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U.S. to expand rules for 'too-big-to-fail' clearing houses 

September 29, 2016

John McCrank, KFGO

The U.S. Securities and Exchange Commission on Wednesday said it would adopt rules to strengthen the regulatory framework for clearing agencies deemed systematically important or that are involved in complex transactions, such as security-based swaps.

Clearing agencies act as a middlemen between the parties to securities transactions by ensuring the smooth transfer of funds and securities, and in some cases, serve as a backstop in case a brokerage defaults. The rules are aimed at preventing clearing agencies deemed "too big to fail" from collapsing and spreading systemic market risks. These include the Fixed Income Clearing Corp, the National Securities Clearing Corp and the Options Clearing Corp.

"The use of clearing agencies is critical to the safety and efficiency of securities trading, enabling billions of dollars of securities to change hands smoothly every day," said SEC Chair Mary Jo White. "At the same time, their centralized role in concentrating and managing financial exposures, which has grown significantly since the financial crisis, can raise systemic risk concerns."

A key pillar of the 2010 Dodd-Frank Wall Street reform law was to reduce risk in the derivatives market by requiring many products to be routed through clearing houses. Read more

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