The Financial Stability Oversight Council (the Council) today voted unanimously to designate eight financial market utilities (FMUs) as systemically important under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).
This action, the first designations made by the Council, represents another key step towards creating a safer, more resilient financial system. The authority to designate FMUs—often referred to as the "plumbing of the financial system" for their role in clearing and settling transactions between financial institutions—is an important component of Wall Street Reform and is one of a number of tools now available to constrain risk and help protect against future financial crises.
The designated FMUs are:
The Clearing House Payments Company, L.L.C., on the basis of its role as operator of the Clearing House Interbank Payments System
CLS Bank International
Chicago Mercantile Exchange, Inc.
The Depository Trust Company
Fixed Income Clearing Corporation
ICE Clear Credit LLC
National Securities Clearing Corporation
The Options Clearing Corporation
The Dodd-Frank Act provides four specific factors the Council must consider when determining whether an FMU is, or is likely to become, systemically important. The Council's regulations regarding the designation of FMUs, which can be found at www.fsoc.gov, provide more detail regarding these factors and their role in the Council's analysis of whether to designate an FMU. The four factors are (1) the aggregate monetary value of transactions processed by the FMU; (2) the aggregate exposure of the FMU to its counterparties; (3) the relationship, interdependencies, or other interactions of the FMU with other FMUs or payment, clearing, or settlement activities; and (4) the effect that the failure of or a disruption to the FMU would have on critical markets, financial institutions, or the broader financial system.
The vote follows a process laid out in the Council's regulations. Each FMU received a letter on May 22, 2012, informing it that the Council had proposed its designation and providing it with the rationale for the Council's determination. The FMUs each had 30 days to request a hearing if they hearing if they disagreed with the proposed determination of the Council or the Council's proposed findings of fact, but no FMU requested such a hearing. The Council also continues to make progress on its first designations of nonbank financial companies for supervision by the Board of Governors of the Federal Reserve System and enhanced prudential standards.
Also at its meeting today, the Council approved its 2012 Annual Report, which was developed collaboratively by the members of the Council and their agencies and staff. Under the Dodd-Frank Act, the Council must report annually to Congress on a range of issues, including the activities of the Council, significant financial market and regulatory developments, potential emerging threats to the financial stability of the United States, and all determinations made under Section 113 or Title VIII of the Dodd-Frank Act. The report must also make recommendations for promoting market discipline, maintaining investor confidence, and enhancing the integrity, efficiency, competitiveness, and stability of U.S. financial markets. In addition, the report describes progress on the implementation of the Dodd-Frank Act.
In addition, the Council released the minutes from its June 11, 2012, meeting, and approved its report on the study of a contingent capital requirement for nonbank financial companies supervised by the Board of Governors of the Federal Reserve System and for large, interconnected bank holding companies.