The Financial Stability Oversight Council last Tuesday adopted an advanced notice of proposed rulemaking (ANOPR) seeking to designate financial market utilities (FMU), including certain clearinghouses, as systemically important.

The Dodd-Frank Wall Street Reform Act, which went into law in July, requires the council to determine which clearinghouses are systemically important based on whether their failure would create significant liquidity or credit problems spreading among financial institutions or markets (see NGI, July 26). These FMUs, including clearinghouses, would be subject to heightened oversight and higher standards.

The council is seeking comments on the ANOPR, which is the first step in the process, within the next 30 days. It said a notice of proposed rulemaking and final rule will be issued next year.

Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC) and a member of the 11-member council, expressed support for the ANOPR, especially since clearinghouses will have a new role under Dodd-Frank — mandating the clearing of swaps that are standardized and between financial institutions.

He noted that the CFTC currently oversees 14 clearinghouses and that number is expected to climb to approximately 20. By standing between two counterparties, by valuing transactions daily, requiring collateral and rigorous risk management standards, he said clearinghouses help ensure that the failure of one entity does not harm its counterparties and reverberate throughout the financial system.

Gensler said the CFTC is working to implement a series of rulemakings on risk management for clearinghouses, and he added that the ANOPR complements Commission efforts.

The CFTC plans to complete the rulemaking with regard to clearinghouses by the statutory deadline of July 15. Although the effective dates of these rules will generally be later in 2001, he recommended that the council be in a position to identify systemically important clearinghouses by this coming summer.

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