SEC Staff Reports on the Safety of the Clearing Agencies
Commentary by Steven Lofchie
In a report issued by the SEC Division of Trading and Markets, Office of Compliance Inspections and Examinations, staff provided a retrospective review of the efforts of regulators to strengthen the central clearing system since the adoption of Dodd-Frank.
SEC staff expressed both confidence and concern as to the ongoing safety of the system. Among the principal concerns raised was the ongoing consolidation of clearing members, a process that was underway before Dodd-Frank and that has continued and possibly accelerated.
Commentary
The issuance of this report, in combination with the SEC's recent issuance of a report on interconnectedness in the debt markets in the wake of the financial crisis, signals that the agency is undertaking a more sophisticated analysis of overall market risk. This is a very positive direction for the regulator. It is important that the agency becomes equally sophisticated as to economic issues as it is with respect to purely legal issues, since the law must appropriately flow from, or at least take significant account of, the underlying economics.
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