SEC Amends Clearing Agency Stress Testing Framework

The SEC amended the clearing agency stress testing framework of the Fixed Income Clearing Corporation (‘‘FICC’’) and its affiliates the Depository Trust Company ("DTC") (see here), and the National Securities Clearing Corporation (NSCC") (see here). The SEC requested comments on the amendments which were published in the Federal Register and are effective immediately.

The agencies amended the stress testing frameworks to align with new requirements for recovery and orderly wind-down plans under Rule 17ad-26, ("Recovery and orderly wind-down plans of covered clearing agencies").

The agencies detailed how the internal stress testing teams will support the "identification and description of [severe] scenarios" that could threaten a clearing agency's ability to operate. The rule changes clarified how internal stress testing teams must support the identification of severe scenarios that could prevent these entities from providing "core services." The agencies stated that the stress testing team is responsible for developing the "assumptions and inputs ... used to determine uncovered credit loss[es] and uncovered liquidity shortfalls. The testing team would generate loss amounts which will then be provided to the recovery and resolution planning team.

The rules were updated to include "general business losses"—such as fraud, natural disasters, or cyber events—as an area of risk identification.