August 9, 2022

SEC Proposes Clearing Agency Governance Requirements

Nihal Patel Commentary by Nihal Patel

The SEC proposed new SEA Rule 17Ad-25 to establish new governance requirements for clearing agencies.

The proposed rule includes requirements as to board composition, independent directors, nominating committees and risk management committees for all registered clearing agencies. The proposed amendments would also require updated policies and procedures regarding conflicts of interest. The proposal includes clarifying definitions and withdraws previously proposed, but not adopted, SEC rules for governance standards at clearing agencies.

Among other things, the proposed rule requires that either (i) a majority of the directors are independent directors or (ii) if a majority of the interests in the clearing agency are held by market participants, at least 34 percent of board members must be independent. The proposed rule also imposes requirements to establish conflict of interest procedures and policies to promote views of owners, participants and other relevant stakeholders in clearinghouse governance.

SEC Commissioners Hester M. Peirce and Mark T. Uyeda dissented from the proposal. Ms. Peirce said that "[t]he proposal takes an overly prescriptive, regulator-knows-best approach to these matters that risks diluting the duties of directors to the clearing agency and depriving clearing agencies of the flexibility and expertise needed for effective governance."

Comments on the proposal are due within 60 days after publication in the Federal Register or 30 days after publication of the proposal on the SEC's website, whichever is longer.


Clearinghouse governance seems to be the government hot topic of the summer. The CFTC proposed new requirements in late July. Multi-national regulatory groups, like CPMI-IOSCO continue to assess clearinghouse risk. These actions pose fundamentally difficult questions: Who takes the risk of clearing and how can they ensure that risk is fairly allocated? Ms. Peirce and Mr. Uyeda raise important issues with the proposal. They clearly prefer that the market address the core concern, but they are swimming against a tide of regulatory bodies that have not taken the approach they advocate (as the proposal points out).

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