(a) A designated financial
market utility must implement rules, procedures, or operations designed
to ensure that it meets or exceeds the following risk-management standards
with respect to its payment, clearing, and settlement activities.
(1) Legal basis. The designated financial market utility has a well-founded,
clear, transparent, and enforceable legal basis for each material
aspect of its activities in all relevant jurisdictions.
(2) Governance. The designated financial market utility has governance
arrangements that—
(i) Are clear, transparent, and documented;
(ii) Promote the safety
and efficiency of the designated financial market utility;
(iii) Support the stability
of the broader financial system, other relevant public interest considerations
such as fostering fair and efficient markets, and the legitimate interests
of relevant stakeholders, including the designated financial market
utility’s owners, participants, and participants’ customers;
and
(iv) Are designed
to ensure—
(A) Lines of responsibility and accountability
are clear and direct;
(B) The roles and responsibilities of the board of directors and
senior management are clearly specified;
(C) The board of directors consists of suitable
individuals having appropriate skills to fulfill its multiple roles;
(D) The board of directors
includes a majority of individuals who are not executives, officers,
or employees of the designated financial market utility or an affiliate
of the designated financial market utility;
(E) The board of directors establishes policies
and procedures to identify, address, and manage potential conflicts
of interest of board members and to re view its performance and the
performance of individual board members on a regular basis;
(F) The board of directors establishes
a clear, documented risk-management framework that includes the designated
financial market utility’s risk-tolerance policy, assigns responsibilities
and accountability for risk decisions, and addresses decisionmaking
in crises and emergencies;
(G) Senior management has the appropriate experience, skills, and
integrity necessary to discharge operational and risk-management responsibilities;
(H) The risk-management
function has sufficient authority, resources, and independence from
other operations of the designated financial market utility, and has
a direct reporting line to and is overseen by a committee of the board
of directors;
(I) The internal
audit function has sufficient authority, resources, and independence
from management, and has a direct reporting line to and is overseen
by a committee of the board of directors; and
(J) Major decisions of the board of directors
are clearly disclosed to relevant stakeholders, including the designated
financial market utility’s owners, participants, and participants’
customers, and, where there is a broad market impact, the public.
(3) Framework for the comprehensive management
of risks. The designated financial market utility has a sound
risk-management framework for comprehensively managing legal, credit,
liquidity, operational, general business, custody, investment, and
other risks that arise in or are borne by the designated financial
market utility. This framework is subject to periodic review and includes—
(i) Risk-management policies, procedures, and systems that enable
the designated financial market utility to identify, measure, monitor,
and manage the risks that arise in or are borne by the designated
financial market utility, including those posed by other entities
as a result of interdependencies;
(ii) Risk-management policies, procedures,
and systems that enable the designated financial market utility to
identify, measure, monitor, and manage the material risks that it
poses to other entities, such as other financial market utilities,
trade repositories, settlement banks, liquidity providers, or service
providers, as a result of interdependencies; and
(iii) Integrated plans for the designated
financial market utility’s recovery and orderly wind-down that—
(A) Identify the designated financial market utility’s critical
operations and services related to payment, clearing, and settlement;
(B) Identify scenarios that
may potentially prevent it from being able to provide its critical
operations and services as a going concern, including uncovered credit
losses (as described in paragraph (a)(4)(vi)(A) of this section),
uncovered liquidity shortfalls (as described in paragraph (a)(7)(viii)(A)
of this section), and general business losses (as described in paragraph
(a)(15) of this section);
(C) Identify criteria that could trigger the implementation of the
recovery or orderly wind-down plan;
(D) Include rules, procedures, policies, and
any other tools the designated financial market utility would use
in a recovery or orderly wind-down to address the scenarios identified
under paragraph (a)(3)(iii)(B) of this section;
(E) Include procedures to ensure timely implementation
of the recovery and orderly wind-down plans in the scenarios identified
under paragraph (a)(3)(iii)(B) of this section;
(F) Include procedures for informing the Board,
as soon as practicable, if the designated financial market utility
is considering initiating recovery or orderly wind-down; and
(G) Are reviewed the earlier
of every two years or after changes to the system or the environment
in which the designated financial market utility operates that would
significantly affect the viability or execution of the plans.
(4) Credit risk. The designated financial market
utility effectively measures, monitors, and manages its credit exposures
to participants and those arising from its payment, clearing, and
settlement processes. In this regard, the designated financial market
utility maintains sufficient financial resources to cover its credit
exposure to each participant fully with a high degree of confidence.
In addition, the designated financial market utility—
(i) If it
operates as a central counterparty, maintains additional prefunded
financial resources that are sufficient to cover its credit exposure
under a wide range of significantly different stress scenarios that
includes the default of the participant and its affiliates that would
potentially cause the largest aggregate credit exposure to the designated
financial market utility in extreme but plausible market conditions;
(ii) If it operates
as a central counterparty, may be directed by the Board to maintain
additional prefunded financial resources that are sufficient to cover
its credit exposure under a wide range of significantly different
stress scenarios that includes the default of the two participants
and their affiliates that would potentially cause the largest aggregate
credit exposure to the designated financial market utility in extreme
but plausible market conditions. The Board may consider such a direction
if the central counterparty—
(A) Is involved in activities
with a more-complex risk profile, such as clearing financial instruments
characterized by discrete jump-to-default price changes or that are
highly correlated with potential participant defaults, or
(B) Has been determined by another
jurisdiction to be systemically important in that jurisdiction;
(iii)
If it operates as a central counter-party, determines the amount and
regularly tests the sufficiency of the total financial resources available
to meet the requirements of this paragraph by—
(A) On a daily
basis, conducting a stress test of its total financial resources using
standard and predetermined stress scenarios, parameters, and assumptions;
(B) On at least a monthly
basis, and more frequently when the products cleared or markets served
experience high volatility or become less liquid, or when the size
or concentration of positions held by the central counter-party’s
participants increases significantly, conducting a comprehensive and
thorough analysis of the existing stress scenarios, models, and underlying
parameters and assumptions such that the designated financial market
utility meets its required level of default protection in light of
current and evolving market conditions; and
(C) Having clear procedures to report the
results of its stress tests to decisionmakers at the central counter-party
and using these results to evaluate the adequacy of and adjust its
total financial resources;
(iv) If it operates as a central counter-party,
excludes assessments for additional default or guaranty fund contributions
(that is, default or guaranty fund contributions that are not prefunded)
in its calculation of financial resources available to meet the total
financial resource requirement under this paragraph;
(v) At least annually, provides for
a validation of the designated financial market utility’s risk-management
models used to determine the sufficiency of its total financial resources
that—
(A) Includes the designated financial market
utility’s models used to comply with the collateral provisions
under paragraph (a)(5) of this section and models used to determine
initial margin under paragraph (a)(6) of this section; and
(B) Is performed by a qualified
person who does not perform functions associated with the model (except
as part of the annual model validation), does not report to such a person,
and does not have a financial interest in whether the model is determined
to be valid; and
(vi) Establishes rules and procedures
that explicitly—
(A) Address allocation of credit losses the
designated financial market utility may face if its collateral and
other financial resources are insufficient to cover fully its credit
exposures, including the repayment of any funds a designated financial
market utility may borrow from liquidity providers; and
(B) Describe the designated financial
market utility’s process to replenish any financial resources
that the designated financial market utility may employ during a stress
event, including a participant default.
(5) Collateral. If it requires collateral to
manage its or its participants’ credit exposure, the designated
financial market utility accepts collateral with low credit, liquidity,
and market risks and sets and enforces conservative haircuts and concentration
limits, in order to ensure the value of the collateral in the event
of liquidation and that the collateral can be used in a timely manner.
In this regard, the designated financial market utility—
(i) Establishes prudent valuation practices and develops haircuts
that are tested regularly and take into account stressed market conditions;
(ii) Establishes haircuts
that are calibrated to include relevant periods of stressed market
conditions to reduce the need for procyclical adjustments;
(iii) Provides for annual
validation of its haircut procedures, as part of its risk-management
model validation under paragraph (a)(4)(v) of this section;
(iv) Avoids concentrated
holdings of any particular type of asset where the concentration could
significantly impair the ability to liquidate such assets quickly
without significant adverse price effects;
(v) Uses a collateral management system
that is well-designed and operationally flexible such that it, among
other things—
(A) Accommodates changes in the ongoing monitoring
and management of collateral; and
(B) Allows for the timely valuation of collateral
and execution of any collateral or margin calls.
(6) Margin. If it operates as a central counterparty,
the designated financial market utility covers its credit exposures
to its participants for all products by establishing a risk-based
margin system that—
(i) Is conceptually and methodologically
sound for the risks and particular attributes of each product, portfolio,
and markets it serves, as demonstrated by documented and empirical
evidence supporting design choices, methods used, variables selected,
theoretical bases, key assumptions, and limitations;
(ii) Establishes margin levels commensurate
with the risks and particular attributes of each product, portfolio,
and market it serves;
(iii) Has a reliable source of timely price data;
(iv) Has procedures and sound valuation
models for addressing circumstances in which pricing data are not
readily available or reliable;
(v) Marks participant positions to market
and collects variation margin at least daily and has the operational
capacity to make intraday margin calls and payments, both scheduled
and unscheduled, to participants;
(vi) Generates initial margin requirements
sufficient to cover potential changes in the value of each participant’s
position during the interval between the last margin collection and
the closeout of positions following a participant default by—
(A) Ensuring that initial margin meets an established single-tailed
confidence level of at least 99 percent with respect to the estimated
distribution of future exposure; and
(B) Using a conservative estimate of the time
horizons for the effective hedging or closeout of the particular types of
products cleared, including in stressed market conditions; and
(vii)
Is monitored on an ongoing basis and regularly reviewed, tested, and
verified through—
(A) Daily backtests;
(B) Monthly sensitivity analyses, performed
more frequently during stressed market conditions or significant fluctuations
in participant positions, with this analysis taking into account a
wide range of parameters and assumptions that reflect possible market
conditions that captures a variety of historical and hypothetical
conditions, including the most volatile periods that have been experienced
by the markets the designated financial market utility serves; and
(C) Annual model validations
of the designated financial market utility’s margin models and
related parameters and assumptions, as part of its risk-management
model validation under paragraph (a)(4)(v) of this section.
(7) Liquidity risk. The designated financial
market utility effectively measures, monitors, and manages the liquidity
risk that arises in or is borne by the designated financial market
utility. In this regard, the designated financial market utility—
(i) Has effective operational and analytical tools to identify, measure,
and monitor its settlement and funding flows on an ongoing and timely
basis, including its use of intraday liquidity;
(ii) Maintains sufficient liquid resources
in all relevant currencies to effect same-day and, where applicable,
intraday and multiday settlement of payment obligations with a high
degree of confidence under a wide range of significantly different
potential stress scenarios that includes the default of the participant
and its affiliates that would generate the largest aggregate liquidity
obligation for the designated financial market utility in extreme
but plausible market conditions;
(iii) Holds, for purposes of meeting
the minimum liquid resource requirement under paragraph (a)(7)(ii)
of this section—
(A) cash in each relevant currency at the
central bank of issue or creditworthy commercial banks;
(B) assets that are readily available
and convertible into cash, through committed arrangements without
material adverse change conditions, such as collateralized lines of
credit, foreign exchange swaps, and repurchase agreements; or
(C) subject to the determination
of the Board, highly marketable collateral and investments that are
readily available and convertible into cash with prearranged and highly
reliable funding arrangements, even in extreme but plausible market
conditions;
(iv) Evaluates and confirms, at least
annually, whether each provider of the arrangements as described in
paragraphs (a)(7)(iii)(B) and (C) of this section has sufficient information
to understand and manage that provider’s associated liquidity
risks, and whether the provider has the capacity to perform;
(v) Maintains and tests
its procedures and operational capacity for accessing each type of
liquid resource required under this paragraph at least annually;
(vi) Determines the
amount and regularly tests the sufficiency of the liquid resources
necessary to meet the minimum liquid resource requirement under this
paragraph by—
(A) On a daily basis, conducting a stress
test of its liquid resources using standard and predetermined stress
scenarios, parameters, and assumptions;
(B) On at least a monthly basis, and more
frequently when products cleared or markets served experience high
volatility or become less liquid, or when the size or concentration
of positions held by the designated financial market utility’s
participants increases significantly, conducting a comprehensive and
thorough analysis of the existing stress scenarios, models, and underlying
parameters and assumptions such that the designated financial market utility
meets its identified liquidity needs and resources in light of current
and evolving market conditions; and
(C) Having clear procedures to report the
results of its stress tests to decisionmakers at the designated financial
market utility and using these results to evaluate the adequacy of
and make adjustments to its liquidity risk-management framework;
(vii)
At least annually, provides for a validation of its liquidity risk-management
model by a qualified person who does not perform functions associated
with the model (except as part of the annual model validation), does
not report to such a person, and does not have a financial interest
in whether the model is determined to be valid; and
(viii) Establishes rules and procedures
that explicitly—
(A) Address potential liquidity shortfalls
that would not be covered by the designated financial market utility’s
liquid resources and avoid unwinding, revoking, or delaying the same-day
settlement of payment obligations; and
(B) Describe the designated financial market
utility’s process to replenish any liquid resources that it
may employ during a stress event, including a participant default.
(8) Settlement finality. The designated
financial market utility provides clear and certain final settlement
intraday or in real time as appropriate, and at a minimum, by the
end of the value date. The designated financial market utility clearly
defines the point at which settlement is final and the point after
which unsettled payments, transfer instructions, or other settlement
instructions may not be revoked by a participant.
(9) Money settlements. The designated financial market utility conducts its money settlements
in central bank money where practical and available. If central bank
money is not used, the designated financial market utility minimizes
and strictly controls the credit and liquidity risks arising from
conducting its money settlements in commercial bank money, including
settlement on its own books. If it conducts its money settlements
at a commercial bank, the designated financial market utility—
(i) Establishes and monitors adherence to criteria based on high
standards for its settlement banks that take account of, among other
things, their applicable regulatory and supervisory frameworks, creditworthiness,
capitalization, access to liquidity, and operational reliability;
(ii) Monitors and manages
the concentration of credit and liquidity exposures to its commercial
settlement banks; and
(iii) Ensures that its legal agreements with its settlement banks
state clearly—
(A) When transfers on the books of individual
settlement banks are expected to occur;
(B) That transfers are final when funds are
credited to the recipient’s account; and
(C) That the funds credited to the recipient
are available immediately for retransfer or withdrawal.
(10) Physical deliveries. A designated financial
market utility that operates as a central counterparty, securities
settlement system, or central securities depository clearly states
its obligations with respect to the delivery of physical instruments
or commodities and identifies, monitors, and manages the risks associated
with such physical deliveries.
(11) Central
securities depositories. A designated financial market utility
that operates as a central securities depository has appropriate rules
and procedures to help ensure the integrity of securities issues and
minimizes and manages the risks associated with the safekeeping and
transfer of securities. In this regard, the designated financial market
utility maintains securities in an immobilized or dematerialized form
for their transfer by book entry.
(12) Exchange-of-value
settlement systems. If it settles transactions that involve the
settlement of two linked obligations, such as a transfer of securities
against payment or the exchange of one currency for an other,
the designated financial market utility eliminates principal risk
by conditioning the final settlement of one obligation upon the final
settlement of the other.
(13) Participant-default rules and procedures. The designated financial market utility has effective and clearly
defined rules and procedures to manage a participant default that
are designed to ensure that the designated financial market utility
can take timely action to contain losses and liquidity pressures so
that it can continue to meet its obligations. In this regard, the
designated financial market utility tests and reviews its default
procedures, including any closeout procedures, at least annually or
following material changes to these rules and procedures.
(14) Segregation and portability. A designated financial market utility
that operates as a central counterparty has rules and procedures that
enable the segregation and portability of positions of a participant’s
customers and the collateral provided to the designated financial
market utility with respect to those positions.
(15) General
business risk. The designated financial market utility identifies,
monitors, and manages its general business risk, which is the risk
of losses that may arise from its administration and operation as
a business enterprise (including losses from execution of business
strategy, negative cash flows, or unexpected and excessively large
operating expenses) that are neither related to participant default
nor separately covered by financial resources maintained for credit
or liquidity risk. In this regard, in addition to holding financial
resources required to manage credit risk (paragraph (a)(4) of this
section) and liquidity risk (paragraph (a)(7) of this section), the
designated financial market utility—
(i) Maintains liquid
net assets funded by equity that are at all times sufficient to ensure
a recovery or orderly wind-down of critical operations and services
such that it—
(A) Holds unencumbered liquid financial assets,
such as cash or highly liquid securities, that are sufficient to cover
the greater of—
(1) The cost to implement the plans to address general business
losses as required under paragraph (a)(3)(iii) of this section and
(2) Six months of
current operating expenses or as otherwise determined by the Board;
and
(B) Holds
equity, such as common stock, disclosed reserves, and other retained
earnings, that is at all times greater than or equal to the amount
of unencumbered liquid financial assets that are required to be held
under paragraph (a)(15)(i)(A) of this section; and
(ii) Maintains a viable
plan, approved by the board of directors, for raising additional equity
should the designated financial market utility’s equity fall
below the amount required under paragraph (a)(15)(i) of this section,
and updates the plan the earlier of every two years or following changes
to the designated financial market utility or the environment in which
it operates that would significantly affect the viability or execution
of the plan.
(16) Custody and investment risks. The designated financial market utility—
(i) Safeguards
its own and its participants’ assets and minimizes the risk
of loss on and delay in access to these assets by—
(A) Holding its
own and its participants’ assets at supervised and regulated
entities that have accounting practices, safekeeping procedures, and
internal controls that fully protect these assets; and
(B) Evaluating its exposures
to its custodian banks, taking into account the full scope of its
relationships with each; and
(ii) Invests its own and its participants’
assets—
(A) In instruments with minimal credit, market,
and liquidity risks, such as investments that are secured by, or are
claims on, high-quality obligors and investments that allow for timely liquidation
with little, if any, adverse price effect; and
(B) Using an investment strategy that is consistent
with its overall risk-management strategy and fully disclosed to its
participants.
(17) Operational
risk. The designated financial market utility manages its operational
risks by establishing a robust operational risk-management framework
that is approved by the board of directors. In this regard, the designated
financial market utility—
(i) Identifies the plausible
sources of operational risk, both internal and external, and mitigates
their impact through the use of appropriate systems, policies, procedures,
and controls—including those specific systems, policies, procedures,
or controls required pursuant to this paragraph (a)(17)—that
are reviewed, audited, and tested periodically and after major changes
such that—
(A) The designated financial market utility
conducts tests—
(1) In accordance with a documented testing framework that
addresses, at a minimum, scope, frequency, participation, interdependencies,
and reporting; and
(2) That assess whether the designated financial market utility’s
systems, policies, procedures, or controls function as intended;
(B) The designated
financial market utility reviews the design, implementation, and testing
of affected and similar systems, policies, procedures, and controls,
after material operational incidents, including the material operational
incidents described in paragraph (a)(17)(vi)(A) of this section, or
after changes to the environment in which the designated financial
market utility operates that could significantly affect the plausible
sources or mitigants of operational risk; and
(C) The designated financial market utility
remediates as soon as possible, following established governance processes,
deficiencies in systems, policies, procedures, or controls identified
in the process of review or testing;
(ii) Identifies, monitors, and manages
the risks its operations might pose to other entities such as those
referenced in paragraph (a)(3)(ii) of this section;
(iii) Has systems, policies, procedures,
and controls that are designed to achieve clearly defined objectives
to ensure a high degree of security and operational reliability;
(iv) Has systems that
have adequate, scalable capacity to handle increasing stress volumes
and achieve the designated financial market utility’s service-level
objectives;
(v) Has
comprehensive physical, information, and cyber security policies,
procedures, and controls that enable the designated financial market
utility to identify, monitor, and manage potential and evolving vulnerabilities
and threats;
(vi)
Has a documented framework for incident management that provides for
the prompt detection, analysis, and escalation of an incident, appropriate
procedures for addressing an incident, and incorporation of lessons
learned following an incident. This framework includes a plan for
notification and communication of material operational incidents to
identified relevant entities that ensures the designated financial
market utility—
(A) Immediately notifies the Board, in accordance
with the process established by the Board, when the designated financial
market utility activates its business continuity plan or has a reasonable
basis to conclude that—
(1) There is an actual or likely disruption, or material degradation,
to any critical operations or services, or to its ability to fulfill
its obligations on time; or
(2) There is unauthorized entry or a vulnerability that could
allow unauthorized entry into the designated financial market utility’s
computer, network, electronic, technical, automated, or similar systems
that affects or has the potential to affect its critical operations
or services; and
(B) Establishes criteria and processes providing
for timely communication and responsible disclosure of material operational
incidents to the designated financial market utility’s participants
and other relevant entities, such that—
(1) Affected participants are notified
immediately of actual disruptions or material degradations to any
critical operations or services, or to the designated financial market
utility’s ability to fulfill its obligations on time; and
(2) Participants
and other relevant entities, as identified in the designated financial
market utility’s plan for notification and communication, are
notified in a timely manner of material operational incidents described
in paragraph (a)(17)(vi)(A) of this section, as appropriate, taking
into account the risks and benefits of the disclosure to the designated
financial market utility and such participants and other relevant
entities;
(vii) Has business continuity management
that provides for rapid recovery and timely resumption of critical
operations and services and fulfillment of its obligations, including
in the event of a wide-scale disruption or a major disruption;
(viii) Has a business
continuity plan that—
(A) Incorporates the use of two
sites providing for sufficient redundancy supporting critical operations
that are located at a sufficient geographical distance from each other
to have a distinct risk profile;
(B) Is designed to enable critical systems,
including information technology systems, to recover and resume critical
operations and services no later than two hours following disruptive
events;
(C) Is designed
to enable it to complete settlement by the end of the day of the disruption,
even in case of extreme circumstances;
(D) Sets out criteria and processes by which
the designated financial market utility will reestablish availability
for affected participants and other entities following a disruption
to the designated financial market utility’s critical operations
or services;
(E) Provides
for testing, pursuant to the requirements under paragraphs (a)(17)(i)(A)
and (C) of this section, at least annually, of the designated financial
market utility’s business continuity arrangements, including
the people, processes, and technologies of the sites required under
paragraph (a)(17)(viii)(A) of this section, such that—
(1) The designated
financial market utility can demonstrate that it can run live production
at the sites required under paragraph (a)(17)(viii)(A) of this section;
(2) The designated
financial market utility assesses the capability of its systems and
effectiveness of its procedures for data recovery and data reconciliation
to meet the recovery and resumption objectives under paragraphs (a)(17)(viii)(B)
and (C) of this section, even in case of extreme circumstances, including
in the event of data loss or data corruption; and
(3) The designated financial market
utility can demonstrate that it has geographically dispersed staff
who can effectively run the operations and manage the business of
the designated financial market utility; and
(F) Is reviewed, pursuant to the
requirements under paragraphs (a)(17)(i)(B) and (C) of this section,
at least annually, in order to—
(1) Incorporate lessons learned from
actual and averted disruptions; and
(2) Update scenarios and assumptions
in order to ensure responsiveness to the evolving risk environment
and incorporate new and evolving sources of operational risk; and
(ix) Has systems, policies, procedures,
and controls that effectively identify, monitor, and manage risks
associated with third-party relationships, and that ensure that, for
any service that is performed for the designated financial market
utility by a third party, risks are identified, monitored, and managed
to the same extent as if the designated financial market utility were
performing the service itself. In this regard, the designated financial
market utility—
(A) Regularly conducts risk assessments of
third parties;
(B) Establishes
information-sharing arrangements, as appropriate, with third parties
that provide services material to any of the designated financial
market utility’s critical operations or services; and
(C) Addresses in its business
continuity management and testing, as appropriate, third parties that
provide services material to any of the designated financial market
utility’s critical operations or services.
(18) Access and participation requirements. The
designated financial market utility has objective, risk-based, and
publicly disclosed criteria for participation, which permit fair and
open access. The designated financial market utility—
(i) Monitors
compliance with its participation requirements on an ongoing basis
and has the authority to impose more-stringent restrictions or other
risk controls on a participant in situations where the designated
financial market utility determines the participant poses heightened
risk to the designated financial market utility; and
(ii) Has clearly defined and publicly
disclosed procedures for facilitating the suspension and orderly exit
of a participant that fails to meet the participation requirements.
(19) Tiered participation arrangements. The
designated financial market utility identifies, monitors, and manages
the material risks arising from arrangements in which firms that are
not direct participants in the designated financial market utility
rely on the services provided by direct participants to access the
designated financial market utility’s payment, clearing, or
settlement facilities, whether the risks are borne by the designated
financial market utility or by its participants as a result of their
participation. The designated financial market utility—
(i) Conducts
an analysis to determine whether material risks arise from tiered
participation arrangements;
(ii) Where material risks are identified,
mitigates or manages such risks; and
(iii) Reviews and updates the analysis
conducted under paragraph (a)(19)(i) ofthis section the earlier of
every two years or following material changes to the system
design or operations or the environment in which the designated financial
market utility operates if those changes could affect the analysis
conducted under paragraph (a)(19)(i) of this section.
(20) Links. If it operates as a central counterparty,
securities settlement system, or central securities depository and
establishes a link with one or more of these types of financial market
utilities or trade repositories, the designated financial market utility
identifies, monitors, and manages risks related to this link. In this
regard, each central counterparty in a link arrangement with another
central counterparty covers, at least on a daily basis, its current
and potential future exposures to the linked central counterparty
and its participants, if any, fully with a high degree of confidence
without reducing the central counterparty’s ability to fulfill
its obligations to its own participants.
(21) Efficiency
and effectiveness. The designated financial market utility—
(i) Is efficient and effective in meeting the requirements of its
participants and the markets it serves, in particular, with regard
to its—
(A) Clearing and settlement arrangement;
(B) Risk-management policies,
procedures, and systems;
(C) Scope of products cleared and settled; and
(D) Use of technology and communication procedures;
(ii)
Has clearly defined goals and objectives that are measurable and achievable,
such as minimum service levels, risk-management expectations, and
business priorities; and
(iii) Has policies and procedures for
the regular review of its efficiency and effectiveness.
(22) Communication procedures and standards. The designated financial market utility uses, or at a minimum accommodates,
relevant internationally accepted communication procedures and standards
in order to facilitate efficient payment, clearing, and settlement.
(23) Disclosure of rules, key procedures, and market
data. The designated financial market utility—
(i) Has clear and comprehensive rules
and procedures;
(ii) Publicly discloses all rules and key procedures, including key
aspects of its default rules and procedures;
(iii) Provides sufficient information
to enable participants to have an accurate understanding of the risks,
fees, and other material costs they incur by participating in the
designated financial market utility;
(iv) Provides a comprehensive public
disclosure of its legal, governance, risk management, and operating
framework, that includes—
(A) Executive summary. An executive summary of the key points from
paragraphs (a)(23)(iv)(B) through (D) of this section;
(B) Summary of major changes since the last update of the disclosure. A summary of the major changes since the last update of paragraph
(a)(23)(iv)(C), (D), or (E) of this section;
(C) General background
on the designated financial market utility. A description of—
(1) The designated financial market
utility’s function and the markets it serves,
(2) Basic data and performance statistics
on its services and operations, such as basic volume and value statistics
by product type, average aggregate intraday exposures to its participants,
and statistics on the designated financial market utility’s
operational reliability, and
(3) The designated financial market
utility’s general organization, legal and regulatory framework,
and system design and operations;
(D) Standard-by-standard
summary narrative. A comprehensive narrative disclosure for each
applicable standard set forth in this paragraph (a) with suf ficient
detail and context to enable a reader to understand the designated
financial market utility’s approach to controlling the risks
and addressing the requirements in each standard; and
(E) List of publicly
available resources. A list of publicly available resources,
including those referenced in the disclosure, that may help a reader
understand how the designated financial market utility controls its
risks and addresses the requirements set forth in this paragraph (a);
and
(v) Updates the public disclosure under paragraph (a)(23)(iv) of
this section the earlier of every two years or to reflect changes
to its system or the environment in which it operates that would significantly
change the accuracy of the statements provided under paragraph (a)(23)(iv)
of this section.
(b) The
Board, by order, may apply heightened risk-management standards to
a particular designated financial market utility in accordance with
the risks presented by that designated financial market utility. The
Board, by order, may waive the application of a standard or standards
to a particular designated financial market utility where the risks
presented by or the design of that designated financial market utility
would make the application of the standard or standards inappropriate.