File Number: S7-21-22
Rule Type: Final
Release Number: 34-98959
SEC Issue Date: Nov. 16, 2023
Effective Date: 60 days after publication in the Federal Register
The Securities and Exchange Commission has adopted new rules to improve the governance of all registered clearing agencies by reducing the likelihood that conflicts of interest may influence their boards of directors or equivalent governing bodies.
“I am pleased to support this adoption because it helps foster more resilient clearinghouses,” said SEC Chair Gary Gensler. “Congress has said that the Commission has an important role relating to clearinghouses. This adoption seeks to enhance standards to achieve several goals: promote board independence, consider the views of relevant stakeholders, and reduce the potential for conflicts of interest with respect to the board and senior management. Taken together, these final rules benefit investors, issuers, and the markets connecting them.”
The new rules establish governance requirements regarding board composition, independent directors, nominating committees, and risk management committees. The rules also require new policies and procedures regarding conflicts of interest, management of risks from relationships with service providers for core services, and a board obligation to consider stakeholder viewpoints. The rules are being adopted pursuant to, among other statutory provisions, Section 765 of the Dodd-Frank Act, which specifically directs the Commission to adopt rules to mitigate conflicts of interest for security-based swap clearing agencies.
The rules improve the governance of registered clearing agencies by identifying certain responsibilities of the board, increasing transparency into board governance, and, more generally, improving the alignment of incentives among owners and participants of a registered clearing agency. In support of these objectives, the rules establish new requirements for board and committee composition, independent directors, management of conflicts of interest, and board oversight.
The adopting release has been published on SEC.gov and will be published in the Federal Register. The compliance date is 12 months after publication in the Federal Register, except for the independence requirements for the board and board committees, for which the compliance date is 24 months after publication in the Federal Register.
The SEC has adopted new rules to enhance the governance of all registered clearing agencies. These rules include:
- Board Governance: Requirements for independent directors and specific compositions for the board of directors, nominating committee, and risk management committee.
- Conflict of Interest: Measures to identify, mitigate, or eliminate conflicts of interest among directors or senior managers, along with mandatory documentation of such actions.
- Reporting Policies: Obligations for directors to report conflicts of interest, underpinned by detailed policies and procedures.
- Risk Management: Policies and procedures for managing risks from relationships with service providers delivering core services.
- Stakeholder Engagement: Procedures for the board to actively seek, consider, and document the opinions of participants and other relevant stakeholders.
These rules aim to reduce the potential for conflicts of interest to influence the board of directors or equivalent governing bodies of registered clearing agencies.
Key requirements of the new rules include:
- Independent Directors: A majority of the board must be independent directors, with clear definitions of independence and circumstances that might disqualify a director from being considered independent.
- Committee Requirements: Establishment of a nominating committee, a written evaluation process for board nominees, and detailed requirements for the composition and operation of these committees.
- Risk Management Committee: Establishment and annual re-evaluation of a risk management committee, with defined roles and purposes.
- Conflict of Interest Policies: Comprehensive policies to address conflicts of interest and ensure timely reporting by directors.
- Service Provider Risk Management: Policies for managing risks associated with service providers crucial for clearance, settlement, or other vital business functions.
- Stakeholder Consideration: Procedures for the board to incorporate the views of stakeholders on significant developments in risk management and operations.
- SEC Adopts Rules to Improve Clearing Agency Governance and Mitigate Conflicts of Interest.
- "The new rules will help improve the governance of clearing agencies registered with the Commission by reducing the likelihood that conflicts of interest may influence the board of directors or equivalent governing body of a registered clearing agency."
- "The rules identify certain responsibilities of the board, increase transparency into board governance, and, more generally, improve the alignment of incentives among owners and participants of a registered clearing agency."