Thursday, July 19, 2012

FSOC Designates Eight Financial Market Utilities as Systemically Important

The Financial Stability Oversight Council voted unanimously to designate eight financial market utilities as systemically important under Title VIII of the Dodd-Frank Act .This action, the first designations made by the Council, represents another key step towards creating a safer and more resilient financial system.  The authority to designate financial market utilities is an important component of  the Dodd-Frank Act and is one of a number of tools now available to constrain risk and help protect against future financial crises.

The designated financial market utilities are: The Clearing House Payments Company, L.L.C., on the basis of its role as operator of the Clearing House Interbank Payments System; CLS Bank International; Chicago Mercantile Exchange, Inc.; Depository Trust Company; Fixed Income Clearing Corporation; ICE Clear Credit LLC; National Securities Clearing Corporation; and the Options Clearing Corporation 

The Dodd-Frank Act provides four specific factors the Council must consider when determining whether a financial market utility is, or is likely to become, systemically important.  The Council’s regulations regarding the designation of financial market utilities provide more detail regarding these factors and their role in the Council’s analysis of whether to designate a financial market utility as systemically important.

The four factors are the aggregate monetary value of transactions processed by the financial market utility and the aggregate exposure to its counterparties, as well as the relationship, interdependencies, or other interactions of the financial market utility with other such utilities or payment, clearing, or settlement activities; and the effect that the failure of or a disruption to the financial market utility would have on critical markets, financial institutions, or the broader financial system.

The vote followed a process laid out in the Council’s regulations.  Each financial market utility received a letter on May 22, 2012, informing it that the Council had proposed its designation and providing it with the rationale for the Council’s determination.  The financial market utilities each had 30 days to request a hearing if they disagreed with the proposed determination of the Council or the Council’s proposed findings of fact, but no entity requested such a hearing. 

The Council also continues to make progress on its first designations of nonbank financial companies for supervision by the Federal Reserve Board.