SEC Adopts Rules on Clearing Agency Governance

The SEC adopted rules establishing new governance requirements aimed at reducing the likelihood that conflicts of interest influence a clearing agency's board of directors.

The final rules require that registered clearing agencies:

• comprise their boards of directors with a majority of independent directors, or 34 percent, if a majority of the voting rights are held by participants;
• create independent director requirements for each of the clearing agency's other board committees, in addition to defining circumstances that would disqualify an individual from acting as an independent director;
• establish a nominee process for appointing committee members, along with an evaluation process of nominees, fitness standards and documentation of the outcomes of each evaluation process;
• create a risk management committee;
• implement policies that (i) identify and mitigate conflicts of interest and (ii) mandate directors to report potential conflicts of interest in a timely manner;
• implement policies to manage risks associated with service providers used to support the delivery of clearance or settlement functionality; and
• establish policies for a clearing agency's board to solicit, consider and document stakeholder input regarding material developments in the clearing agency’s risk management and operations.

The final rules will become effective 60 days following publication in the Federal Register. The compliance date is 12 months after publication in the Federal Register, with the exception of the independent director requirements, for which the compliance date is 24 months after publication.

Statements

SEC Chair Gary Gensler said that the final rules achieve several goals: promoting board independence, taking into account the views of stakeholders and reducing the potential for conflicts of interest among a board's senior management.

SEC Commissioner Mark T. Uyeda noted the "broad general support" from commenters. He also highlighted the extension of the compliance date for the final rules from the initial 180 days to 12 months after publication in the Federal Register. He said that the extension would allow affected parties to implement changes in time for the upcoming compliance date for T+1 trade settlement cycle requirements and for clearing agency governance final rules.

In dissent, SEC Commissioner Hester M. Peirce said that the final rules "micromanage" clearing agency governance with a set of "inflexible mandates." She argued that the requirement that boards formally consider the views of "an undefined group of 'relevant stakeholders'" regarding risk management and operations is "ambiguously broad." Ms. Peirce also said that the requirement that nominating committees take a different set of stakeholders' interests into account will "distract" the committee from finding the candidates able to represent the views of owners and participants.