SEC Moves To Mitigate Securities Action Risk

The SEC March 2 voted to reopen the proposed rules designed to strengthen the its oversight of clearing agencies and to mitigate systemic risk concerns brought to light following the financial crisis.

Clearing agencies generally serve as an intermediary between parties involved in securities actions by closely monitoring transactions and making sure that they are settled on time with agreed-upon terms. When operated in the right manner, clearing agencies lower the risk of a contracting party’s failure to fulfil his or her contractual obligations. 

Some of the proposed rules would require clearing agencies to:

  • Measure and manage credit exposures of their participants;
  • Implement procedures to safeguard the confidentiality of exchanging information;
  • Have procedures in place that identify and address conflicts of interest;
  • Employ minimum governance standards for their boards of directors;
  • Assign a chief compliance officer;
  • Post an annual audited financial report to its website;
  • Provide information to market participants that will enable them to assess risk and costs related to the clearing agency’s service;
  • Ensure that the agencies’ governance arrangements are clear and transparent in an effort to promote risk management.

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