/wp-content/uploads/2021/06/
financial-stability_report.pdf (‘‘In short, the
systemic consequences from a failure of a major
CCP, or worse, multiple CCPs, would be severe.
Pervasive reforms of derivatives markets following
2008 are, in effect, unfinished business; the
systemic risk of CCPs has been exacerbated and left
unaddressed.’’); Froukelien Wendt, Central
Counterparties: Addressing their Too Important to
Fail Nature (working paper Jan. 2015), available at
https://ssrn.com/abstract=2568596 (retrieved from
SSRN Elsevier database) (assessing the potential
channels for contagion arising from CCP
interconnectedness); Manmohan Singh, Making
OTC Derivatives Safe—A Fresh Look 5–11 (IMF
Working Paper, Paper No. 11/66, 2011), available at
http://www.imf.org/external/pubs/ft/wp/2011/
wp1166.pdf (addressing factors that could lead
central counterparties to be ‘‘risk nodes’’ that may
threaten systemic disruption).
476 See Better Markets at 10 (‘‘The inability of a
CCP to recover from severe losses, or the disorderly
wind-down of a CCP, could have significant
repercussions not only for the sector in which the
CCP operates but for the markets and the economy
as a whole.’’); SIFMA at 2 (‘‘In this regard, the SEC’s
Proposal is increasingly relevant in light of the
SEC’s recent proposal to require increased clearing
of the Treasury market, which would occur through
a single SEC-regulated Clearing Agency.’’).
477 See Paolo Saguato, Financial Regulation,
Corporate Governance, and the Hidden Costs of
Clearinghouses, 82 Ohio St. L.J. 1071, 1074–75
(2021), available at https://moritzlaw.osu.edu/sites/
default/files/2022-03/18.%20Saguato_v82-6_10711140.pdf (‘‘[T]he decision to centralize risk in
clearinghouses made them critical for the stability
of the financial system, to the point that they are
considered not only too-big-to-fail, but also tooimportant-to-fail institutions.’’).

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the related rules adopted by the
Commission.478
Clearing agencies registered with the
Commission may also be subject to
other domestic or foreign regulation.479
Specifically, clearing agencies operating
in the U.S. may also be subject to
regulation by the CFTC (as designated
clearing organizations, or DCOs, for
futures or swaps that are dually
registered with the CFTC and SEC) and
the Board of Governors (as SIFMUs or
State member banks).480 Additionally,
LCH SA is regulated by l’Autorite´ des
marche´s financiers, l’Autorite´ de
Controˆle Prudentiel et de Re´solution,
and the Banque de France, and it is
subject to European Market
Infrastructure Regulation (EMIR).481
3. Current Recovery and Orderly WindDown Plans
Each CCA, as part of a sound riskmanagement framework, is currently
required to establish and maintain plans
for the recovery and orderly wind-down
of the CCA necessitated by credit losses,
liquidity shortfalls, losses from general
business risk, or any other losses (such
plans are referred to as recovery and
wind-down plans, or RWPs).482 The
CCA may have one RWP document, or
it may maintain two separate
documents, referring to one as the
recovery plan and the other as the
orderly wind-down plan. Although the
Commission did not include specific
requirements for RWPs in the CCA
Standards Adopting Release, the
Commission did offer guidance about
what CCAs should consider when
478 See RWP Proposing Release, supra note 18 at
Part II.
479 See supra Part III.D.2.
480 See 12 U.S.C. 5472, 5469. Currently, ICC, LCH
SA, and OCC are regulated by the Commission and
the CFTC. The CFTC is the primary supervisory
regulator for ICC and LCH SA, while the
Commission is the primary supervisory regulator
for OCC. DTC, FICC, NSCC, ICC, and OCC have
been designated systemically important financial
market utilities by the FSOC (see infra note 517 and
the accompanying text). DTC is also a state member
bank of the Federal Reserve System and a New York
State registered trust company and is therefore also
regulated by the New York Department of Banking
and Finance. LCH SA is not regulated by the Board
of Governors. The Board of Governors addresses
certain recovery and orderly wind-down plans in
Regulation HH (see RWP Proposing Release, supra
note 18, at 34710 n.68 and accompanying text), and
the CFTC requires certain derivatives clearing
organizations to maintain recovery and orderly
wind-down plans through Regulation § 39.39(b) and
subsequent guidance (see RWP Proposing Release,
supra note 18, at 34716 n.69 and accompanying
text).
481 See LCH, Company Structure, available at
https://www.lch.com/about-us/structure-andgovernance/company-structure.
482 See RWP Proposing Release, supra note 18, at
34710 n.16 and accompanying text.

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
creating their RWPs.483 The RWPs are
subject to the rule filing requirement of
Rule 19b–4, and all six active CCAs
have submitted their plans and
subsequent modifications to the
Commission for review, public
comment, and approval.484
Additionally, all of the CCAs have
submitted confidential treatment
requests with their RWPs pursuant to 17
CFR 240.24b–2. The Commission has
also reviewed these confidential
treatment requests and concluded that
the redacted material could be withheld
from the public under the Freedom of
Information Act.485 Due to the
confidential treatment of the RWPs, the
current release includes aggregated,
anonymized analyses of the RWPs
submitted to the Commission by the
clearing agencies. Additionally, Form
19b–4, which is public, requires a
description of the proposed rule change
for public comment.486 To the extent
that information in the baseline has
been drawn from public sources, such
as the CCAs’ SRO rule filings, we have
included attribution accordingly. All six
active CCAs have approved RWPs in
place, and the plans differ in, for
example, length, style, emphasis, and
specificity. In the remainder of Part
IV.B. 3, we summarize CCAs’ current
RWPs in terms of nine elements that are
part of final Rule 17Ad–26.
a. Core Services

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Each RWP currently includes what
the CCA has identified and described as
its core payment, clearing, and
settlement services,487 as well as the
criteria that the CCA employs to make
such a determination as to what
483 CCA Standards Adopting Release, supra note
5, at 70810; see also RWP Proposing Release, supra
note 18 at Part II.A (discussing the guidance).
484 See RWP Proposing Release supra note 18, at
34711 n.32 (regarding Form 19b–4); id. at 34712
n.41 (regarding proposed rule changes).
485 See, e.g., https://www.sec.gov/rules/sro/nscc/
2018/34-82430-ex5a.pdf (as an example of the
redacted filing materials posted for SR–NSCC–
2017–017); see also id. A commenter stated that
CCA members will manage key risks better if they
have transparency into the RWPs of their CCAs. See
ICI Letter at 8 (‘‘It is critical for clearing members
and end-user customers, such as funds, to have
greater transparency into the content of RWPs. Such
transparency could allow participants to determine
the extent of their potential liabilities and
predictably manage exposures to a clearing
entity.’’).
486 See RWP Proposing Release, supra note 18, at
34711 n.32.
487 In a change from Proposed Rule 17Ad–
26(a)(1), instead of referring to ‘‘critical payment,
clearing and settlement services,’’ the final rule
refers to ‘‘core payment, clearing, and settlement
services.’’ Use of the descriptive term ‘‘core’’ rather
than ‘‘critical’’ does not affect the Commission’s
prior guidance on identifying those services. See
supra Part II.C.1.

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constitutes core services.488 Depending
on their operations and the structure of
their RWPs, CCAs currently identify
between one and a dozen or more core
services in those RWPs. Currently, no
CCA has analyses in its RWP regarding
the staffing roles necessary to support
the core services that they list or how
such staffing roles necessary to support
such core services would be available to
continue operating the CCA in the event
of a recovery and during an orderly
wind-down.
b. Service Providers
Each RWP identifies and describes, to
varying degrees, certain service
providers, including both affiliates and
third parties, upon which the associated
CCA relies to provide its core payment,
clearing, and settlement services. Most
plans do not explicitly link the
identified service providers to the CCAs’
core payment, clearing, and settlement
services. Some of the RWPs state that
they assume core service providers will
continue to perform in the event of a
wind-down; at least one RWP states that
it analyzes its contractual arrangements
with respect to continuing to provide
services during a recovery; 489 and at
488 See, e.g., Exchange Act Release Nos. 82462
(Jan. 2, 2018), 83 FR 884, 885 (Jan. 8, 2018) (SR–
DTC–2017–021) (stating that the RWP provided a
description of its services and the criteria to
determine which services are considered critical)
(‘‘DTC 2017 Notice’’); 82431 (Jan. 2, 2018), 83 FR
871, 872 (Jan. 8, 2018) (SR–FICC–2017–021) (stating
that the RWP provided a description of its services
and the criteria to determine which services are
considered critical) (‘‘FICC 2017 Notice’’); 34–91806
(May 10, 2021), 86 FR 26561 (May 14, 2021) (SR–
ICC–2021–005) (‘‘ICC 2021 Order’’) (stating that the
ICC recovery plan explains that ICC’s sole critical
operation is provides credit default swap clearing
services); 82316 (Dec. 13, 2017), 82 FR 60246,
60247 (Dec. 19, 2017) (SR–LCH SA–2017–012)
(stating that LCH SA performed an assessment on
identification of critical functions and shared
services in accordance with Financial Stability
Board guidance) (‘‘LCH 2017 Notice’’); 82430 (Jan.
2, 2018), 83 FR 841, 842 (Jan. 8, 2018) (SR–NSCC–
2017–017) (stating that the RWP provided a
description of its services and the criteria to
determine which services are considered critical)
(‘‘NSCC 2017 Notice’’); 82352 (Dec. 19, 2017), 82 FR
61072, 61074–75 (Dec. 26, 2017) (SR–OCC–2017–
021) (stating that OCC’s RWP identifies critical
services and critical support functions) (‘‘OCC 2017
Notice’’).
489 For example, OCC’s plan discusses the critical
vendors for each of the identified critical services,
the critical support functions, and the critical
external interconnections that OCC maintains with
other FMUs, exchanges (including designated
contract markets), clearing and settlement banks,
custodian banks, letter of credit banks, clearing
members and credit facility lenders, and the
appendices to the plan identifies key vendors and
service providers, as well as key agreements to be
maintained. OCC 2017 Notice, supra note 488, at
61075. ICC’s plan categorizes its critical services by
those that are provided to ICC by its parent
company versus those that are provided by external
third parties, and it also details the IT systems and
applications critical to ICC’s clearing operations,
including those provided by ICE, those provided by

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least one RWP states that it is reducing
dependencies on third parties.
c. Scenarios
Each RWP generally identifies and
describes certain scenarios that may
potentially prevent the CCA from being
able to provide its core payment,
clearing, and settlement services as a
going concern.490 The RWPs differ in
the number of scenarios identified and
described as well as the extent of the
specificity with which each scenario is
discussed. For example, some RWPs
present short qualitative analyses of
member defaults, while others present
long, detailed quantitative analyses of
member defaults.
d. Criteria That Could Trigger
Implementation
Each RWP identifies and describes
criteria that could trigger the CCA’s
implementation of the recovery and
orderly wind-down plans.491 The RWPs
differ in the number of identified
triggering criteria and in the detail in
which they discuss each triggering
external third parties, and those that ICC itself
provides. Further, the plan analyzes ICC’s
contractual arrangements in the context of
continuing services under those contracts during
recovery. 34–79750 (Jan. 6, 2017), 82 FR 3831 (Jan.
12, 2017) (SR–ICC–2016–013). In addition, NSCC’s,
FICC’s, and DTC’s plans identify external service
providers for which the relationships are managed
by a particular office within DTCC. See, e.g.,
Securities Exchange Act Release Nos. 91428 (Mar.
29, 2021), 86 FR 17440, 17442 (Mar. 29, 2021) (SR–
NSCC–2021–004) (‘‘NSCC 2021 Notice’’); 91430
(Mar. 29, 2021), 86 FR 17432, 17433–34 (Apr. 2,
2021) (SR–FICC–2021–002) (‘‘FICC 2021 Notice’’);
91429 (Mar. 29, 2021), 86 FR 17421, 17422 (Mar.
29, 2021) (SR–DTC–2021–004) (‘‘DTC 2021
Notice’’).
490 For example, OCC’s plan identifies and
considers scenarios that may potentially prevent it
from being able to provide its critical services as a
going concern. See OCC 2017 Notice, supra note
488, at 61073. ICC’s plan describes potential stress
scenarios that may prevent it from being able to
meet obligations and provide services and the
recovery tools available to it to address these stress
scenarios. See Securities Exchange Act Release No.
91439 (Mar. 30, 2021), 86 FR 17649, 17650 (Apr.
5, 2021) (SR–ICC–2021–005) (‘‘ICC 2021 Notice’’).
LCH SA’s plans categorizes potential stress
scenarios in two ways as a result of either: (i)
Clearing member defaults and (ii) non-clearing
member events. See LCH 2017 Notice, supra note
488, at 60248. In addition, each of the plans for
NSCC, FICC, and DTC discuss, at a general level,
scenarios in terms of uncovered losses or liquidity
shortfalls that could result from the default of one
or more of its members as well as losses that could
arise from non-default events. See, e.g., NSCC 2021
Notice, supra note 489, at 17441; FICC 2021 Notice,
supra note 489, at 17433; DTC 2021 Notice, supra
note 489, at 17421.
491 See OCC 2017 Notice, supra note 488, at
61079–80 (discussing OCC’s identification of
qualitative trigger events for both recovery and
wind-down); 83 FR 34183, 34221, and 44970
(stating the DTC, NSCC, and FICC have identified
wind-down triggers and that a CCA would have
entered ‘‘recovery phase’’ when it issues its first
loss allocation round); ICC 2021 Order, supra note
488, at 26562.

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criterion. There are also differences in
the descriptions of the processes that
CCAs use to monitor and determine
whether the triggering criteria have been
met, thus causing their RWPs to be
implemented.
e. Rules, Policies, Procedures, and Other
Tools or Resources
Each RWP describes, to varying
degrees, the rules, policies, procedures,
and other tools or resources the CCA
could rely upon in a recovery or orderly
wind-down to address the scenarios
identified in the RWP.492
f. Procedures To Ensure Timely
Implementation
Each RWP mentions, to varying
degrees, mechanisms that would ensure
timely implementation of the RWP.493
Some of the RWPs include specific
procedures to ensure timely
implementation of the recovery and
orderly wind-down plan after specific
criteria have been triggered. One of the
RWPs has taken steps to ensure timely
completion of its recovery and orderly
wind-down plan.
g. Informing the Commission
Each RWP generally refers to
informing the Commission about
recovery or orderly wind-down
activities. Some of the RWPs state that
they will inform the Commission after
a recovery or wind-down has been
initiated.

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h. Testing
Three RWPs provide for annual plan
testing but with varying degrees of
specificity about the participants’
involvement as well as the frequency of
492 See, e.g., 83 FR 34220–21 (identifying NSCC’s
recovery tool characteristics); FICC 2017 Notice,
supra note 488, at 878 (identifying FICC’s recovery
tool characteristics); 83 FR 44970 (identifying DTC’s
recovery tool characteristics); OCC 2017 Notice,
supra note 488, at 61075–80 (identifying OCC’s
enhanced risk management and recovery tools); ICC
2021 Order, supra note 488, at 26562 (identifying
ICC’s recovery tools); 83 FR 28886–87 (describing
LCH SA’s tools).
493 Each of the plans for NSCC, FICC, and DTC
provides a description of the governance and
process around management of a stress event along
a ‘‘Crisis Continuum’’ timeline. See, e.g., NSCC
2017 Notice, supra note 488, at 842; FICC 2017
Notice, supra note 488, at 872; DTC 2017 Notice,
supra note 488, at 886. OCC’s recovery plan
outlines an escalation process for the occurrence of
a ‘‘Recovery Trigger Event’’ as well as provides
general descriptions of how it would anticipate
deploying its recovery tools in response to the six
stress scenarios it identified. OCC 2017 Notice,
supra note 488, at 61079–80. The ICC recovery plan
describes the governance arrangements that provide
oversight and direction of the plan. See ICC 2021
Notice, supra note 490, at 17649. The LCH SA
recovery plan identifies the groups and individuals
within LCH SA that are responsible for the various
aspects of plan. See LCH 2017 Notice, supra note
488, at 60250.

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such testing. One such RWP specifically
refers to sharing the results of the testing
with its board of directors, and another
states that the RWP would be updated
as appropriate as a result of the
testing.494 The remaining CCAs do not
mention testing in their RWPs.
i. Board Review and Approval
Each RWP provides for periodic plan
reviews, typically annually or
biennially.495 Two RWPs provide for
non-scheduled reviews. In the existing
plans, the boards of directors of the CCA
are responsible for the review and
approval of the RWPs, but the plans
vary in whether they specify that such
review will also occur after material
changes to the CCA’s operations or in
response to the results of periodic
testing of the RWPs.
4. Current Risk-Based Margin
As discussed in Part II.A supra and
Part II.B supra, Rule 17Ad–22(e)(6)
requires CCAs that provide central
counterparty services to establish
written policies and procedures
reasonably designed to cover their credit
exposure to their participants by
establishing risk-based margin systems
with certain characteristics. Intraday
margining is an important tool used by
CCAs to manage risk exposures on a
real-time basis because it permits the
CCAs to make quick changes in required
collateral from their participants to
cover actual and potential losses in
response to volatility spikes.
494 See ICC 2021 Order, supra note 488, at 26562
(referencing testing its Recovery Plan at least
annually, as part of its annual default management
drills and providing the results of such testing, as
well as any changes it recommends due to such
testing, to the ICC Board and Risk Committee);
ICCEU, 83 FR 2857 (referencing testing elements of
the Recovery Plan as part of normal operations and
risk management procedures); LCH 2017 Notice,
supra note 488, at 60250 (referencing fire drills
intended to simulate all aspects of a member
default, including the auctioning of the defaulting
members portfolio to non-defaulting members
(where appropriate) and involving the participation
of members and relevant functions within the LCH
SA organization, with revisions to the recovery plan
as appropriate in light of the testing).
495 NSCC, FICC, and DTC review their respective
RWPs biennially. See NSCC 2021 Notice, supra
note 489, at 17441; FICC 2021 Notice, supra note
489, at 17433; DTC 2021 Notice, supra note 489, at
17421. OCC conducts an annual review of its RWP.
See Securities Exchange Act Release No. 90315
(Nov. 3, 2020), 85 FR 71384, 71385 (Nov. 9, 2020)
(SR–OCC–2020–013); see also OCC 2017 Notice,
supra note 488, at 61080. ICC’s RWP describes
governance arrangements that provide for oversight
and direction in respect to review and testing of the
plans. See ICC 2021 Notice, supra note 490, at
17651–52. LCH SA decided to review its winddown plan on an annual basis or more frequently,
if required. See Securities Exchange Act Release No.
88297 (Feb. 27, 2020), 85 FR 12814 (Mar. 4, 2020)
(SR–LCH SA–2020–001).

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a. Monitoring Exposure and Intraday
Margin Calls
Each CCA currently has some ability
to monitor for intraday exposure and to
make certain intraday margin calls. The
frequency of intraday monitoring and
margin calls varies across markets, and
it is responsive to the risk
characteristics of the underlying
markets and participants. Participants
are generally required to post margin
within an hour of notification or at
specified times pursuant to the CCA’s
rules and procedures. The current
practice of CCAs is to release excess
margin to participants only once a day
at a pre-scheduled time. CCAs have
existing policies and procedures around
the collection of intraday margin,496 and
some CCAs document when they
determine not to make an intraday call
pursuant to their written policies and
procedures required under Rule 17Ad–
22(e)(6)(ii).
For example, OCC revalues its
participants’ portfolios throughout the
day to calculate updated account net
asset value, and its rules provide it the
authority to issue intraday margin
calls.497 Its intraday calls are generally
issued between 11 a.m. and 1:30 p.m.
when unrealized losses of an account,
based on its start-of-day positions,
exceed 50 percent of the account’s total
margin. NSCC’s rules provide the
authority to impose intraday mark-tomarket charges, and NSCC tracks
intraday market price and position
changes in 15-minute intervals. NSCC
generally collects additional margin if
the difference between the most recent
mark-to-market price of a participant’s
net positions and the most recent
observed market price exceeds a
predetermined threshold, which is
currently 80 percent of the participant’s
volatility charge and may be reduced if
NSCC determines that a reduction of the
threshold is appropriate to mitigate risk
during volatile market conditions.498
FICC’s GSD and FICC’s MBSD have
the authority to make intraday margin
calls.499 FICC monitors changes in
496 Rule

17Ad–22(e)(6)(ii).
OCC, Disclosure Framework supra note 96
at 50; OCC Rule 609 (regarding intra-day margin
calls).
498 See NSCC Disclosure Framework supra note
96 at 58; NSCC Rules, Procedure XV (defining
intraday mark-to-market charge). See DTCC at 3.
499 See FICC’s GSD Rule 4, section 2a (regarding
the intraday supplemental fund deposit); FICC’s
MBSD Rule 1 (defining intraday VaR and intraday
mark-to-market charges) and Rule 4, section 2(b)
(regarding the daily margin requirement) and
section 3a (regarding the intraday requirements). In
addition, FICC’s GSD collects margin twice a day
under its current rules, notwithstanding any
additional intraday margin calls. See FICC’s GSD
Rules, schedule of timeframes.
497 See

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
pricing and positions frequently
throughout the day, and it may collect
intraday margin to cover the price
movement from those participants with
a significant exposure in an identified
security or net portfolio and the market
value of those positions.500
ICC also monitors each participant’s
intraday profit and loss to determine if
its intraday exposure is covered by the
margin on deposit, and it may issue
margin calls to participants that are not
sufficiently collateralized.501 LCH SA
also has the ability and authority to
make intraday margin calls that are
based on intraday positions and
valuations.502
b. Reliable Sources of Timely Price Data
and Other Substantive Inputs

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CCAs use price data as well as other
data sources and other substantive
inputs in their risk-based margin
systems, which is expected given the
substantive differences in the markets
and participants they serve. Based on its
supervisory experience, the Commission
understands that all CCAs generally
have policies and procedures in place to
use a risk-based margin system that uses
reliable sources of timely price data and
includes procedures and sound
valuation models for addressing
circumstances in which price data are
not readily available or reliable. The
Commission also understands that if a
CCA uses other substantive inputs, such
as portfolio size, asset price volatility,
duration, convexity, and outputs from
external model vendors, which are not
required by the Commission’s rules, not
all CCAs have policies and procedures
for addressing circumstances in which
those substantive inputs are not readily
available or reliable so that the CCA can
continue to meet its requirements under
Rule 17Ad–22(e)(6).The policies and
procedures used when price data or
other substantive inputs are not
available vary from one RWP to another.
For example, the largest component of
500 See generally supra note 499; FICC Disclosure
Framework at 65, available at https://
www.dtcc.com/-/media/Files/Downloads/legal/
policy-and-compliance/FICC_Disclosure_
Framework.pdf.
501 ICC Disclosure Framework at 22–23, available
at https://www.theice.com/publicdocs/clear_credit/
ICEClearCredit_DisclosureFramework.pdf; ICC Rule
401.
502 See generally LCH SA Disclosure Framework
at 31, available at https://www.lch.com/system/
files/media_root/LCH%20SA%20%20Comprehensive%20
Disclosure%20as%20required
%20by%20SEC%20Rule%2017Ad-22%28e%29
%2823%29_2022%20Q32022.pdf, and LCH CDS
Clearing Procedures section 2.21 (describing
‘‘extraordinary margin’’ that LCH SA may require to
cover the risk of price/spread fluctuations occurring
on an intraday basis).

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margin at FICC’s GSD is typically its
‘‘VaR Charge.’’ The VaR Charge is based
on the potential price volatility of
unsettled positions using a sensitivitybased Value-at-Risk (‘‘VaR’’)
methodology over a ten-year historical
look-back period. In addition, FICC’s
GSD also uses an alternative ‘‘Margin
Proxy’’ calculation as a backup VaR
Charge calculation to the sensitivity
approach in the event that FICC
experiences a data disruption with the
third-party vendor upon which FICC
relies to produce the sensitivity-based
VaR Charge.503 In a similar fashion,
FICC’s MBSD uses both a VaR Charge
and, as a backup in the event of a data
disruption from its third-party vendor, a
Margin Proxy 504 NSCC relies upon a
parametric VaR model to determine the
potential future exposure of a given
portfolio based on historical price
movements, using 153 days as the
minimum sample period for the
historical data. For certain securities,
including fixed income securities, UITs,
illiquid securities, securities that are
amendable to statistical analysis only in
a complex manner, and securities that
are less amenable to statistical analysis,
a haircut-based volatility charge is
applied in lieu of the VaR Charge.505
C. Consideration of Benefits and Costs
as Well as the Effects on Efficiency,
Competition, and Capital Formation
The following discussion sets forth
the potential economic effects stemming
from the final rule and amendments,
including the anticipated effects on
efficiency, competition, and capital
formation. The benefits and costs
discussed in this section are relative to
the economic baseline discussed
previously, which includes the CCAs’
current RWPs and their current risk503 See generally FICC Disclosure Framework at
62; Release No. 34–82779 (Feb. 26, 2018), 83 FR
9055 (Mar. 2, 2018) (File No. SR–FICC–2018–801)
(describing both the sensitivity-based VaR model
that would use a third party vendor to supply
security-level risk sensitivity data and relevant
historical risk factor time series data and the use of
the ‘‘Margin Proxy’’ in the event of a disruption at
FICC’s third-party vendor, as well as the procedures
that would govern in the event that the vendor fails
to deliver such data).
504 See, e.g., FICC Disclosure Framework at 64;
Release No. 34–079643 (Dec. 21, 2016), 81 FR 95669
(Dec. 28, 2016) (File No. SR–FICC–2016–801)
(describing both the sensitivity-based VaR model
that would use a third party vendor to supply
security-level risk sensitivity data and relevant
historical risk factor time series data and the use of
the ‘‘Margin Proxy’’ in the event of a disruption at
FICC’s third-party vendor, as well as the procedures
that would govern in the event that the vendor fails
to deliver such data); Release No. 34–92145 (June
10, 2021), 86 FR 32079 (June 16, 2021) (File No.
SR–FICC–2020–804) (describing the calculation of
the Minimum Margin Amount).
505 See NSCC Disclosure Framework, supra note
498, at 58–61.

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based margin practices. A commenter
agrees that there is a large benefit
flowing from requiring the CCAs to
better define their risk management
procedures.506
The level of change a CCA makes to
its RWP and risk management practices
to bring itself into alignment with the
final rule and amendments will impact
the size of the benefits and costs, both
direct and indirect, for the CCAs, their
members, and the broader market. As
stated in the baseline, each CCAs’ plans
differ in, for example, length, style,
emphasis, and specificity, and each
CCA has a current risk-based margin
system that it has designed to manage
certain idiosyncratic risks that it faces.
Additionally, the final rules and
amendments are designed to provide a
CCA with discretion and flexibility,
which means that the CCAs will be able
to tailor their RWPs and risk-based
margin systems to their particular
situations.
To the extent that a CCA determines
that it does not have to make changes
to its RWP or risk-based margin system
in response to a particular part of the
final rule and amendments, the CCA, its
participants, and the broader market
will have already absorbed the benefits
and costs of those parts of the final rule
and amendments and, therefore, they
may not experience any direct benefits
or costs from those parts of the final rule
and amendments.507
Sufficiently large disruptions in the
operations at any of the CCAs would
cause significant negative externalities
in the markets they serve, which would
likely spill over into other markets.
These ripple effects would negatively
affect numerous market participants,
including investors. Because CCAs may
not internalize the full cost of these
externalities due in part to the structure
of the clearing markets, their
investments in their RWPs and riskbased margin systems might be
suboptimal from a public welfare
perspective.508 An important benefit of
the final rule and amendments is that
they require CCAs to maintain a higher
investment in risk management than
they might otherwise choose if they
506 See SIFMA at 3 (‘‘Our members are in
agreement with the Commissions’ determination
that there is a very significant benefit to requiring
the Clearing Agencies to better define their risk
management procedures’’).
507 They may experience indirect benefits to the
extent other CCAs make risk-reducing changes that
reduce the risk of negative spillovers.
508 See SIFMA at 14 and 22 (‘‘With the
combination of clearing mandates and single
product provider status, there is very limited
business pressure on Clearing Agencies to invest in
the optimum level of risk management. Rather, the
impetus must come from regulatory oversight.’’).

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have not already adopted the
requirements of the rule and
amendments.
The Commission has sought to strike
a balance between requirements that
enhance risk management practices and
recovery and winddown procedures and
maintaining some flexibility in the
design and implementation of these
requirements. For example, while CCAs
will be required to test their ability to
implement the RWPs at least every 12
months, each CCA may structure the
planning, execution, and analysis of
each test in a way that reduces its
aggregate testing costs for itself, its
participants, and its other stakeholders,
so long as the testing exercise addresses
the distinct elements of the separate
testing requirements.
The costs discussed in Part IV.C will
be borne by CCAs and their participants.
For CCAs owned by participants, all the
costs will ultimately be passed on to
participants because they are residual
beneficiaries of the CCA. For CCAs not
owned by participants, the level of passthrough will depend upon several
factors, including the level of
competition among clearing agencies
and the existence of mandates that force
market participants to clear. In both
cases, the participants will likely pass
through some of these costs to their
customers, the level of which will
depend on factors such as the
customers’ sensitivities to costs and the
amount of competition between
participants for customers. Generally, if
a CCA does not face significant
competition, it will have an incentive to
absorb part of the cost increase. In the
extreme case of a perfectly competitive
market, on the other hand, an increase
in costs will be fully passed through to
the customer because there are no
economic profits and price equals
marginal costs.509
To the extent that a CCA’s current
practices are misaligned with the final
rule and amendments, the CCA, as
discussed in the remainder of this
subsection, will need to modify its RWP
or risk-based margin system to comply
with the new standards. The resulting
benefits and costs will increase with the
number of modifications. Because the
509 More specifically, the market clearing quantity
of the good or service supplied will adjust and the
extent of industry-wide cost pass-through in a
perfectly competitive market depends on the
elasticity of demand relative to supply. The more
elastic is demand, and the less elastic is supply, the
smaller the extent of pass-through, all else being
equal. See RBB Economics, Cost Pass-Through:
Theory, Measurement and Potential Policy
Implications, 4 (Feb. 2014), available at https://
assets.publishing.service.gov.uk/government/
uploads/system/uploads/attachment_data/file/
320912/Cost_Pass-Through_Report.pdf.

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Commission has previously stated that
RWPs are rules for purposes of a CCA’s
SRO obligations, and because the CCAs
already have filed such RWPs with the
Commission for approval, any such
modifications will be subject to
Commission review and public
comment pursuant to Rule 19b–4.510
Similarly, the Commission considers
changes to a CCA’s risk-based margin
system as part of the SRO rule filing
process, making any such modifications
also subject to Commission review and
public comment pursuant to Rule 19b–
4.511 The final rule and amendments
could also cause a clearing agency to
make different business decisions, such
as capital expenditure decisions, that
may not be subject to the same
Commission review process.
One commenter stated that
participants and end-user customers
need ‘‘greater transparency into the
content of RWPs’’ for several reasons,
including allowing participants to better
manage their exposure to the CCA and
positively affecting the CCA’s risk
management functions.512 The new rule
and the final amendments will increase
transparency because they impose a
public minimum standard that all CCAs
must follow and also because, as
described in the baseline, CCAs are
subject to a public notice and comment
process before making certain changes,
including changes to their rule books.513
510 Supra note 484. See infra section IV.C.1.j for
cost estimates of written policies and procedures
associated with final Rule 17Ad–26 and the rule
19b–4 approval process.
511 See infra section IV.C.2.c for cost estimates of
written policies and procedures associated with
final Rule 17Ad–22(e)(6) and the Rule 19b–4
approval process.
512 See ICI at 8 (‘‘It is critical for clearing members
and end-user customers, such as funds, to have
greater transparency into the content of RWPs. Such
transparency could allow participants to determine
the extent of their potential liabilities and
predictably manage exposures to a clearing entity.
Importantly, increased transparency could facilitate
input from participants that may serve to enhance
a clearing entity’s risk management functions.
While requiring clearing entities to maintain and
submit RWPs for regulatory purposes provides the
agencies with needed visibility and can increase
confidence in cleared markets, such requirements
alone fail to provide these important benefits to
market participants.’’). Id. at 9 (‘‘At a minimum,
clearing members and customers should be aware
of (1) the criteria that may trigger implementation,
(2) the tools and strategies that a clearing entity
plans to use, and (3) the source of capital or funds
to be applied in a recovery or wind-down scenario.
Providing access to these material portions of RWPs
would help market participants have a more
complete understanding of the risks presented by
clearing with a particular clearing entity and allow
them to better manage their exposures’’).
513 See supra note 484. Additionally, Rule 19b–
4 would also apply to certain statements that a CCA
issues concerning its margin methodology. See
supra note 83.

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1. Final Rule 17Ad–26
Final Rule 17Ad–26 sets forth nine
elements that must be included in a
CCA’s RWP. The remainder of this
subsection discusses each of these
elements in turn, explaining how some
will make RWPs more effective in
guiding the CCAs during times of
recovery or wind-down while others
will help participants and regulators
better understand how the CCAs will
prepare for and respond to stress. The
final rule will reduce systemic risk to
the extent that it reduces the risk of
unsuccessful recoveries, disorderly
wind-downs, and negative spillovers to
other clearing agencies and to other
markets.514 These benefits likely will
increase with the amount of change
each CCA makes to align itself with the
final rule because, as stated in the
baseline analysis, some RWPs are more
aligned with the nine elements that are
part of final Rule 17Ad–26 than are
other RWPs. Final Rule 17Ad–26 will
require CCAs to modify their RWPs to
the extent their RWPs do not already
align with the final rule. One
commenter stated that the benefits are
purely hypothetical because they would
only accrue in the event of the
implementation of a recovery plan.515
The Commission disagrees with this
assessment and anticipates that these
changes may result in the CCAs being
more aware of potential risks and the
associated costs of certain factors under
their control, which could, in turn, lead
to the CCA making risk-reducing
changes to certain business practices. A
few commenters stated that CCAs’
current risk-management efforts may be
suboptimal from a public welfare
perspective.516 The final new rule
includes a set of risk-focused
requirements that RWPs must meet in
the future, which will ensure that CCAs
maintain a higher investment in risk
management than they might otherwise
choose.
514 See supra note 475 and accompanying text.
See Better Markets at 9 (‘‘Requiring that the
recovery and wind-down plans of covered clearing
agencies include certain specific elements is likely
to reduce the risk of unsuccessful recoveries,
disorderly wind downs, and negative spillovers to
other clearing agencies and other markets.’’).
515 Davidson at 2.
516 See supra note 508 and accompanying text;
see also Muth at 2 (‘‘A complex cocktail of
incentives familiar to the Commission but too
labyrinthine to elucidate here causes management
to (1) underestimate the risk of entity failure, (2)
underestimate the range of scenarios that might
threaten entity survival, and (3) underestimate the
amount of information that needs to be
communicated effectively to ’relevant authorities’ to
illuminate threats to the entity’s solvency,
especially when those threats are high-magnitude,
low-frequency risks.’’).

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The Commission did not receive any
comments on the costs each CCA will
incur to bring its RWP into alignment
with proposed Rule 17Ad–26(a)(4), (5),
and (6).

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a. Core Clearing and Settlement Services
Final Rule 17Ad–26(a)(1) requires
RWPs to identify and describe their core
payment, clearing, and settlement
services and to address how the CCA
would continue to provide such core
services in the event of a recovery and
during an orderly wind-down, including
the (a) identification of the staffing roles
necessary to support such core services,
and (b) analysis of how such staffing
roles necessary to support such core
services would continue in the event of
a recovery and during an orderly winddown.
CCAs play an important role as
financial market utilities. By virtue of
the unique services that they offer, the
network effects under which they
operate, and their specialization by asset
class, any failure of the CCAs to provide
their core services might affect the
stability of U.S. financial markets.517
Accordingly, policies and procedures
that increase the resiliency of CCAs are
expected to improve the stability of
these markets.
Each of the CCAs’ RWPs currently
identifies its core services, as stated in
the baseline analysis, but they differ in
the degree to which they address
continuation in the event of a recovery
and during an orderly wind-down.
Markets in which the dominant CCAs
are currently less comprehensive in
addressing continuation in their RWPs
likely will benefit from this requirement
because these CCAs will be required to
work through and memorialize in their
RWPs how the CCA will continue to
provide its core services in the event of
a recovery and during an orderly winddown.
As mentioned in the economic
baseline section, none of the CCAs
currently identifies the staffing roles
necessary to support core services or
provides in their RWPs analyses of how
such staffing roles necessary to support
such core services would continue in
the event of a recovery and during an
orderly wind-down. Because CCAs do
not currently identify the staffing roles
that are necessary to support core
517 Five of the six CCAs have been designated by
the FSOC as SIFMUs because the failure or
disruption to the functioning of the financial market
utility could create or increase the risk of significant
liquidity or credit problems spreading among
financial institutions or markets. See Designations,
U.S. Dep’t Treasury, https://home.treasury.gov/
policy-issues/financial-markets-financialinstitutions-and-fiscal-service/fsoc/designations;
see also supra note 88.

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services and how such staffing roles
would continue during times of crisis,
this new requirement likely will provide
benefits to the market. Forward-looking
analyses around issues related to
potential staffing shortfalls should
provide each CCA with additional
certainty and clarity around who would
deploy the RWP and supervise its
implementation. The RWP might
contemplate tools that help with the
retention of certain personnel, the
development of other internal personnel
who could stand in for those personnel,
the recruitment of replacement
personnel, possibly from its own
participants or from other domestic or
international CCAs. In all cases, the
tools should be robust regardless of the
financial situation of the CCA. A CCA
that retains its personnel and its ability
to service external relationships in the
event of a recovery or orderly winddown may be able to reduce not only
potential losses for its participants but
also further market disruptions by
ensuring its critical clearance and
settlement services continue.518
The current lack of staffing role
analyses in RWPs means that CCAs will
incur costs, related to drafting the
analyses and implementing the resulting
conclusions from the analyses. For
example, were the CCA to undertake a
recovery or wind-down that
significantly affects its operations or
structure, a CCA may determine that
certain personnel would be likely to
leave the CCA. The CCA may determine
that it is appropriate to strengthen its
employee agreements so that those
employees have more incentives to
remain at the CCA during a recovery or
wind-down even if this includes a sale
or transfer of one or more of its core
services to another entity or a receiver.
Alternatively, or additionally, a CCA
may choose to invest in internal
development programs and processes so
other employees acquire skills that are
necessary during recovery and winddown events, making the loss of any
employee less costly via internal
redundancy. Commenters stated that
attracting and retaining skilled
employees is costly; one commenter
stated that some employees might chose
to leave in certain circumstances despite
518 See SIFMA at 14 (‘‘In fact, one of the lessons
that can be drawn from the Lehman Brothers failure
that precipitated the 2008 financial crisis is that the
largest losses may not be the ones that lead up to
the insolvency event, but rather those that follow
the insolvency event. In the case of Lehman
Brothers, its inability following the insolvency
event to keep its personnel from leaving and the
difficulty it had in continuing servicing
relationships were in large part the cause of the
financial losses to its customers and market
disruptions.’’).

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having very lucrative employment
contracts; another commenter stated
CCAs with sufficient resources will be
able to retain their key personnel.519
The Commission recognizes that it may
be costly to ensure that employees in
essential staffing roles are available to
support core services in the event of a
recovery and during an orderly winddown. The final rules do not require
retention of any employee, but they do
require the identification of staffing
roles and an analysis of how those roles
would continue. The final rules allow
CCAs to use a variety of human resource
management tools, which will better
enable CCAs to find cost-effective tools
that enable them to maintain their core
services in the event of a recovery and
during an orderly wind-down.
b. Service Providers
Final Rule 17Ad–26(a)(2) requires
RWPs (i) to identify and describe any
service providers for core services,
specifying which core services each
service provider support, and (ii) to
address how the CCA would ensure that
service providers for core services
would continue to perform in the event
of a recovery and during an orderly
wind-down, including consideration of
its written agreements with such service
providers and whether the obligations
under those written agreements are
subject to alteration or termination as a
result of initiation of the recovery and
orderly wind-down plan.
One commenter stated that it is
critical that CCAs have service contracts
that cannot be terminated in the
aftermath of an insolvency event,520
whereas other commenters stated that
CCAs cannot ‘‘ensure’’ that service
providers would continue to perform in
the event of a recovery and during an
519 See Donaldson at 5 (‘‘Likewise, the required
skills, the demands on retention, and the time to
identify, attract and train new staff to the necessary
level of expertise in virtually all the relevant
departments is very substantial.’’). See SIFMA at 14
(‘‘It is important that a Clearing Agency have
service contracts that cannot be terminated in the
aftermath of an insolvency event and that it has
sufficient going concern resources that will allow it
to retain its key personnel.’’). See Donaldson at 6
(‘‘The recent experience at a large household name
social media company should make clear that even
the most lucrative employment agreements are
rarely sufficient to get highly in demand skilled
employees to stay on board a ‘sinking ship.’
Furthermore, certain CCAs have organized labor
agreements in place with many of their employees
which would likely require time consuming
renegotiation in order to satisfy this provision.’’).
520 See SIFMA at 14 (‘‘It is important that a
Clearing Agency have service contracts that cannot
be terminated in the aftermath of an insolvency
event and that it has sufficient going concern
resources that will allow it to retain its key
personnel.’’).

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orderly wind-down.521 The Commission
acknowledges that a CCA cannot ensure
that a service provider for core services
will continue to perform throughout a
recovery and an orderly wind-down;
nevertheless, if its analysis indicates
that the service provider might not
continue to perform in those events, it
could address how it would handle any
termination or non-performance by the
service provider, which could satisfy
the new requirements.522
Some commenters stated that the
proposed definition of ‘‘service
provider’’ was too broad and would
unnecessarily increase CCA costs by
capturing too many non-essential
service providers.523 The Commission
generally agrees with the comments on
this point and therefore made
corresponding changes to the proposed
rule text. The reduced scope of service
providers captured by the revised rule is
appropriate for recovery and orderly
wind-down planning purposes and
helps ensure that the CCA focuses its
RWPs on the key risks and its responses
to those risks.524
One commenter stated that due to
differences across CCAs, markets, and
members, CCAs must be afforded
flexibility to interpret and implement
the final Rule 17Ad–26(a)(2).525 The

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521 See

CCP12 at 4 (‘‘CCAs cannot ‘ensure’ that
such service providers would continue to perform
in the event of a recovery and during an orderly
winddown.’’). See DTCC at 8 (‘‘This proposed
requirement overestimates the negotiating leverage
that CCAs have when entering contracts with
service providers or assumes that CCAs would be
able to unilaterally require service providers to
continue performance during a recovery or orderly
winddown.’’). See ICE at 4 (‘‘ICE does not believe
it is possible for a [clearing agency] to ‘ensure’ that
a service provider would perform.’’).
522 See supra Part II.C.2.
523 See DTCC at 6 (‘‘[The proposed rule] would
capture large numbers of service providers to DTCC
that are not immediately necessary to the ongoing
operations of the critical services of DTCC’s CCAs.
We believe that this would result in a significant
burden upon our CCAs (and likely other CCAs)
with minimal benefit to the development of
effective RWP.’’). See ICE at 4 (‘‘ICE believes that
the proposed definition of ‘critical services’ would
include third parties that are [not] ‘in any way
related to the provision of a critical service’ and
believes this definition is overly broad. In
particular, the definition would cover service
providers that are only tangentially related to
clearing services and have no practical impact on
recovery or wind-down planning which would be
burdensome for CAs and provide minimal, if any,
benefit.’’).
524 See supra Parts II.C.2.a and II.D.2.
525 See DTCC at 2 (‘‘DTCC continues to stress, as
it has in prior comment letters to the Commission,
that CCAs must be afforded the discretion and
flexibility to interpret and implement rules based
on the risk profiles, markets, and products that
respective CCAs serve. Aspects from the Proposal
that would benefit from this discretion include . . .
the proposed requirement to include contractual
terms and conditions that would prevent automatic
termination by service providers in the event of a
recovery or orderly wind-down.’’).

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Commission acknowledges that there
are important differences across CCAs
in terms of products cleared and
markets served. The principles-based
Rule 17Ad–26(a)(2) allows CCAs to take
approaches in their RWPs that differ
from those taken by other CCAs in their
RWPs.
As stated in the baseline analysis, the
RWPs differ in their degree of alignment
with the final rule and the level of
descriptiveness of service providers.
The markets that likely will benefit the
most from this new requirement are the
ones in which the dominant CCAs’
RWPs are currently the least
comprehensive in identifying and
describing the required service
providers and identifying how those
service providers will perform in the
event of a recovery and during an
orderly wind-down because those CCAs
would have to negotiate with service
providers to ensure their continued
performance or find other alternatives.
CCAs that make more changes in
identifying the service providers and the
core payment, clearing, and settlement
services provided by each service
provider likely will bring more benefits
to the markets they serve by putting
themselves in a better position to
manage their service providers in the
event of a recovery or during an orderly
wind-down. One commenter stated that
in the event that one of the service
providers fails, it may not be possible to
switch to another service provider
because the remaining service providers
might not be able to quickly scale up
their operations.526 The Commission
recognizes that switching vendors may
be difficult in certain circumstances
such as during times of crisis and when
other CCAs are switching in or out of
the same service providers en masse. A
key benefit of final Rule 17Ad–26(a)(2)
is that CCAs will consider these sorts of
costs and incorporate appropriate
prophylactic responses to them into
their RWPs. This will make the CCAs
more resilient, by having more robust
526 See Davidson at 7 (‘‘[a]t present, while it is
possible to operate separate genre of application
software on different ‘Cloud’ providers, it is
extremely challenging, requiring significant time for
deployment and rigorous testing, to move a set of
tightly woven operational software applications
from one ‘Cloud’ provider to another. While the
existence of several major competitors in the
‘Cloud’ computing space would appear to support
the ability to move among providers in the highly
improbable event of a catastrophic failure of one of
them, the above constraints make that a timeconsuming process for all users. . . .
Notwithstanding their tremendous scale and ability
to support existing customers with ‘capacity on
demand,’ such vendors do not make a habit of
operating with sufficient spare capacity to
accommodate a significant piece of their
competitors’ business quickly and easily.’’).

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RWPs, which will, in turn, reduce the
risk and/or size of systemic events.
Each CCA will incur costs to bring its
RWP into alignment with the new rule,
and these costs are estimated in Part
IV.C.1.j, infra. These alignment costs
will depend on the extent of the
enhancements the CCA makes to its
RWP, including any contractual changes
with its service providers. The
underlying costs of the contractual
changes may be affected by the relative
market power of the CCA versus the
service provider in light of the
regulatory requirement to meet these
new standards. For example, the
amendments require the consideration
of the CCA’s written agreements with its
service providers and whether the
obligations under those written
agreements are subject to alteration or
termination as a result of initiation of
the recovery and orderly wind-down
plan. Consequently, a service provider
that has market power or offers a service
for which there are high switching costs
could potentially earn economic profits
by increasing its fees to sign a written
agreement with a CCA that ensures the
continuation of a core service in the
event of a recovery and orderly winddown.
c. Scenarios
Final Rule 17Ad–26(a)(3) requires
RWPs to identify and describe scenarios
that may potentially prevent the CCA
from being able to provide its core
services identified in Rule 17Ad–
26(a)(1) as a going concern, including (a)
uncovered credit losses, (b) uncovered
liquidity shortfalls, and (c) general
business losses. As stated in the
baseline analysis, each of the CCAs’
RWPs currently identifies and describes,
to varying degrees, certain relevant
scenarios.
The more significant benefits of being
required to identify these scenarios will
accrue to those markets in which the
dominant CCAs lack breadth and
specificity in identifying and describing
their scenarios. By better understanding
the circumstances that could threaten
their ability to provide their core
services, these CCAs can take steps to
reduce the likelihood of these scenarios
and, should they materialize, be better
prepared to achieve a recovery or
orderly wind-down.527
Each CCA will incur costs to bring its
RWP into alignment with the new rule.
The alignment costs will depend on the
extent of the enhancements the CCA
makes to its RWP. The costs to modify
plans that require changes, including
those that need to be expanded to
527 See

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include additional scenarios, will be
modest, but they will vary across CCAs
because of differences in the markets
and participants they serve.
A commenter stated that CCAs
underestimate the range of scenarios
that might threaten their survival 528 and
that scenario analyses impose small
costs while yielding greatly enhanced
transparency benefits.529 A key benefit
of final Rule 17Ad–26(a)(3) is that each
CCA will revisit the question of what
might threaten its ability to carry out its
core services. As certain CCAs update
their RWPs in response to this new rule,
they may conclude that they need to
add new scenarios and that they need to
discuss their scenarios in more detail.
That notwithstanding, it will not be
costly for CCAs to comply with the new
rule, which is shown by the cost
estimates that are presented in Part
IV.C.1.j infra. The Commission is not
mandating that all CCAs include a
common list of specific scenarios in
their RWPs because of differences across
CCAs and the products cleared and
markets served—scenarios that are
essential at one CCA might be irrelevant
at another CCA—and because the list of
scenarios is likely to change through
time and is thus not suited for a static
list.530

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d. Criteria That Could Trigger
Implementation
Final Rule 17Ad–26(a)(4) requires
RWPs to identify and describe (a)
criteria that could trigger the CCA’s
implementation of the recovery and
orderly wind-down plans and (b) the
process that the CCA uses to monitor
and determine whether the criteria have
been met, including the governance
arrangements applicable to such
process.
As stated in the baseline analysis,
each CCA’s RWP identifies and
describes, to varying degrees, criteria
that could trigger the implementation of
a recovery or orderly wind-down. The
largest benefits of this rule likely will
accrue to the markets in which the
dominant CCAs currently have the least
comprehensive RWPs in identifying and
528 See Muth at 2 (‘‘A complex cocktail of
incentives familiar to the Commission but too
labyrinthine to elucidate here causes management
to . . . underestimate the range of scenarios that
might threaten entity survival’’).
529 See id. at 3 (‘‘The requirement of explicit
consideration in the recovery plan of what might
lead to each scenario’s coming into being and how
the scenario might take shape (including
prerequisite contemplated market conditions)
imposes a small burden on compliance and risk
functions in the entity while creating greatlyenhanced transparency to investors and regulators
around how, how quickly, and under what
conditions the entity may fail to meet obligations.’’).
530 See infra Part IV.D.1.

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describing appropriate triggers. The ex
ante identification and description of
triggers likely will have the benefit of
being a disciplining mechanism that
signals when and how the CCA may act
during periods of market stress. The
Commission further believes that the exante identification and description of
triggers likely will lead CCAs to
anticipate and prepare for market stress
or other events that could lead to a
recovery or wind-down. Each CCA will
incur costs to bring its RWP into
alignment with the final rule. The
alignment costs will depend on the
extent of the enhancements the CCA
makes to its RWP.
e. Rules, Policies, Procedures, and Other
Tools or Resources
Final Rule 17Ad–26(a)(5) requires
RWPs to identify and describe the rules,
policies, procedures, and any other tools
or resources on which the CCA could
rely in a recovery or orderly winddown. The markets that likely will
benefit the most from this requirement
are the ones in which the dominant
CCAs have the least comprehensive
RWPs in describing how the rules,
policies, procedures, tools, and other
resources could be used during a
recovery or wind-down. Making these
changes to their RWPs likely will enable
the CCAs to anticipate more fully how
future crises might affect their
operations, which should enhance their
ability to respond and, accordingly,
decrease the expected costs borne by
CCAs, the participants, and other
stakeholders in future crises. For
example, if a CCA determines that it
needs a new rule to respond to a
specific scenario, the CCA may be better
positioned to respond appropriately to
that scenario if it arises.
Each CCA will incur costs to bring its
RWP into alignment with the final rule.
The alignment costs will depend on the
extent of the enhancements the CCA
makes to its RWP. CCAs that determine
that they need to include more
responses, different resources, or better
descriptions will incur more costs as
they make appropriate modifications to
their RWPs. The costs to modify plans
that require changes, including those
that need to be expanded, will increase
with the number of required changes
such as the number of new rules the
CCA adopts.
f. Procedures To Ensure Timely
Implementation
Final Rule 17Ad–26(a)(6) requires
RWPs to address how the rules, policies,
procedures, and any other tools or
resources identified in Rule 17Ad–
26(a)(5) would ensure timely

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implementation of the RWP. As stated
in the baseline analysis, each RWP
mentions the concept of timeliness in
either recovery or wind-down, but most
RWPs do not list specific procedures to
ensure the timely implementation of the
RWP. A key benefit of this rule is that
CCAs will address in their RWPs how
the RWP will be implemented in a
timely manner when the need arises. A
timely start will increase the chance that
the CCA is able to address the
underlying problem quickly and with
low costs to the various stakeholders.
The benefits of this rule likely will
accrue primarily to the markets in
which the dominant CCAs add more or
better rules, policies, procedures, tools,
or other resources to ensure timely
implementation of their RWPs.
Each CCA will incur costs to bring its
RWP into alignment with the final rule.
The alignment costs will depend on the
extent of the enhancements the CCA
makes to its RWP. The costs to modify
plans that require changes, including
those that need to be expanded to
include additional rules, policies,
procedures, or any other tool or resource
will be modest because current RWPs
already place some focus on timeliness
as a desired feature.
g. Informing the Commission
Final Rule 17Ad–26(a)(7) requires the
CCA to inform the Commission as soon
as practicable when the CCA is
considering implementing a recovery or
orderly wind-down. As stated in the
baseline analysis, each RWP generally
refers to informing the Commission, but
some plans inform the Commission after
initiating a recovery or orderly winddown. Providing notice to the
Commission when the CCA is
considering implementing a recovery or
orderly wind-down may help ensure
that the Commission can, from the start,
dynamically monitor how a CCA
engages the recovery or wind-down
event consistent with its established
RWPs and the requirements of
Commission rules, to help mitigate the
potential onward transmission of system
risk and help ensure that a wind-down,
if necessary, is orderly. These benefits
likely will accrue primarily to the
markets in which the dominant CCAs
currently do not have a plan in place for
informing the Commission as soon as
practicable when the CCA is
considering implementing a recovery or
orderly wind-down.
One cost of the new rule is that CCAs
will need to decide whether they have
begun considering an implementation of
either a recovery or an orderly winddown. The marginal cost of such a
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occur in the normal course of business,
separate from the new requirement. For
example, a CCA generally would be
‘‘considering’’ implementing a recovery
when the clearing agency determines
that a market event may result in
uncovered losses, liquidity shortfalls, or
capital inadequacies at the CCA
following end-of-day settlement, or
when the CCA anticipates that it will
need to deploy prefunded financial
resources or liquidity arrangements
following end-of-day settlement in order
continue meeting its regulatory
obligations.531 Those determinations
would be made in absence of the final
notification rule, and they do not
therefore affect the rule’s costs.
Additionally, the primary focus for the
CCA is on the timeliness of the
notification to the Commission and not
on its method or form.532 The
Commission can best ensure that actions
appropriate to maintaining financial
stability can be made if it is notified
when a CCA is ‘‘considering’’ action,
rather than when a CCA has already
begun to implement its RWP. For
example, the Commission or other
authorities may evaluate the available
actions or tools to address or mitigate
financial stability concerns in response
to market events.
A commenter stated that CCA
management may face disincentives to
candid communication with the
Commission about considering
implementing a recovery or orderly
wind-down because of concerns about
other implications of such reporting,
including the potential for harm in
future shareholder litigation.533 We
acknowledge that there may be
conflicting incentives for individual
managers regarding any regulatory
reporting, but we do not believe that
these conflicting incentives would
undermine the intended benefits nor do
they alter the reporting and disclosure
obligations of CCAs or their publiclytraded affiliates. These conflicting
incentives are already present in the
regulatory structure. All CCAs currently
maintain frequent communication with
Commission staff about potentially
531 See

supra Part II.C.7.
supra Part II.C.7.
533 See Muth at 2 (‘‘In the case of publicly-traded
entities in particular, management may be
understandably hesitant to make forward-looking
pessimistic statements that may be unearthed in
future shareholder litigation or insolvency
proceedings.’’); id. (‘‘A complex cocktail of
incentives familiar to the Commission but too
labyrinthine to elucidate here causes management
to . . . underestimate the amount of information
that needs to be communicated effectively to
‘relevant authorities’ to illuminate threats to the
entity’s solvency, especially when those threats are
high-magnitude, low-frequency risks.’’).

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532 See

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sensitive information. And CCAs are
already required to disclose key
information about their operations to
various third parties that may be
considerably more extensive than that
which is mandated by new Rule 17Ad–
26(a)(7). Pursuant to Commission rules,
for example, clearing participants
generally will be notified of
circumstances related to a participant
default, the potential for a portfolio
auction, and the use of default
management tools that may precede a
recovery or wind-down event.534
Finally, while CCAs’ publicly-traded
affiliates will need to consider whether
public disclosure to investors is
appropriate when considering
implementing a recovery or orderly
wind-down, those considerations exist
regardless of any required notification to
the Commission.
Each CCA will incur costs to bring its
RWP into alignment with the final rule.
The alignment costs will depend on the
extent of the enhancements the CCA
makes to its RWP. The costs to modify
plans that require changes, including
those that need to change their RWPs to
notify the Commission before the RWP
implementation, likely will be modest
because current RWPs already place
some focus on informing the
Commission. If the CCA ever
experiences an event that causes it to
consider implementing a recovery or
orderly wind-down, it will have to
devote nominal resources to inform the
Commission as soon as practicable.
h. Testing
Final Rule 17Ad–26(a)(8) requires
RWPs to include procedures for testing
the CCA’s ability to implement the
RWPs at least every 12 months,
including by (a) requiring the CCA’s
participants and, when practicable,
other stakeholders to participate in the
testing of its plans; (b) requiring that
such testing would be in addition to
testing pursuit to paragraph (e)(13) of 17
CFR 240.17ab–22; (c) providing for
reporting the results of the testing to the
CCA’s board of directors and senior
management; and (d) specifying the
procedures for, as appropriate,
amending the plans to address the
results of such testing.
A few commenters stated that CCAs
need considerable latitude in designing
and executing their testing obligations
because including participants and
certain other stakeholders in plan
testing may be inefficient and perhaps
inappropriate due to costs, sharing of
private and confidential information,
534 See

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and other reasons.535 The Commission
recognizes that there are certain
efficiencies from allowing each CCA to
customize its testing due to differences
between markets, cleared products,
participant types, and testing
obligations from other regulators and
final Rule 17Ad–26(a)(8) allows a CCA
to designate in its policies and
procedures that certain participants, or
categories of participants, be designated
for participation in certain tests. It may
not always be appropriate to include
certain participants in all aspects of
testing.536 The different types of
products that each CCA clears helps
determine the type, resources, and
expertise of stakeholders that participate
in these testing exercises. For example,
in testing of loss allocation tools, where
losses could be assigned to a
participant, it may be useful to include
participants in the testing to allow them
to understand when they can be
expected to bear losses and how those
losses would be absorbed. In testing that
involves business losses or certain types
of non-default losses, it may be less
appropriate to have participants
participate in the testing.
One commenter stated that new
testing requirements would require
significant investment of time and
resources by a CCA’s most critical
personnel, both in the planning of the
test and in the likely manual execution
of the test for many CCAs.537 The
Commission acknowledges that CCAs
will incur costs every 12 months to plan
and execute their tests. The CCAs’ most
critical personnel will likely need to be
actively engaged in the execution of the
tests, including monitoring both market
conditions and the CCAs’ resources as
the situation develops. As stated above,
including critical personnel in testing
may increase the overall cost of testing,
but it is necessary because these critical
personnel are best positioned to identify
the planning and procedures that can
help ensure timely and effective
implementation of the RWP in the event
of a future recovery or orderly winddown.538 Plan testing benefits CCAs
because it helps them identify weakness
during the testing that can be used to
update their RWPs and it helps them
gain practical skills that may be used
during an actual recovery or wind-down
event. These effects, in turn, improve
the stability of the CCAs, which benefits
not only their participants but also the
broader financial markets. A key cost to
the CCA during plan testing is the
535 See

CCP12 at 4; DTCC at 9; ICE at 4.
supra Part II.C.8.c.
537 See OCC at 10.
538 See supra Part II.C.8.b.
536 See

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opportunity cost of the critical
personnel being less available to attend
to other matters, and participants will
incur related costs from their
participation.
In the RWP Proposing Release, the
Commission requested comment on
how costly it will be for CCAs to test
their plans as required in Rule 17Ad–
26(a)(8).539 No commenter, including
the CCAs, provided estimated plantesting costs or other information that
would aid the Commission in
quantifying the costs for CCAs to test
their RWPs every 12 months.540 Because
under the final rule the nature and
scope of the required testing is
dependent on the needs of each CCA, it
would be impracticable to estimate the
cost of testing without particularized
information about the elements and
testing scenarios of each CCA’s RWP
after the RWPs have been brought into
alignment with the final rule. Final Rule
17Ad–26(a)(8) allows a CCA to retain
discretion to organize and design its
testing scenarios to ensure that testing
exercises produce effective tests of the
elements of the RWP. This discretion
means that each CCA may test different
default and non-default scenarios from
one another. Additionally, final Rule
17Ad–26(a)(8) does not create
parameters around the number of
scenarios a CCA is required to test. Final
Rule 17Ad–26(a)(8) also allows a CCA to
designate in its policies and procedures
certain participants, or categories of
participants, for participation in certain
tests. Each CCA will rely on different
resources and expertise of stakeholders
depending on its market and the type of
products that the CCA clears, and the
number and identity of those
participants will also vary.541 The
Commission would need more
information about the type and number
of scenarios each CCA is testing or the
type and number of participants each
CCA will be designating in order to
quantify the cost of testing.
A few commenters also stated that
testing requirements in Rules 17Ad–22
and 17Ad–26 should be harmonized to
the extent possible due to high testing
costs that outweigh benefits of
independent testing.542 The testing
539 RWP Proposing Release, supra note 18, at
34740 (‘‘44. How costly will it be for covered
clearing agencies to test their plans as required in
proposed Rule 17ad–26(a)(8)? What costs will be
incurred by the participants and, when practicable,
other stakeholders? Will any of these costs
substantively vary based on whether or not the
current RWP includes testing?’’).
540 See infra note 542.
541 See supra Table 1 for the number of
participants at CCAs as of Aug. 2024.
542 See DTCC at 10–11; ICE at 4–5; OCC at 10–
11 (concluding that imposing additional testing

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requirements in new Rule 17Ad–
26(a)(8) are in addition to those in Rule
17Ad–22(e)(13), and each test must be
performed because RWP testing may
require consideration of scenarios and
testing of procedures that go beyond
default management. For example,
recovery includes the actions taken to
address uncovered losses and
replenishment of prefunded resources,
and wind-down includes actions taken
when resources have been exhausted,
necessitating the permanent cessation,
sale, or transfer of one or more of the
CCA’s core services. Nevertheless, each
CCA is allowed to structure the
planning, execution, and analysis of
each test in a way that improves
efficiency and reduces its aggregate
testing costs for itself, its participants,
and its other stakeholders so long as the
testing exercise addresses the distinct
elements of the separate testing
requirements.543 A more comprehensive
testing exercise may make it less costly
to assemble a representative set of
participants and other key stakeholders,
as well as the board, producing a more
effective testing exercise.
The new test required by final Rule
17Ad–26(a)(8) cannot be subsumed by
the default management tests under
Rule 17Ad–22(e)(13) because it goes
beyond default management by
including, for example, recovery, which
includes the actions taken to address
uncovered losses and replenishment of
prefunded resources, and wind-down,
which includes actions taken when
resources have been exhausted,
necessitating the permanent cessation,
sale, or transfer of one or more of the
CCA’s core services.
As stated in the baseline analysis,
only a few RWPs refer to plan testing.
The markets that likely will benefit the
most from this requirement are those in
which the dominant CCAs have the
least comprehensive policies around
testing in their RWPs because those
CCAs likely will create procedures for
more frequent testing and the inclusion
of more stakeholders, and those changes
likely will help ensure that those RWPs
remain current and take into account
changing system and market conditions.
Additionally, the testing will help the
test participants and other stakeholders
better understand the recovery and
orderly wind-down processes, and it
may make them more efficient in the
event of an actual recovery or winddown event because of their practice
requirements or mandating a separate, RWPdesigned test would be duplicative of ongoing
testing and would introduce unnecessary and
potentially significant burdens without a
proportionate benefit); CCP12 at 4–5; CFA at 4.
543 See supra Part II.C.8.b.

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going through a dry-run recovery and
orderly wind-down. Contrary to the
suggestion of a commenter, the
participation in a real test yields
benefits for the various stakeholders that
they cannot learn through other
methods, including reading the CCAs’
RWPs.544
The upfront costs to begin testing as
required by the new rule may not be
large for the four CCAs that do not
mention plan testing in their RWPs
because they might be able to leverage
existing requirements around default
management testing under Rule 17Ad–
22(e)(13) as they develop their new
plans that are distinct from those
existing requirements.545 The
corresponding testing costs for the
CCAs’ participants and, when
practicable, other stakeholders likely
will be moderate, in part because the
CCAs are already required to include
such entities in their default procedures
testing under Rule 17Ad–22(e)(13). The
costs for any subsequent RWP
amendments in response to the annual
testing likely will be small.
i. Board Review and Approval
Final Rule 17Ad–26(a)(9) requires
RWPs to include procedures requiring
review and approval of the plans by the
board of directors of the CCA at least
every 12 months or following material
changes to the CCA’s operations that
would significantly affect the viability
or execution of the plans, with such
review informed, as appropriate, by the
CCA’s testing of the plans. As stated in
the baseline analysis, each RWP refers
to periodic plan reviews, typically
annually or biennially.
The markets that likely will benefit
the most from this requirement are those
in which the dominant CCAs currently
have the least comprehensive RWPs in
addressing plan review because they
would create more frequent procedures
for review, and more frequent reviews,
in turn, should help ensure that RWPs
remain current and consider any
changes to the CCAs’ operations.
There are costs associated to this new
requirement. The board of directors of
some CCAs will need to devote
additional time and resources as they
move to a review cycle of at least every
12 months, and they will need to review
material changes to the CCA’s
operations that would significantly
affect the viability or execution of the
plans. For those CCAs that review every
two years, moving to a review at least
every 12 months will increase their
544 CCP12
545 See

at 4.
17 CFR 240.17ad–22(e)(13); supra Part

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costs by as much as a factor of two. We
estimate that the cost of the additional
time and resources for each additional
review will be minor because we do not
anticipate that this type of review will
take many hours or many board
resources.
Material changes to the CCA’s
operations may result in changes to the
RWP. Those RWP changes that are
material will be reviewed by the board.
We estimate that the cost of the
additional time and resources by the
CCA to determine which RWP changes
are material will be minor because we
do not anticipate that this determination
will take many hours or many resources.
Each CCA will incur costs to bring its
RWP into alignment with the final rule.
The alignment costs will depend on the
extent of the enhancements the CCA
makes to its RWP. The costs to modify
plans that have biennial reviews to
replace them with annual reviews will
be modest. The costs to review RWPs
after material changes to the CCAs’
operations will depend on the nature
and number of material changes that
result in new reviews.

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j. Quantified Costs of Written Policies
and Procedures Associated With Final
Rule 17Ad–26
The Commission has estimated the
implementation and ongoing cost of
final Rule 17Ad–26. The estimated
average implementation cost for one
CCA to review and update existing
policies and procedures is about
$49,000.546 These approximate costs are
the same as those estimated at the
proposal stage for final Rule 17Ad–26
adjusted for inflation, and we did not
receive any specific comments on this
estimate.
One commenter provided feedback on
the additional cost of obtaining
Commission approval for any updated
policies and procedures pursuant to
Rule 19b–4.547 The commenter stated
546 The $49,000 estimate is based on the following
calculations: $11,460 (blended hourly rate for
assistant general counsel at $573 for 20 hours) +
$22,450 (blended hourly rate for compliance
attorney at $449 for 50 hours) + $8,575 (blended
hourly rate for business risk analyst at $245 for 35
hours) + $6,600 (blended hourly rate for senior risk
management specialist at $440 for 15 hours) ≈
$49,000. Salaries for estimates presented in this
section are derived from SIFMA’s Management &
Professional Earnings in the Securities Industry
2013, modified to account for an 1,800-hour workyear and inflation, and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead. See infra note 610. As stated in the
baseline analysis, some RWPs are more aligned
with the nine elements that are part of final Rule
17Ad–26 than are other RWPs, so the estimated cost
may vary.
547 Davidson at 12 (‘‘As a general matter the cost
estimates in the document for the CCAs to conform
to the proposed rules are ridiculously low. Rule

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that a two order of magnitude multiplier
should be applied to the Commission’s
cost estimate because the rule-change
process requires a broad cross-section of
a CCA management and staff, as well as
interactions with SEC staff.548 The
Commission acknowledges that once a
CCA has reviewed and updated its
policies and procedures the CCA will
have to submit its plan modifications to
the Commission for review, public
comment, and approval as required by
Rule 19b–4, which requires time and
effort from both CCA management and
staff. As the number of consultations
between CCA management and SEC
staff increases during the process of
submitting the CCA’s plan
modifications, there will be
corresponding increases in costs, as the
commenter suggested. But the
magnitude of these costs will be far less
than the commenter suggested (i.e., 100
times more than the costs associated
with reviewing and updating policies
and procedures). Instead, the
Commission estimates this process will
conservatively cost about $74,000 per
CCA.549 In addition, to the extent that
change processes require the participation by a
much broader cross-section of CCA management
and staff . . . . A two order of magnitude
multiplier on the current document’s estimates
would not overcount the cost to comply.’’).
548 Id. (‘‘Furthermore, the ‘informal’ interaction
with [Trading & Markets] staff frequently continues
for multiple months, always involving Legal
Department staff and frequently requiring the
engagement of domain experts as well. All this
happens before a formal submission is permitted,
and the post formal submission process also
requires a significant amount of interaction,
although that process draws more on Legal than
domain expert resources.’’).
549 Assuming that the distribution of
responsibility among CCA staff for completing the
Rule 19b–4 submission process is similar to the
distribution for reviewing and updating policies
and procedures, see supra note 546 (estimating 120
hours of total CCA staff time), the commenter’s
estimate would imply that CCA staff would spend
an average of approximately 12,000 hours per
submission, inclusive of the 120 hours to review
and update policies and procedures. The
Commission disagrees that this is a reasonable
estimate of the number of hours for the process.
Rather, the Commission has previously estimated—
after receiving no comments on a similar estimate
in the proposing release—that submitting a
proposed rule change through the Rule 19b–4
process takes a CCA 34 hours for an average rule
change filing and 129 hours for a novel or complex
rule change filing. See Process for Submissions for
Review of Security-Based Swaps for Mandatory
Clearing and Notice Filing Requirements for
Clearing Agencies; Technical Amendments to Rule
19b–4 and Form 19b–4 Applicable to All SelfRegulatory Organizations, Release No. 34–67286
(June 28, 2012) 77 FR 41602, 41631 & n.211 (July
13, 2012). Using the time for a novel or complex
rule change filing as a conservative estimate, the
Commission assumes that the CCA staff with the
highest hourly cost involved in reviewing and
updating CCA policies and procedures (i.e., an
assistant general counsel) performs all 129 hours of
tasks associated with the Rule 19b–4 submission
process, resulting in an estimated cost of $74,000.

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a CCA must submit an advance notice,
the Commission estimates a cost of
about $73,000 per CCA.550
Final Rule 17Ad–26 will also impose
ongoing costs on a CCA. The rule will
require ongoing monitoring and
compliance activities with respect to the
written policies and procedures created
in response to the rule. Based on the
Commission’s previous estimates for
ongoing monitoring and compliance
costs with respect to existing 17 CFR
240.17ad–22(e)(2) (‘‘Rule 17Ad–
22(e)(2)’’),551 the Commission estimates
that the ongoing monitoring and
compliance activities required by final
Rule 17Ad–26 will impose an annual
cost on CCAs of $19,000 per CCA.552
These approximate costs are the same as
those estimated at the proposal stage for
final Rule 17Ad–26 adjusted for
inflation, and we did not receive any
specific comments on this estimate.
2. Amendments to Rule 17Ad–22(e)(6)
Rule 17Ad–22(e)(6) requires CCAs
that provide central counterparty
services to establish a risk-based margin
system to manage their credit exposures
to their participants. The final
amendment to Rule 17Ad–22(e)(6)(ii)
will strengthen the requirements: (a) by
requiring that CCAs monitor intraday
risk exposures to their participants on
an ongoing basis, and (b) by providing
additional specificity to the
circumstances in which CCAs should
have policies and procedures in place to
make intraday margin calls. The final
amendment to Rule 17Ad–22(e)(6)(iv)
will strengthen the requirements by
ensuring that CCAs can meet their Rule
17Ad–22(e)(6) obligations when their
price data or other substantive inputs
are not available by including
procedures to use price data or other
Specifically, the $74,000 estimate is based on the
following calculations: $73,917 (blended hourly
rate for assistant general counsel at $573 for 129
hours) ≈ $74,000. If instead the estimated time for
an average rule change filing were used, the
estimated cost would be $19,000 based on the
following calculations: $19,482 (blended hourly
rate for assistant general counsel at $573 for 34
hours) ≈ $19,000.
550 The Commission estimates an additional cost
of $73,000 based on the following calculations:
$52,716 (blended hourly rate for assistant general
counsel at $573 for 92 hours) + $20,440 (blended
hourly rate for attorney at $511 for 40 hours) ≈
$73,000. See id. at 41632 & nn.213–14 (estimating
time for Advance Notice).
551 See CCA Standards Adopting Release, supra
note 5, at 70892 (discussing Rule 17Ad–22(e)(2)).
552 The $19,000 estimate is based on the following
calculations: $5,730 (blended hourly rate for
assistant general counsel at $573 for 10 hours) +
$13,470 (blended hourly rate for compliance
attorney at $449 for 30 hours) ≈ $19,000. See infra
note 611. As stated in the baseline analysis, some
RWPs are more aligned with the nine elements that
are part of final Rule 17Ad–26 than are other RWPs,
so the estimated cost may vary.

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
substantive inputs from an alternate
source or to use a risk-based margin
system that does not similarly rely on
the unavailable or unreliable
substantive inputs.
a. Monitoring Exposure and Intraday
Margin Calls

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CCAs use intraday margin calls as one
of their tools to manage their credit
exposures to their participants. The
final amendment to Rule 17Ad–
22(e)(6)(ii) requires CCAs to monitor
exposure on an ongoing basis and to
make intraday margin calls as frequently
as circumstances warrant, possibly
including when risk thresholds
specified by the CCA are breached or
when the products cleared or markets
served display elevated volatility, which
would help reduce, but not eliminate,
their credit exposure to their
participants. When facing special
circumstances such as these, the CCA is
required to document when it
determines not to make an intraday call
pursuant to its written policies and
procedures required under amended
Rule 17Ad–22(e)(6)(ii)(C).
Two commenters stated that
members’ intraday actions can create
large negative externalities with respect
to other participants and the CCA itself
that the CCA could mitigate through its
margin policies.553 One commenter
stated that margin calls benefit
participants and the CCA, which, in
turn, serves the interests of broader
market stability.554 The Commission
recognizes that the structure of these
clearing markets may permit certain
negative externalities, and it has crafted
the amendment to Rule 17Ad–
22(e)(6)(ii) to reduce those externalities,
which will, in turn, improve market
stability. The final amendment affords
CCAs latitude in crafting their updated
margin procedures that will better
reduce these negative externalities given
553 See Better Markets at 2 (‘‘The requirement that
covered clearing agencies monitor intraday
exposure responds to the risks that may arise
intraday. A CCP faces the risk that its exposure to
its participants can change rapidly as a result of
intraday changes in price, positions, or both,
including adverse price movements, as well as
participants building larger positions through new
trading (and settlement of maturing trades). For
these reasons, a CCP must monitor and address
such risks on an ongoing basis.’’); see also SIFMA
at 4 (‘‘Failure to collect and maintain adequate
margin from one clearing member transfers the risk
of that deficiency to the other clearing members and
market participants.’’).
554 See SIFMA at 6 (‘‘SIFMA believes that the
making of such calls is essential to prudent risk
management by a Clearing Agency and thus
provides meaningful benefits not only to the
Clearing Agency, but also to market participants
and serves the interests of financial stability by
protecting the Clearing Agency from default risk.’’).

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their products cleared and markets
served.
Each CCA will have to determine how
to operationalize ‘‘on an ongoing basis’’
and ‘‘as frequently as circumstances
warrant’’ given its own market and
participants. Each CCA will also need to
ensure that its systems can monitor
exposure and make margin calls at those
frequencies. As discussed in the
baseline analysis, each CCA is already
capable of monitoring exposure and
collecting margin on an intraday basis;
nevertheless, some CCAs might need to
make changes to align with the final
amendment, such as increasing the
frequency of exposure monitoring and
improving their information technology,
so they can process more frequent
scheduled and ad hoc intraday margin
calls. As facts and circumstances change
through time, CCAs might need to
change how they operationalize these
new requirements, including changing
the frequency of potential scheduled
and ad hoc intra-day margin calls.
To the extent a CCA currently aligns
with the final amendment, it will not
experience new benefits from the final
amendment. Nevertheless, the
amendment will have incremental
benefits for the market because it will
ensure that the CCAs continue to meet
the standard of the final amendment
with which they are currently aligned
and that any new CCA that provides
central counterparty services meets the
same standard.
In addition to updating policies and
procedures surrounding the risk-based
margin systems that require changes,
some CCAs might need to update IT and
other systems in order to assess, impose,
and collect intraday margin on a more
frequent basis. The costs to modify the
risk-based margin systems that require
changes will be modest because CCAs
have already incurred the initial costs of
building their risk management
infrastructure, including the ability to
make intraday margin calls based on
some sort of intraday monitoring. Once
those costs have been incurred and
amortized, the variable costs of
modifying the frequency of the
monitoring, and of additional margin
calls, are likely low.
To the extent that the final
amendment results in CCAs being
positioned to make more unscheduled
margin calls, participants may face
increased liquidity-management costs
whether or not the CCAs actually make
more unscheduled margin calls. Several
commenters highlighted the potential
for increased margin calls to impose
increased liquidity costs on the CCAs’

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participants and their clients,555 and
several commenters explicitly stated
that CCAs, in order to reduce
participants’ liquidity costs, must make
the triggers for intraday margin calls
known to their participants.556 A CCA’s
margin methodology constitutes a
material aspect of its operations,
meaning that it should be considered
part of a CCA’s stated policies,
practices, or interpretations under
Exchange Act Rule 19b–4. As such, a
CCA’s margin methodology is subject to
the filing obligations applicable to SROs
under section 19(b) of the Exchange Act
regarding any proposed rule or
proposed change to its rules. Through
the notice and comment process, market
participants and the general public will
have transparency into a CCA’s margin
call methodology. This information will
enable the participants to reduce their
liquidity costs to the extent they
incorporate it into their liquidity
models. That notwithstanding, a CCA’s
policies and procedures regarding
intraday margin generally should
consider concerns such as
procyclicality, so not every margin call
can be perfectly predicted by the
participants.
One commenter stated that it is more
costly for participants to respond to
margin calls late in the trading day than
early in the trading day because, in part,
the United States is the last major
market to close each day due to the
geographic position of the International
Date Line.557 The Commission
recognizes that margin calls are costly
for participants, that those costs may
potentially rise near the end of the
trading day, and that those costs may
potentially be higher during times of
market stress; nevertheless, these timevarying costs are not unique to the
clearing market. Some participants
might adjust their liquidity models to
control for the costs of late-in-day ad
hoc margin calls that CCAs might make.
A few commenters stated that CCAs
should be quick to return margin if
markets revert during the trading day,
and no commenter recommended
against it.558 The Commission is
unaware of any CCA that routinely
returns margin on an intraday basis
today even though no SEC rule would
555 See Davidson at 9; Better Markets at 7; ICI at
10 (stating ‘‘the unpredictability of such margin
calls means that funds must keep a portion of their
assets in highly liquid assets in anticipation of
potential ad hoc intraday margin calls, which may
lower returns for fund investors’’), 11; SIFMA at 9;
The Associations at 2; ICE at 2.
556 See Better Markets at 7; ICI at 11; SIFMA at
5, 9.
557 See Davidson at 9.
558 See The Associations at 2; Davidson at 2;
SIFMA at 8.

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prohibit it. The Commission is not
requiring CCAs to return some or all the
newly collected intraday margin in the
event of a same-day reversion, and it is
instead leaving that decision to each
CCA. The CCA will need to balance the
benefits of potentially reduced liquidity
costs to the participant from returning
intraday margin against the benefits of
potentially decreased risk to the CCA
and its members from retaining intraday
margin during periods of heightened
asset volatility. The Commission’s
approach to Rule 17Ad–22(e) is to
provide flexibility to CCAs, subject to
their obligations and responsibilities as
SROs under the Exchange Act, to design
and structure their policies and
procedures to take into account the
differences among clearing agencies and
their participants and differences
through time.
Increased intraday margin calls may
potentially result in procyclicality
problems that exacerbate market stress:
margin calls during periods of declining
asset prices may cause participants to
sell assets, putting further negative
pressure on asset prices and the market
that may negatively affect not just other
participants but also may spill over into
other CCAs and their markets.559 This
stress may be transmitted by
participants that are members of more
than one CCA when, for example, a
margin call in one market makes a
participant sell assets in a different
market. The stress may also be
transmitted by assets that are linked
between markets, such as the link
between option prices (OCC) and equity
prices (NSCC). Various industry
participants have expressed concerns
that excessive intraday margin calls,
especially unanticipated ones, have the
potential to exacerbate liquidity issues
for clearing members who would have
to post new liquid collateral to the CCA
with little notice,560 and one commenter
stated that the unanticipated margin call
itself might cause the member firm to
default.561 On the other hand, such
intraday margin calls reduce immediate
559 One commenter agrees with the Commission’s
analysis of procyclicality. See The Associations at
2 (‘‘Intraday margin calls can cause procyclical
impacts to markets, especially if these calls are
unpredictable for clearing participants.’’).
560 Revisiting Procyclicality: The Impact of the
COVID Crisis on CCP Margin Requirements, Futures
Indus. Ass’n (Oct. 2020), available at https://
www.fia.org/sites/default/files/2020-10/FIA_WP_
Procyclicality_CCP%20Margin%20Requirements.
pdf.
561 See ICE at 2 (‘‘ICE does not believe the
Commission has considered the costs associated
with the procyclical effects that intraday margin
calls can have, potentially exacerbating credit and
liquidity concerns with clearing members and in
extreme cases causing market participant
defaults.’’).

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credit risk for the CCAs during periods
of market stress, which, in turn, reduces
risk for the other participants of those
CCAs.
CCAs, when deciding whether to
make an intraday margin call exception,
generally should consider these
concerns about procyclicality and
potential participant default.562
Notwithstanding their written policies
and procedures that would require a
CCA to issue a margin call in a
particular situation, the CCA may
choose to make an exception to its
policies and procedures and not make a
call, including in a situation where the
CCA believes that procyclicality is a
substantive risk or that the risk of the
default of a particular participant is
transient, perhaps due to the CCA’s
knowledge of the participant’s portfolio.
CCAs’ ability to make exceptions based
on their particular facts and
circumstances allows them to balance
these competing risks during future
crises.563
b. Reliable Sources of Timely Price Data
and Other Substantive Inputs
CCAs have risk-based margin systems
that, to different degrees, align with the
final amendment to Rule 17Ad–
22(e)(6)(iv), with the exception of at
least one CCA that likely would need to
implement additional changes to its
risk-based margin system to ensure that
it could continue to meet its obligations
under Rule 17Ad–22(e)(6) in the event
of the unavailability of a substantive
input from a third party. If that one CCA
were to lose access to its price data or
other inputs, it may be unable to
perform its core payment, clearing, and
settlement services, and that, in turn,
may force it into an orderly wind-down,
which would have negative
implications for its participants and the
broader financial system.
The incremental benefits of the final
amendment beyond the baseline lie
primarily in expanding the scope of this
rule beyond price data and further
specifying the nature of the procedures
that a CCA uses if such data or inputs
are not readily available or reliable and
in ensuring that any new CCA has that
same standard of the final amendment.
These benefits are substantial because
the final amendment reduces the risk
562 See

Part II.A.2.b.iii.
OCC at 4 (‘‘However, while OCC agrees
with goal of ensuring that this capability can be
exercised when and as needed, we are concerned
that imposing a requirement to establish strict
quantitative thresholds that will trigger an
otherwise unscheduled margin call would prevent
the CCA from applying its judgment and expertise
to determining whether the benefit of collecting that
margin for its own purposes at that moment
outweighs these possible procyclical impacts.’’).
563 See

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that the CCA fails to provide its core
payment, clearing, and settlement
services in future periods of high market
stress.564 For example, the Options
Clearing Corporation cleared a year-todate average daily volume of 47.4
million contracts through April 2024,
and DTCC reported that the average
daily cleared broker-to-broker
transactions was $1.9 trillion in 2023.565
Because there is increased activity in
the financial markets at the end of the
trading day,566 even a one-hour price
data feed malfunction near the end of
the trading day could affect the normal
processing of millions of options
contracts and hundreds of billions of
dollars of equity transactions. Moreover,
the unavailability of price data at one
CCA that is closely interconnected to
another CCA 567 could result in negative
spillover effects that spread to that other
CCA.
In the RWP Proposing Release, the
Commission requested comment on
how costly it will be for CCAs to secure
the use of price data or substantive
inputs from an alternate source.568
564 One commenter stated that the proposed
amendment to Rule 17Ad–22(e)(6)(iv) should be
scaled back because, in part, no CCA has ever had
an input-price failure that it was unable to resolve
through its normal business operations (see ICE at
3); nevertheless, evolving market conditions,
including high levels of growth in some cleared
markets, justify regulatory changes to reduce the
risk of future failures.
565 See OCC, Press Release OCC April 2024
Monthly Volume Data (May 2, 2024), available at
https://www.theocc.com/newsroom/views/2024/0502-occ-april-2024-monthly-volume-data and DTCC
2023 Annual Report, supra note 471.
566 The two busiest trading periods for both
equities and equity options are usually immediately
after the opening bell and immediately before the
closing bell.
567 For instance, OCC and NSCC have an
information-sharing agreement to facilitate the
settlement and delivery of physically-settled stock
options cleared by OCC via NSCC. See Securities
Exchange Act Release No. 37731 (Sept. 26, 1996),
61 FR 51731 (Oct. 3, 1996) (SR–OCC–96–04 and
SR–NSCC–96–11) (Order Approving Proposed Rule
Change Related to an Amended and Restated
Options Exercise Settlement Agreement Between
the Options Clearing Corporation and the National
Securities Clearing Corporation); Securities
Exchange Act Release No. 43837 (Jan. 12, 2001), 66
FR 6726 (Jan. 22, 2001) (SR–OCC–00–12) (Order
Granting Accelerated Approval of a Proposed Rule
Change Relating to the Creation of a Program to
Relieve Strains on Clearing Members’ Liquidity in
Connection With Exercise Settlements); and
Securities Exchange Act Release No. 58988 (Nov.
20, 2008), 73 FR 72098 (Nov. 26, 2008) (SR–OCC–
2008–18 and SR–NSCC–2008–09) (Notice of Filing
and Order Granting Accelerated Approval of
Proposed Rule Changes Relating to Amendment No.
2 to the Third Amended and Restated Options
Exercise Settlement Agreement).
568 RWP Proposing Release, supra note 18, at
34739 (‘‘40. How costly is it for covered clearing
agencies to secure the use of price data or
substantive inputs from an alternate source? Must
the data or substantive inputs subscription be
purchased outright, or can the covered clearing
agency, for a lower fee, purchase an option to use

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Several commenters addressed the costs
of the proposed amendments to Rule
17Ad–22(e)(6)(iv). Some commenters
stated that (a) alternate data sources are
too costly and unlikely to substantively
affect margin calculations,569 (b) the
alternate data may not be available in
the market for the desired
circumstances,570 and (c) it may not be
feasible to switch to a new source at the
desired time due to capacity, timing,
and other constraints.571 No commenter
presented estimated data costs, and no
commenter presented any data,
methodology, or basis for estimating
such costs.
In the RWP Proposing Release, the
Commission requested comment on
how costly it will be for CCAs to secure
the use of alternate risk-based margin
systems.572 Several commenters stated
that developing an alternate risk-based
margin system is too costly.573 The
amendments being adopted in this
release do not mandate the use or
development of an alternate risk-based
margin system. Rather, the amendments
require that a CCA must use procedures
for addressing scenarios when price
data or other substantial inputs become
unavailable or unreliable to ensure that
the CCA can meet its credit obligations
to its participants, and that such
procedures must include either: (i) price
data or substantive inputs from an
alternate source; or (ii) if the CCA does
not use an alternate source, a risk-based
margin system that does not rely on the
unavailable or unreliable substantive
input. As discussed in the baseline
analysis, several CCAs already use one
or both of these alternatives in their
current margin systems. Even for a CCA
that does not have policies and
procedures developed to address this
the data and substantive inputs only when its
primary sources prove inadequate?’’).
569 See CCP12 at 2 (stating that if the Commission
prescribed a definition of ‘‘substantive input,’’ a
CCA may be forced to ‘‘obtain, often at great
expense, alternate data sources for inputs with
limited utility and minimal or no impact on margin
calculations.’’); OCC at 5 (stating that requiring
CCAs to develop and maintain an entire alternate
risk-based margin system would be prohibitively
expensive and operationally burdensome); id. at 2
and 4.
570 See DTCC at 4.
571 See Davidson at 7.
572 RWP Proposing Release, supra note 18, at
34740 (‘‘41. How costly is it for covered clearing
agencies to secure the use of alternate risk-based
margin systems? Would covered clearing agencies
create their own alternate risk-based margin
systems, or would they secure access to one from
a third party, and, if so, at what cost?’’).
573 See ICE at 2–3 (stating that the Commission
has not ‘‘recognized the considerable costs to
[CCAs], clearing firms and other market participants
that would be required to develop and implement
alternative margin models to address a remote and
theoretical problem with price or other data
inputs’’); OCC at 2, 4–5; CCP12 at 3.

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issue, the costs to develop such policies
and procedures will not be very large
because their experience dealing with
periodic input failures means that they
are already familiar with the risks of
failures and the processes for dealing
with those failures.
c. Quantified Costs of Written Policies
and Procedures Associated With Final
Amendments to Rule 17Ad–22(e)(6)
The estimated costs for the final
amendment to Rule 17Ad–22(e)(6) may
require a CCA to make fairly substantial
changes to its policies and procedures.
Based on the similar policies and
procedures requirements and the
corresponding estimates previously
made by the Commission for several
rules in the CCA Standards where the
Commission anticipated similar
costs,574 the Commission estimates that
each CCA will incur a one-time cost of
about $59,000.575 Additionally, the
Commission estimates that the cost of
obtaining Commission approval for any
updated policies and procedures
pursuant to Rule 19b–4 will
conservatively cost about $23,000 per
CCA.576
The final amendments to Rule 17Ad–
22(e)(6) will also impose annual costs
on the CCAs. The final rule will require
ongoing monitoring and compliance
activities with respect to the written
policies and procedures created in
response to the final rule. Based on the
similar reporting requirements and the
corresponding estimates previously
made by the Commission for several
rules in the CCA Standards where the
Commission anticipated similar
costs,577 the Commission estimates that
574 See CCA Standards Adopting Release, supra
note 5, at 70892, 70895–97 (discussing Rules 17Ad–
22(e)(2) and (13)). Although the rule amendment is
with respect to Rule 17Ad–22(e)(6), these Rules
present the best overall comparison to the current
rule amendment, in light of the nature of the
changes needed to implement the proposal here and
what was proposed in the CCA Standards.
575 The $59,000 estimate is based on the following
calculations: $11,460 (blended hourly rate for
assistant general counsel at $573 for 20 hours) +
$17,960 (blended hourly rate for compliance
attorney at $449 for 40 hours) + $6,504 (blended
hourly rate for computer operations manager at
$542 for 12 hours) + $8,160 (blended hourly rate
for senior programmer at $408 for 20 hours) +
$11,000 (blended hourly rate for senior risk
management specialist at $440 for 25 hours) +
$4,056 (blended hourly rate for senior business
analyst at $338 for 12 hours) ≈ $59,000. Salaries for
estimates presented in this section are derived from
SIFMA’s Management & Professional Earnings in
the Securities Industry 2013, modified to account
for an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead. See infra note 603.
576 See supra note 549.
577 See CCA Standards Adopting Release, supra
note 5, at 70893, 70895–96 (discussing Rules 17Ad–
22(e)(6) and (13)).

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the ongoing activities required by the
amendments to Rule 17Ad–22(e)(6) will
impose an annual cost of about
$31,000.578
3. Other Compliance Costs
We have considered the potential
effects on entities that are implementing
other recently adopted rules during the
compliance period for these
amendments.
Consistent with its long-standing
practice, the Commission’s economic
analysis in each adopting release
considers the incremental benefits and
costs for the specific rule—that is, the
benefits and costs stemming from that
rule compared to the baseline. The
Commission acknowledges that
complying with more than one rule in
the same time period may entail
compliance costs that will be higher
than if the rules were to be complied
with separately. The Commission
identified several rules for which the
compliance periods overlap, in part,
with the compliance periods for the
amendments, but the compliance dates
adopted by the Commission in recent
rules are generally spread out over a
period extending to January 2026.579
Entities subject to the amendments
may be subject to one or more other
recently adopted rules depending on
whether those entities’ activities fall
within the scope of the other rules.
Specifically, the Treasury Clearing
Adopting Release applies to certain
clearing agencies for U.S. Treasury
securities and certain participants of the
CCAs.580 The Rule 10c–1a Adopting
Release also applies to certain
CCAs 581—although due to differing
requirements, these rules may not all
apply to any given CCA. Where overlap
in compliance periods exists, the
Commission acknowledges that there
may be additional costs on those entities
that are subject to one or more other
rules.
578 The $31,000 estimate is based on the following
calculations: $11,674 (blended hourly rate for
compliance attorney at $449 for 26 hours) + $10,045
(blended hourly rate for business risk analyst at
$245 for 41 hours) + $9,240 (blended hourly rate
for senior risk management specialist at $440 for 21
hours) ≈ $31,000. See infra note 604.
579 See supra Part IV.B (listing recent rule
adoptions and their respective compliance dates)
and Part III (listing compliance dates).
580 See Treasury Clearing Adopting Release, supra
note 62, at 2717, 2791.
581 See Rule 10c–1a Adopting Release, supra note
457, at 75647, 75717–18. The final rule adds
‘‘registered clearing agencies’’ to the proposed rule’s
scope of entities that are permitted to act as
reporting agents, which was limited to brokers or
dealers. Id. at 75656. However, a registered clearing
agency may elect not to be a reporting agent. Id. at
75733.

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4. Efficiency, Competition, and Capital
Formation
a. Efficiency
CCAs current policies and
procedures, at a high level, largely align
with final Rule 17Ad–26. As stated in
the baseline, all CCAs make at least
some reference in their current RWPs to
each of the nine required elements of
this new rule with the exception of plan
testing.582 Therefore, the Commission
does not expect substantive efficiency
changes due to the final rule.
The final amendment to Rule 17Ad–
22(e)(6)(ii) will benefit participants by
providing increased specificity around
the methods used by CCAs to assess
intraday margin calls, thus enabling
more efficient planning in the use of
scarce margin funds. This will reduce
any negative effects on participants’
liquidity costs, as previously
described.583
The final amendment to Rule 17Ad–
22(e)(6)(iv) will increase informational
efficiency by promoting the quick and
reliable dissemination of information
that allows for price discovery during
periods when price data or other
substantive inputs are not available to
the CCA. Calculating margin and
managing and disseminating risk
information are core competencies of all
CCAs, and various stakeholders rely on
those data outputs. By requiring
secondary sources, the final amendment
may mitigate the reduction in efficiency
that would otherwise happen when
primary sources fail at a CCA that does
not have secondary sources. Having the
ability to continue calculating margin
and disseminating that information to
participants even when primary data are
not available will prevent a reduction in
informational efficiency when price
data or other substantive inputs are not
available.

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b. Competition
As described in the baseline, CCAs
are currently not subject to strong
competitive pressures given high startup costs, the network effects that are
inherent in the clearing business, their
subsequent historical consolidation by
market segments (options clearing for
OCC, equities clearing for NSCC, fixed
income clearing for FICC, etc.), and
clearing mandates that require the use of
clearing services.584 In terms of
potential new entrants in the market for
582 Three CCAs do not mention plan testing in
their RWPs. See supra Part IV.B.3.h.
583 SIFMA at 4 (‘‘Failure to collect and maintain
adequate margin from one clearing member
transfers the risk of that deficiency to the other
clearing members and market participants.’’).
584 See SIFMA at 10–11.

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clearing and settlement services, the
incremental costs of the final Rule
17Ad–26 and the final amendment to
Rule 17Ad–22(e)(6)(ii) are small and,
therefore, unlikely to be noteworthy
barriers to entry. The final amendment
to Rule 17Ad–22(e)(6)(iv) may have a
modest effect on competition because it
imposes additional start-up costs that a
new competitor would have to assume
to enter the CCA market.
As discussed above, the Commission
acknowledges that overlapping
compliance periods may in some cases
increase costs. We acknowledge that to
the extent overlap occurs between the
compliance periods of this rule and the
compliance periods of other rules, there
could be costs that could affect
competition. However, the compliance
dates are spread over a period extending
to January 2026. We therefore do not
expect the risk of negative competitive
effects from increased compliance costs
from overlapping compliance periods to
be significant.
c. Capital Formation
The Commission expects the effects of
the final rule and amendments on
capital formation to be ancillary because
the final rule and amendments focus on
issues related to secondary market
trading and not on issues related to
primary market issuances. To the degree
that market participants view equity and
fixed-income CCAs as more reliable
venues for risk transfer, they may
increase their activity and therefore
signal a demand for more capitalcreating securities.
D. Reasonable Alternatives to the Final
Rule and Amendments
1. Establish Precise Triggers for
Implementation of RWPs Across All
CCAs
Instead of requiring CCAs to identify
and implement their own triggers to
recovery and orderly wind-down
procedures, the Commission could
adopt a more prescriptive approach and
determine specific triggers that all CCAs
would be required to follow. For
example, the Commission could specify
that exhausting prefunded financial
resources in the waterfall structure of a
CCA would immediately trigger a
recovery or wind-down procedure.585
585 See John W. McPartland and Rebecca Lewis,
The Goldilocks Problem: How to Get Incentives and
Default Waterfalls ‘‘Just Right’’, 41 Econ. Persps. 1,
2 (Mar. 2017), available at https://
www.chicagofed.org/publications/economicperspectives/2017/1-mcpartland-lewis (‘‘All CCPs
have a default waterfall that provides financial
resources for managing a clearing member default.
The waterfall consists of both prefunded resources
and unfunded obligations. When a clearing member

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Alternatively, the Commission could
require a trigger when unfunded
commitments to the CCP are called
upon and reach a specific dollar
number.
In the RWP Proposing Release, the
Commission asked, ‘‘[s]hould the
Commission prescribe any particular
triggers, whether qualitative or
quantitative? For example, should the
Commission require that a CCA should
consider using the exhaustion of its
prefunded resources as a trigger?’’ 586
One commenter proposed both a list of
required triggers and a list of triggers
that each CCA should consider.587 This
alternative would harmonize triggers
across all CCAs, and it would create a
single standard that market participants
could rely on, eliminating any
confusion or ambiguity attendant to
different triggers. Nevertheless, CCAs
are active in different markets (equities,
bonds, options, CDS, etc.), have
different organizational structures, and
focus on different risks. As an example,
one of the OCC’s focus areas is
monitoring option sensitivities, and, as
a result, its margin models and waterfall
structure are responsive to that
consideration while FICC, on the other
hand, focuses on duration and
convexity so its waterfall structure is
more responsive to those risks. Having
this more prescriptive approach would
be unresponsive to the characteristics of
each market and could expose CCAs to
recovery or wind-down triggers that are
not aligned with its actual risks. One
defaults, the CCP must continue to meet defaulter’s
financial obligations, whose performance it
guarantees, to the non-defaulting clearing members,
attempt to find clearing members willing accept the
defaulter’s clients, and return to a matched book
status by liquidating or auctioning off the
defaulter’s positions. If the CCP cannot find other
clearing members willing to onboard the defaulter’s
clients, then the clients’ positions must be
liquidated to restore the CCP to a matched book
status. The default waterfall provides funding to
cover the cost of meeting the defaulter’s obligations
and liquidating the defaulter’s positions, as well as,
if necessary, those of its clients.’’).
586 RWP Proposing Release, supra note 18, at
34725 (‘‘25. Proposed Rule 17ad–26 would also
require that the RWP identify triggers but does not
prescribe a list of specific triggers. Should the
Commission prescribe any particular triggers,
whether qualitative or quantitative? For example,
should the Commission require that a covered
clearing agency should consider using the
exhaustion of its prefunded resources as a
trigger?’’).
587 The Associations at 17 (‘‘We propose for the
Commission to provide a list of triggers that are
required to be covered in the RWP, and ideally
another list of triggers that a clearing agency should
consider. For this second list, a clearing agency
could determine (yet explain) that a trigger is not
relevant for the products cleared and/or markets
served by the clearing agency.’’).

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
commenter agreed with the
Commission’s conclusion.588

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2. Establish Specific Scenarios and
Analyses
Instead of requiring CCAs to identify
scenarios that may prevent them from
being able to provide their core
payment, clearing, and settlement
services, the Commission could adopt a
more prescriptive approach and identify
specific scenarios in new Rule 17Ad–26
that each CCA must include in its RWP.
For example, the Commission could
identify the scenario of the default of
the CCA’s one or two largest
participants and scenarios of specific
business risks such as the default of a
custodian bank or a significant cyberattack.589 The Commission could also
require more detail regarding how each
of the CCAs analyzes these scenarios.590
588 OCC at 8 (‘‘Prescribing bright line, quantitative
triggers that would apply to all CCAs, irrespective
of their unique structures and the features of the
markets they serve and products they clear, would
run the risk of creating market instability by
potentially forcing a CCA to initiate its RWP even
when the CCA has not yet made the determination
that it was necessary. For this reason, we support
the Commission’s determination to allow CCAs to
identify appropriate triggers for their individual
circumstances.’’) (citation omitted).
589 Additional such scenarios that could be
enumerated in new Rule 17Ad–26 could include
any or all of the following scenarios: (A) credit
losses or liquidity shortfalls created by single and
multiple clearing member defaults; (B) liquidity
shortfall created by a combination of clearing
member default and a failure of a liquidity provider
to perform; (C) settlement bank failure; (D)
custodian or depository bank failure; (E) losses
resulting from investment risk; (F) losses from poor
business results; (G) financial effects from
cybersecurity events; (H) fraud (internal, external,
and/or actions of criminals or of public enemies);
(I) legal liabilities, including those not specific to
the CCA’s business as a CCA; (J) losses resulting
from interconnections and interdependencies
among the CCA and its parent, affiliates, and/or
internal or external service providers; (K) losses
resulting from interconnections and
interdependencies with other CCAs; and (L) losses
resulting from issues relating to services that are
ancillary to the CCA’s critical services. It could also
include scenarios involving multiple failures (e.g.,
a member default occurring simultaneously, or
nearly so, with a failure of a service provider) that,
in the judgment of the CCA, are particularly
relevant to its business.
590 That is, the Commission could require in new
Rule 17Ad–26 that the RWP include an analysis
that includes: (A) a description of the scenario; (B)
the events that are likely to trigger the scenario; (C)
the CCA’s process for monitoring for such events;
(D) the market conditions, operational and financial
difficulties and other relevant circumstances that
are likely to result from the scenario; (E) the
potential financial and operational impact of the
scenario on the CCA and on its clearing members,
internal and external service providers and relevant
affiliated companies, both in an orderly market and
in a disorderly market; and (F) the specific steps the
CCA would expect to take when the scenario
occurs, or appears likely to occur, including,
without limitation, any governance or other
procedures that may be necessary to implement the
relevant recovery tools and to ensure that such
implementation occurs in sufficient time for the
recovery tools to achieve their intended effect.

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This alternative approach may reduce
compliance costs by establishing the
precise scope of the rule, which could
allow CCAs to tailor their RWPs to the
enumerated requirements for identifying
scenarios and analyses. In addition, the
inclusion of elements similar to those
prescribed by other agencies that also
regulate several CCAs could result in
certain efficiencies and reduced costs
for those CCAs.591
However, the adopted rule’s approach
retains flexibility compared with this
alternative by permitting the scenarios
to vary across CCAs because the
underlying risks vary across markets
and participants. Because participants
vary in size and economic significance
across CCAs, scenarios invoking a predetermined number of failures or fixed
dollar amounts may have significantly
different effects in one CCA than in
another.
3. Establish Specific Rules, Policies,
Procedures, Tools, and Resources
Instead of requiring CCAs to describes
the rules, policies, procedures, and any
other tools or resources the CCA would
rely upon in the event of a recovery or
during an orderly wind-down to address
the scenarios identified in their RWPs,
the Commission could adopt a more
prescriptive approach and identify in
new Rule 17Ad–26 the rules, policies,
procedures, and any other tools or
resources for all CCAs. The Commission
could also require in new Rule 17Ad–
26 more detail regarding how a CCA
analyzes its rules, policies, procedures,
tools, and resources.592
591 See supra Part IV.B.2; RWP Proposing Release
supra note 18, at 34716–7 nn.68–69; id. at 34724–
25 (discussing Request for Comment 15, and 21–
23); see also supra notes 418 and 419 for
commenters who recommended that the
Commission and CFTC coordinate to ensure that
any final rules are aligned or structured so that
dually registered clearinghouses (i.e., CCAs
registered with the Commission and SIDCOs
registered with the CFTC) can efficiently comply
with both Commission and CFTC rules.
592 For example, the Commission could require in
new Rule 17Ad–26 that the RWP include an
analysis that includes: (A) a description of the tools
that the CCA would expect to use in each scenario;
(B) the order in which each tool would be expected
to be used; (C) the time frame within which the tool
would be used; (D) the governance and approval
processes and arrangements within the CCA for the
use of each of the tools available, including the
exercise of any available discretion; (E) the
processes to obtain any approvals external to the
CCA (including any regulatory approvals) that
would be necessary to use each of the tools
available, and the steps that might be taken if such
approval is not obtained; (F) the steps necessary to
implement the tools; (G) the roles and
responsibilities of all parties, including nondefaulting participants; (H) whether the tool is
mandatory or voluntary; (I) an assessment of the
associated risks from the use of each tool to nondefaulting clearing members and their customers,
linked financial market infrastructures, and the

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91055

This alternative approach may reduce
compliance costs by establishing the
precise scope of the rule, which could
allow CCAs to tailor their RWPs to the
enumerated requirements for describing
rules, policies, procedures, and other
tools or resources. In addition, the
inclusion of elements similar to those
prescribed by other agencies that also
regulate several CCAs could result in
certain efficiencies and reduced costs
for those CCAs.593
However, it is better to permit the
rules, policies, procedures, and any
other tools or resources to vary across
CCAs because the underlying risks and
resources vary across CCAs. For
example, a CCA that clears products of
longer duration may have a greater need
for a tear-up tool that extinguishes a
participant’s positions in certain
circumstances than a CCA that clears
contracts with a relatively short
duration. In addition, the overall
volume of transactions settled by a CCA
may affect the choice of its liquidity
tools or resources, as the CCA would
have to ensure that it had sufficient
liquidity resources to complete
settlement.
4. Require the Identification of
Interconnections and Interdependencies
In addition to the requirements with
respect to service providers set forth in
final Rule 17Ad–26(a)(2), the
Commission could require that the
CCA’s RWP identify any financial or
operational interconnections and
interdependencies that the CCA has
with other market participants. This
would allow for consideration of the
effect of the multiple roles and
relationships that a single financial
entity may have with respect to the CCA
including affiliated entities and third
parties (e.g., a single entity that acts as
both a clearing member and a settlement
bank and a liquidity provider).594
A CCA is already required to
establish, implement, maintain, and
financial system more broadly; and (J), for winddown, an assessment of the likelihood that the tool
would result in orderly wind-down.
593 See supra Part IV.B.2; RWP Proposing Release
supra note 18, at 34716–7 nn.68–69; id. at 34724–
25 (discussing Request for Comment 15, 20–22, and
27; see also supra notes 418 and 419 for
commenters who recommended that the
Commission and CFTC coordinate to ensure that
any final rules are aligned or structured so that
dually registered clearinghouses (i.e., CCAs
registered with the Commission and SIDCOs
registered with the CFTC) can efficiently comply
with both Commission and CFTC rules.
594 More specifically, a bank holding company
structure may operate through a set of legal entities
(e.g., a broker-dealer/futures commission merchant
separate from a bank, which is in turn distinct from
an information technology service provider), each
of which has different relationships with the CCA.

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enforce written policies and procedures
reasonably designed to identify,
monitor, and manage risks related to
any link the CCA establishes with one
or more other clearing agencies,
financial market utilities, or trading
markets.595 This requirement, in
conjunction with the requirement to
identify and describe service providers
for core services and to specify to which
core service they relate, should
accomplish the same general objective,
making this reasonable alternative
redundant to the final policy choice.
5. Establish a Specific Monitoring
Frequency for Intraday Margin Calls
The final amendment to Rule 17Ad–
22(e)(6)(ii) expressly incorporates the
requirement of intraday monitoring to
ensure that such monitoring is done on
an ongoing basis. One reasonable
alternative is to prescribe the necessary
frequency of monitoring as opposed to
‘‘on an ongoing basis.’’ For example,
CCAs could be required to monitor
exposure every 5 or 15 minutes.
However, monitoring on an ongoing
basis is preferable because a fixed, prespecified monitoring frequency may not
be responsive enough to risk differences
that exist across the markets served by
the CCAs or to volatility changes that
may happen through time.

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6. Adopt Only Certain Elements of Rule
17Ad–26
Instead of adopting all nine elements
of Rule 17Ad–26, the Commission could
adopt a subset of the elements. For
example, the Commission could drop
the element to identify service providers
or the element to address how the CCA
would ensure that the service providers
would continue to perform in the event
of a recovery and during an orderly
wind-down. Alternatively, the
Commission could drop the element for
plan review or the element for plan
testing.
It is better to adopt all nine elements
of Rule 17Ad–26 because each element
helps ensure that the plan is fit for
purpose and the combination of all
components provides sufficient and
comprehensive identification of how a
CCA would perform in the event of a
recovery and during an orderly winddown. As described above, compliance
with each of the nine elements by CCAs
will contribute to reducing systemic risk
and benefit other CCAs, other market
participants, and investors in the event
of a recovery or wind-down.596
595 17

CFR 240.17ad–22(e)(20).
supra Part IV.C.1.

596 See

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7. Focus Intraday Margin Requirements
on a Subset of CCAs
As an alternative to implementing the
intraday margin amendments on a
blanket basis, the Commission could
adopt a more tailored approach that
imposes the requirements only on a
subset of CCAs that operate in certain
markets such as those markets with the
highest levels of activity 597 or those
markets that have only one CCA.598 A
more tailored market-level risk-based
approach would adjust to the size and
systemic importance of each market,
which would reduce, under this
alternative, the compliance costs for the
CCAs in the markets with less activity
or with more than one available clearing
agency.
However, the amendments already
include an appropriate adjustment for
market-level risk insofar as they would
require the CCAs to consider their own
particular facts and circumstances when
aligning with the final rules. For
example, the final amendment to Rule
17Ad–22(e)(6)(ii) would require CCAs to
have the operational capacity to make
intraday margin calls ‘‘as frequently as
circumstances warrant,’’ and that
frequency is expected to vary across
markets and through time.
V. Paperwork Reduction Act
As discussed in the RWP Proposing
Release, the amendments to Rule 17Ad–
22(e)(6) and new Rule 17Ad–26 contain
‘‘collection of information’’
requirements within the meaning of the
Paperwork Reduction Act of 1995
(‘‘PRA’’).599 The Commission submitted
the proposed collections of information
to the Office of Management and Budget
(‘‘OMB’’) for review in accordance with
the PRA. With respect to Rule 17Ad–
22(e)(6), the title of the information
collection is ‘‘Clearing Agency
Standards for Operation and
Governance’’ (OMB Control No. 3235–
0695). With respect to Rule 17Ad–26,
the title of the information collection is
‘‘Rule 17Ad–26: CCA Recovery and
Orderly Wind-Down Plans’’ (OMB
Control No. OMB 3235–0811). An
agency may not conduct or sponsor, and
597 Activity could be measured in different ways,
including the number or value of cleared
transactions. Average daily settlement value is
much higher in the equity market (NSCC) than it
is in the fixed income market (FICC). DTCC Annual
Report, supra note 471.
598 The following securities markets have only
one central counterparty: exchange-traded equity
options (OCC), government securities (FICC),
mortgage-backed securities (FICC), and equity
securities (NSCC). The market for central securities
depository services has only one provider (DTC).
The credit default swaps market is served by LCH
SA and ICC.
599 See 44 U.S.C. 3501 et seq.

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a person is not required to respond to,
a collection of information unless it
displays a currently valid OMB control
number.
A. Amendments to Rule 17Ad–22(e)(6)
As discussed in the RWP Proposing
Release, respondents under Rule 17Ad–
22(e)(6) are CCAs that provide CCP
services, of which there are currently
five.600 The Commission continues to
anticipate that one additional entity
may seek to register as a clearing agency
to provide CCP services in the next
three years, and so for purposes of this
adoption the Commission has assumed
six respondents.
As discussed in the RWP Proposing
Release,601 the purpose of this
collection of information is to enable a
CCA to have the authority and
operational capacity to monitor intraday
exposures on an ongoing basis and to
collect intraday margin in certain
specified circumstances. The collection
is mandatory. To the extent that the
Commission receives confidential
information pursuant to this collection
of information, such information would
be kept confidential subject to the
provisions of applicable law.602
As discussed further in Part II, the
amendments to Rule 17Ad–22(e)(6)
require a CCA to establish, implement,
maintain, and enforce written policies
and procedures. The rule amendment
contains similar provisions to
preexisting rules for CCAs (i.e., Rule
17Ad–22(e)(6)(ii) and (iv)), but also
imposes additional requirements that
did not appear in preexisting Rule
17Ad–22(e)(6). As a result, a respondent
CCA will incur burdens of reviewing
and updating existing policies and
procedures to consider whether it
complies with the amendments to Rule
17Ad–22(e)(6) and, in some cases, may
need to create new policies and
procedures to comply with the
amendments to Rule 17Ad–22(e)(6). For
example, a CCA likely will need to
review its existing margin methodology
600 Since the Commission issued the RWP
Proposing Release, one CCA that provides CCP
services has withdrawn its registration. See Release
No. 34–98902 (Nov. 9, 2023), 88 FR 78428 (Nov. 15,
2023).
601 RWP Proposing Release, supra note 18, at
34740.
602 See, e.g., 5 U.S.C. 552. Exemption 4 of the
Freedom of Information Act provides an exemption
for trade secrets and commercial or financial
information obtained from a person and privileged
or confidential. See 5 U.S.C. 552(b)(4). Exemption
8 of the Freedom of Information Act provides an
exemption for matters that are contained in or
related to examination, operating, or condition
reports prepared by, on behalf of, or for the use of
an agency responsible for the regulation or
supervision of financial institutions. See 5 U.S.C.
552(b)(8).

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
and consider whether any additional
changes are necessary to ensure that it
can meet the additional requirements of
the rule.
The estimated PRA burdens for the
amendment to Rule 17Ad–22(e)(6) will
require a respondent CCA to make fairly
substantial changes to its policies and
procedures. The amendments to Rule
17Ad–22(e)(6) also would impose
ongoing burdens on a respondent CCA
by requiring ongoing monitoring and
compliance activities with respect to the
written policies and procedures created
or modified in response to the rule.
The Commission received no
comments regarding the PRA estimates
in the RWP Proposing Release; however,
in addressing other comments on the
proposed rule, the Commission has
modified the rule text to add a
requirement to document when the CCA
determines not to make an intraday
margin call, pursuant to its written
policies and procedures for intraday
margin collection, and this affects the
burdens with respect to ongoing
activities under the rule. Accordingly,
the Commission continues to estimate
that respondent CCAs would incur an
aggregate one-time burden of
approximately 774 hours to review
existing policies and procedures and
create new or modified policies and
procedures.603 With respect to ongoing

activities required by the amendments
to Rule 17Ad–22(e)(6), the Commission
now estimates that the final rule
amendments will impose an aggregate
annual burden on respondent CCAs of
528 hours.604
B. New Rule 17Ad–26
As discussed in the RWP Proposing
Release,605 respondents under Rule
17Ad–26 are CCAs, of which there are
currently six. The Commission
anticipates that one additional entity
may seek to register as a CCA in the next
three years, and so for purposes of this
adoption the Commission has assumed
seven respondents.
As discussed in the RWP Proposing
Release,606 the purpose of the
collections under Rule 17Ad–26 is to
ensure that CCAs include a set of
particular items in the RWPs currently
required under Rule 17Ad–22(e)(3)(ii).
The collections are mandatory. To the
extent that the Commission receives
confidential information pursuant to
this collection of information, such
information would be kept confidential
subject to the provisions of applicable
law.607
Because Rule 17Ad–22(e)(3)(ii)
already required CCAs to maintain
RWPs, Rule 17Ad–26 will impose on a
CCA similar burdens as when, for
example, Rule 17Ad–22(e)(2) was
proposed and CCAs generally had

Type of burden

17Ad–22(e)(6) .........................
17Ad–26 ..................................

Recordkeeping ...............
Recordkeeping ...............

I

Initial
burden per
entity

Number of
respondents

Name of information collection

a6

I

7

I

129
120

governance arrangements in place at
that time.608 Based on the Commission’s
review and understanding of the CCAs’
existing RWPs,609 respondent CCAs
generally have written rules, policies,
and procedures similar to the
requirements that will be imposed
under Rule 17Ad–26. The PRA burden
imposed by the rule will therefore be
minimal and will likely be limited to
the review of current policies and
procedures and updating existing
policies and procedures where
appropriate to ensure compliance with
the rule.
Rule 17Ad–26 will also impose
ongoing burdens on a respondent CCA
by requiring ongoing monitoring and
compliance activities with respect to the
written policies and procedures created
or modified in response to the rule.
The Commission received no
comments regarding the PRA estimates
in the RWP Proposing Release and
estimates that respondent CCAs will
incur an aggregate one-time burden of
approximately 840 hours to review and
update existing policies and
procedures.610 The Commission also
continues to estimate that the ongoing
activities required by Rule 17Ad–26 will
impose an aggregate annual burden on
respondent CCAs of 280 hours.611
C. Chart of Total PRA Burdens
Aggregate
initial
burden
774
840

I

Ongoing
burden per
entity

I

88
40

Aggregate
ongoing
burden

I

528
280

a See

supra notes 600, 605, and accompanying text (explaining that Rule 17Ad–22(e)(6) applies only to CCAs that provide CCP services,
whereas Rule 17Ad–26 applies to all CCAs, which includes those that provide both CCP and CSD services).

VI. Regulatory Flexibility Act

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The Regulatory Flexibility Act
(‘‘RFA’’) requires the Commission, in
promulgating rules, to consider the
603 This figure was calculated as follows:
(Assistant General Counsel for 20 hours) +
(Compliance Attorney for 40 hours) + (Computer
Operations Manager for 12 hours) + (Senior
Programmer for 20 hours) + (Senior Risk
Management Specialist for 25 hours) + (Senior
Business Analyst for 12 hours) = 129 hours × 6
respondent clearing agencies = 774 hours. When
compared to the estimates in the RWP Proposing
Release, this reflects a reduction in the number of
respondents from seven to six.
604 This figure was calculated as follows:
(Compliance Attorney for 26 hours + Business Risk
Analyst for 41 hours + Senior Risk Management
Specialist for 21 hours) = 88 hours × 6 respondent
clearing agencies = 528 hours. When compared to
the estimates in the RWP Proposing Release, this
reflects an increase of one burden hour for each of
the Compliance Attorney, Business Risk Analyst,
and Senior Risk Management Specialist, as well as

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impact of those rules on small
entities.612 Section 603(a) of the
Administrative Procedure Act,613 as
amended by the RFA, generally requires
the Commission to undertake a

regulatory flexibility analysis of all
proposed rules to determine the impact
of such rulemaking on ‘‘small

a reduction in the number of respondents from
seven to six.
605 RWP Proposing Release, supra note 18, at
34741.
606 Id.
607 See, e.g., 5 U.S.C. 552 et seq. Exemption 4 of
the Freedom of Information Act provides an
exemption for trade secrets and commercial or
financial information obtained from a person and
privileged or confidential. See 5 U.S.C. 552(b)(4).
Exemption 8 of the Freedom of Information Act
provides an exemption for matters that are
contained in or related to examination, operating,
or condition reports prepared by, on behalf of, or
for the use of an agency responsible for the
regulation or supervision of financial institutions.
See 5 U.S.C. 552(b)(8).
608 See CCA Standards Adopting Release, supra
note 5, at 70892 (discussing Rule 17Ad–22(e)(2)).

609 See, e.g., supra Part IV.B.3 (providing an
overview of current RWPs).
610 This figure was calculated as follows:
((Assistant General Counsel for 20 hours) +
(Compliance Attorney for 50 hours) + (Business
Risk Analyst for 35 hours) + (Senior Risk
Management Specialist for 15) = 120 hours × 7
respondent clearing agencies = 840 hours. When
compared to the estimates in the RWP Proposing
Release, this reflects a reduction in the number of
respondents from eight to seven.
611 This figure was calculated as follows:
((Assistant General Counsel for 10 hours) +
Compliance Attorney for 30 hours)) × 7 respondent
clearing agencies = 280 hours. When compared to
the estimates in the RWP Proposing Release, this
reflects a reduction in the number of respondents
from eight to seven.
612 See 5 U.S.C. 601 et seq.
613 5 U.S.C. 603(a).

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations

entities.’’ 614 Section 605(b) of the RFA
states that this requirement shall not
apply to any proposed rule which, if
adopted, would not have a significant
economic impact on a substantial
number of small entities.615 The
Commission certified in the RWP
Proposing Release, pursuant to section
605(b) of the RFA, that the proposed
rules would not, if adopted, have a
significant impact on a substantial
number of small entities. The
Commission received no comments on
this certification.

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A. Clearing Agencies
The amendments to Rule 17Ad–
22(e)(6) and new Rule 17Ad–26 apply to
CCAs, which are registered clearing
agencies that provide the services of a
CCP or CSD. For the purposes of
Commission rulemaking and as
applicable to these rule amendments
and new rule, a small entity includes,
when used with reference to a clearing
agency, a clearing agency that (i)
compared, cleared, and settled less than
$500 million in securities transactions
during the preceding fiscal year, (ii) had
less than $200 million of funds and
securities in its custody or control at all
times during the preceding fiscal year
(or at any time that it has been in
business, if shorter), and (iii) is not
affiliated with any person (other than a
natural person) that is not a small
business or small organization.616
Based on the Commission’s existing
information about the clearing agencies
currently registered with the
Commission,617 all such registered
614 Section 601(b) of the RFA permits agencies to
formulate their own definitions of ‘‘small entities.’’
See 5 U.S.C. 601(b). The Commission has adopted
definitions for the term ‘‘small entity’’ for the
purposes of rulemaking in accordance with the
RFA. These definitions, as relevant to this
rulemaking, are set forth in 17 CFR 240.0–10.
615 See 5 U.S.C. 605(b).
616 See 17 CFR 240.0–10(d).
617 The average daily value of equities trades
cleared by NSCC in 2023 was $1.932 trillion; at
FICC, the total net value of government securities
transactions in 2022 was $2.019 trillion and the
total net par value for mortgage-backed securities in
2023 was $58 trillion; and DTC settled a total of
$446 trillion of securities in 2023. See DTCC, 2023
Annual Report, at 39–40, https://www.dtcc.com/-/
media/Files/Downloads/Annual%20Report/2023/
DTCC-2023-AR-Print.pdf. In 2023, OCC cleared
11.052 billion options contracts. See OCC, 2023
Annual Report: 2023 Year in Review, https://
annualreport.theocc.com/2023/year-in-review. In
addition, the notional value of CDS cleared by ICE
was $18.8 trillion and $23.8 trillion in 2023 and
2022, respectively. See ICE, 2023 Annual Report, at
60, https://s2.q4cdn.com/154085107/files/doc_
financials/2023/ar/597756_002_bmk.pdf. The
notional value of CDS cleared by LCH SA was
Ö4,975 billion and Ö3,367 billion in 2023 and 2022,
respectively. See LCH Group Holdings Ltd., 2023
Annual Report, at 3, https://www.lch.com/system/
files/media_root/lch-group-holdings-limitedfinancial-statements.pdf. In each case, these

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clearing agencies exceed the thresholds
defining ‘‘small entities’’ set out above.
While other clearing agencies may
emerge and seek to register as clearing
agencies with the Commission, no such
entities would be ‘‘small entities’’ as
defined in 17 CFR 240.0–10 (‘‘Exchange
Act Rule 0–10’’).618 In any case,
registered clearing agencies can only
become subject to the rule amendments
and new rule adopted in this release
when they meet the definition of a CCA,
as described above. Accordingly, the
Commission preliminarily believes that
any such registered clearing agencies
will exceed the thresholds for ‘‘small
entities’’ set forth in Exchange Act Rule
0–10.
B. Certification
For the reasons described above, the
Commission certifies that the
amendments to rule 17Ad–22(e)(6) and
new Rule 17Ad–26 do not have a
significant economic impact on a
substantial number of small entities for
purposes of the RFA.
VII. Other Matters
The Commission considers the
provisions of the final amendments to
be severable to the fullest extent
permitted by law. ‘‘If parts of a
regulation are invalid and other parts
are not,’’ courts ‘‘set aside only the
invalid parts unless the remaining ones
cannot operate by themselves or unless
the agency manifests an intent for the
entire package to rise or fall together.’’
Bd. of Cnty. Commissioners of Weld
Cnty. v. EPA, 72 F.4th 284, 296 (D.C.
Cir. 2023); see K Mart Corp. v. Cartier,
Inc., 486 U.S. 281, 294 (1988). ‘‘In such
an inquiry, the presumption is always in
favor of severability.’’ Cmty. for Creative
Non-Violence v. Turner, 893 F.2d 1387,
1394 (D.C. Cir. 1990). Consistent with
these principles, while the Commission
believes that all provisions of the final
amendments are fully consistent with
governing law, if any of the provisions
of these amendments, or the application
thereof to any person or circumstance,
is held to be invalid, the Commission
intends that such invalidity shall not
affect other provisions or application of
such provisions to other persons or
circumstances that can be given effect
without the invalid provision or
application. In particular, the
amendments to Rule 17Ad–22(e)(6)
pertaining to a CCA’s written policies
and procedures for its risk-based margin
volumes exceed the $500 million threshold for
small entities.
618 See 17 CFR 240.0–10(d). The Commission
based this determination on its review of public
sources of financial information about registered
clearing agencies.

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system operate independently from new
Rule 17Ad–26 pertaining to a CCA’s
written policies and procedures for its
RWPs.
Pursuant to the Congressional Review
Act,619 the Office of Information and
Regulatory Affairs has designated these
rules as a not a ‘‘major rule,’’ as defined
by 5 U.S.C. 804(2).
Statutory Authority
The Commission is adopting
amendments to Rule 17Ad–22(e)(6) and
new Rule 17Ad–26 under the
Commission’s rulemaking authority in
the Exchange Act, particularly section
17(a), 15 U.S.C. 78q(a), section 17A, 15
U.S.C. 78q–1, and section 23(a), 15
U.S.C. 78w(a), and the Dodd-Frank Act,
particularly section 805 of the Clearing
Supervision Act, 15 U.S.C. 5464.
List of Subjects in 17 CFR Part 240
Reporting and recordkeeping
requirements, Securities.
In accordance with the foregoing, title
17, chapter II of the Code of Federal
Regulations is amended as follows:
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
1. The authority citation for part 240
continues to read, in part, as follows:

■

Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f,
78g, 78i, 78j, 78j–1, 78j–4, 78k, 78k–1, 78l,
78m, 78n, 78n–1, 78o, 78o–4, 78o–10, 78p,
78q, 78q–1, 78s, 78u–5, 78w, 78x, 78dd, 78ll,
78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b–
3, 80b–4, 80b–11, 1681w(a)(1), 6801–6809,
6825, 7201 et seq., and 8302; 7 U.S.C.
2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111–203, 939A, 124 Stat. 1376
(2010); and Pub. L. 112–106, sec. 503 and
602, 126 Stat. 326 (2012), unless otherwise
noted.

*

*

*

*

*

Section 240.17ad–22 is also issued under
12 U.S.C. 5461 et seq.

*

*
*
*
*
2. Amend § 240.17ad–22 by revising
paragraphs (e)(6)(ii) and (iv) to read as
follows:

■

§ 240.17ad–22
agencies.

Standards for clearing

*

*
*
*
*
(e) * * *
(6) * * *
(ii)(A) Marks participant positions to
market and collects margin (including
variation margin or equivalent charges if
relevant) at least daily;
(B) Monitors intraday exposures on an
ongoing basis;
619 5

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Federal Register / Vol. 89, No. 222 / Monday, November 18, 2024 / Rules and Regulations
(C) Includes the authority and
operational capacity to make intraday
margin calls, as frequently as
circumstances warrant, including the
following circumstances:
(1) When risk thresholds specified by
the covered clearing agency are
breached; or
(2) When the products cleared or
markets served display elevated
volatility; and
(D) Documents when the covered
clearing agency determines not to make
an intraday call pursuant to its written
policies and procedures required under
paragraph (e)(6)(ii)(C) of this section;
*
*
*
*
*
(iv)(A) Uses reliable sources of timely
price data and other substantive inputs;
(B) Uses procedures (and, with
respect to price data, sound valuation
models) for addressing circumstances in
which price data or other substantive
inputs are not readily available or
reliable, to ensure that the covered
clearing agency can continue to meet its
obligations under this section; and
(C) Such procedures under paragraph
(e)(6)(iv)(B) of this section must include
either:
(1) The use of price data or
substantive inputs from an alternate
source; or
(2) If it does not use an alternate
source, the use of a risk-based margin
system that does not rely on substantive
inputs that are unavailable or
unreliable;
*
*
*
*
*
■ 3. Section 240.17ad–26 is added to
read as follows:

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§ 240.17ad–26 Recovery and orderly winddown plans of covered clearing agencies.

(a) The plans for the recovery and
orderly wind-down of the covered
clearing agency referenced in
§ 240.17ad–22(e)(3)(ii) must:
(1) Identify and describe the covered
clearing agency’s core payment,
clearing, and settlement services and
address how the covered clearing
agency would continue to provide such
core services in the event of a recovery
and during an orderly wind-down,
including by:
(i) Identifying the staffing roles
necessary to support such core services;
and
(ii) Analyzing how such staffing roles
necessary to support such core services
would continue in the event of a
recovery and during an orderly winddown;
(2)(i) Identify and describe any service
providers for core services, specifying
which core services each service
provider supports; and

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(ii) Address how the covered clearing
agency would ensure that service
providers for core services would
continue to perform in the event of a
recovery and during an orderly winddown, including consideration of its
written agreements with such service
providers and whether the obligations
under those written agreements are
subject to alteration or termination as a
result of initiation of the recovery and
orderly wind-down plan;
(3) Identify and describe scenarios
that may potentially prevent the covered
clearing agency from being able to
provide its core services identified in
paragraph (a)(1) of this section as a
going concern, including uncovered
credit losses (as described in
§ 240.17ad–22(e)(4)(viii)), uncovered
liquidity shortfalls (as described in
§ 240.17ad–22(e)(7)(viii)), and general
business losses (as described in
§ 240.17ad–22(e)(15));
(4) Identify and describe criteria that
could trigger the covered clearing
agency’s implementation of the recovery
and orderly wind-down plans and the
process that the covered clearing agency
uses to monitor and determine whether
the criteria have been met, including the
governance arrangements applicable to
such process;
(5) Identify and describe the rules,
policies, procedures, and any other tools
or resources on which the covered
clearing agency would rely in a recovery
or orderly wind-down;
(6) Address how the rules, policies,
procedures, and any other tools or
resources identified in paragraph (a)(5)
of this section would ensure timely
implementation of the recovery and
orderly wind-down plan;
(7) Require the covered clearing
agency to inform the Commission as
soon as practicable when the covered
clearing agency is considering
implementing a recovery or orderly
wind-down;
(8) Include procedures for testing the
covered clearing agency’s ability to
implement the recovery and orderly
wind-down plans at least every 12
months, including by:
(i) Requiring the covered clearing
agency’s participants and, when
practicable, other stakeholders to
participate in the testing of its plans;
(ii) Requiring that such testing be in
addition to testing pursuant to
§ 240.17ad–22(e)(13);
(iii) Providing for reporting the results
of such testing to the covered clearing
agency’s board of directors and senior
management; and
(iv) Specifying the procedures for, as
appropriate, amending the plans to
address the results of such testing; and

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(9) Include procedures requiring
review and approval of the plans by the
board of directors of the covered
clearing agency at least every 12 months
or following material changes to the
covered clearing agency’s operations
that would significantly affect the
viability or execution of the plans, with
such review informed, as appropriate,
by the covered clearing agency’s testing
of the plans.
(b) All terms used in this section have
the same meaning as in the Securities
Exchange Act of 1934, and unless the
context otherwise requires, the
following definitions apply for purposes
of this section:
Affiliate means a person that directly
or indirectly controls, is controlled by,
or is under common control with the
covered clearing agency.
Orderly wind-down means the actions
of a covered clearing agency to effect the
permanent cessation, sale, or transfer of
one or more of its core services, as
identified by the covered clearing
agency pursuant to paragraph (a)(1) of
this section, in a manner that would not
increase the risk of significant liquidity,
credit, or operational problems
spreading among financial institutions
or markets and thereby threaten the
stability of the U.S. financial system.
Recovery means the actions of a
covered clearing agency, consistent with
its rules, procedures, and other ex ante
contractual arrangements, to address
any uncovered loss, liquidity shortfall,
or capital inadequacy, whether arising
from participant default or other causes
(such as business, operational, or other
structural weaknesses), including
actions to replenish any depleted
prefunded financial resources and
liquidity arrangements, as necessary to
maintain the covered clearing agency’s
viability as a going concern and to
continue its provision of core services,
as identified by the covered clearing
agency pursuant to paragraph (a)(1) of
this section.
Service provider for core services
means any person, including an affiliate
or a third party, that, through a written
agreement for services provided to or on
behalf of the covered clearing agency,
on an ongoing basis, directly supports
the delivery of core services, as
identified by the covered clearing
agency pursuant to paragraph (a)(1) of
this section.
By the Commission.
Dated: October 25, 2024.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024–25570 Filed 11–15–24; 8:45 am]
BILLING CODE 8011–01–P

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