[Federal Register Volume 76, Number 144 (Wednesday, July 27, 2011)]
[Rules and Regulations]
[Pages 44763-44776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18948]


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FINANCIAL STABILITY OVERSIGHT COUNCIL

12 CFR Chapter XIII and Part 1320

RIN 4030-AA01


Authority To Designate Financial Market Utilities as Systemically 
Important

AGENCY: Financial Stability Oversight Council.

ACTION: Final rule.

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SUMMARY: Section 804 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``DFA'') provides the Financial Stability Oversight 
Council (the ``Council'') the authority to designate a financial market 
utility (``FMU'') that the Council determines is or is likely to become 
systemically important because the failure of or a disruption to the 
functioning of the FMU could create, or increase, the risk of 
significant liquidity or credit problems spreading among financial 
institutions or markets and thereby threaten the stability of the 
United States financial system. This final rule describes the criteria 
that will inform and the processes and procedures established under the 
DFA for the Council's designation of FMUs as systemically important 
under the DFA. The Council published an advance notice of proposed 
rulemaking regarding the designation criteria in section 804 on 
December 21, 2010, followed by a notice of proposed rulemaking 
(``NPRM'') on March 28, 2011. The Council notes that this final rule 
only addresses the designation of FMUs. The Council expects to address 
the designation of payment, clearing, or settlement activities as 
systemically important in a separate rulemaking.

DATES: Effective date: August 26, 2011.

FOR FURTHER INFORMATION CONTACT: Lance Auer, Deputy Assistant Secretary 
(Financial Institutions), Treasury, at (202) 622-1262, Patrick 
Pinschmidt, Senior Policy Advisor, Treasury, at (202) 622-2495, Jordan 
Bleicher, Financial Analyst, Treasury, at (202) 622-6491 or Steven D. 
Laughton, Senior Counsel, Office of the General Counsel, Treasury, at 
(202) 622-8413.

SUPPLEMENTARY INFORMATION:

I. Background

Dodd-Frank Wall Street Reform and Consumer Protection Act

    Title VIII of the DFA is entitled the ``Payment, Clearing, and 
Settlement Supervision Act of 2010.'' \1\ FMUs form a critical part of 
the nation's financial infrastructure. They exist in many markets to 
support and facilitate the transfer, clearing or settlement of 
financial transactions, and their smooth operation is integral to the 
soundness of the financial system and the overall economy. However, 
their function and interconnectedness also concentrate a considerable 
amount of risk in the financial system due, in large part, to the 
interdependencies, either directly through operational, contractual or 
affiliation linkages, or indirectly through payment, clearing, and 
settlement processes. In other words, problems at one FMU could trigger 
significant liquidity and credit disruptions at other FMUs or financial 
institutions.
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    \1\ 12 U.S.C. 5461 et seq.
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    Section 804(a)(1) of the DFA states that the Council, ``on a 
nondelegable basis and by a vote of not fewer than \2/3\ of the members 
then serving, including an affirmative vote by the Chairperson of the 
Council, shall designate those financial market utilities or payment, 
clearing, or settlement activities that the Council determines are, or 
are likely to become, systemically important.'' Subject to certain 
exclusions, the DFA defines an FMU as ``any person that manages or 
operates a multilateral system for the purposes of transferring, 
clearing, or settling payments, securities, or other financial 
transactions among financial institutions or between financial 
institutions and the person.'' \2\
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    \2\ See 12 U.S.C. 5462(6). Section 5462(6)(B) specifically 
excludes a number of entities, such as designated contract markets 
and national securities exchanges meeting certain criteria, from the 
definition of an FMU.
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    Section 111 of the DFA establishes the Council. Among the duties of 
the Council under section 112(a)(2) is to ``identify systemically 
important FMUs,'' as defined in the statute.\3\ Section 804 of the DFA 
requires the Council, after consultation with the Board of Governors of 
the Federal Reserve System (the ``Board of Governors'') and the 
relevant federal agency that has primary jurisdiction over an FMU under 
federal banking, securities, or commodity futures laws (``Supervisory 
Agency''), to identify and designate an FMU that is, or is likely to 
become, systemically important if the Council determines that a failure 
of or disruption to an FMU could create, or increase, the risk of 
significant liquidity or credit problems spreading across financial 
institutions and markets and thereby threaten the stability of the U.S. 
financial system.\4\
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    \3\ See 12 U.S.C. 5322(a)(2)(J).
    \4\ Section 804(a)(1) of the DFA states that the Council, ``on a 
nondelegable basis and by a vote of not fewer than \2/3\ of the 
members then serving, including an affirmative vote by the 
Chairperson of the Council, shall designate those financial market 
utilities or payment, clearing, or settlement activities that the 
Council determines are, or are likely to become, systemically 
important.'' 12 U.S.C. 5463(a)(1). See also DFA section 803(9) 
(defining systemic importance). 12 U.S.C. 5462(9).
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    The designation of an FMU as systemically important by the Council 
subjects the designated FMU to the requirements of Title VIII of the 
DFA (``Title VIII''). For example, section 805(a) authorizes the Board 
of Governors, the Commodity Futures Trading Commission (``CFTC''), and 
the Securities and Exchange Commission (``SEC''), in consultation with 
the Council and one or more Supervisory Agencies and taking into 
consideration relevant international standards and existing prudential 
requirements, to prescribe risk management standards governing the 
operations related to the payment, clearing, and settlement activities 
of systemically important FMUs.\5\ The objectives and principles for 
the risk management standards are to promote robust risk management and 
safety and soundness, reduce systemic risk, and support the stability 
of the broader financial system.\6\ These standards may address areas, 
as outlined in section 805(c), such as risk management policies and 
procedures, margin and collateral requirements, participant or 
counterparty default policies and procedures, the ability to complete 
timely clearing and settlement of financial transactions, capital and 
financial resource requirements for designated FMUs, as well as other 
areas that are necessary to achieve these

[[Page 44764]]

objectives and principles.\7\ Designation also subjects the FMU to 
additional examinations and reporting requirements, as well as 
potential enforcement actions. In addition, as set forth in section 
806(a), the Board of Governors may authorize a Federal Reserve Bank to 
establish and maintain an account for a designated FMU and provide the 
services listed in section 11A(b) of the Federal Reserve Act to the 
designated FMU.\8\
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    \5\ See 12 U.S.C. 5464(a).
    \6\ See 12 U.S.C. 5464(b).
    \7\ See 12 U.S.C. 5464(c).
    \8\ See 12 U.S.C. 5465(a).
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Designation of Financial Market Utilities: Overview of the Proposed 
Rule

    In March 2011, the Council issued, and requested public comment on, 
an NPRM that included the analytical framework that the Council would 
use to determine whether an FMU should be designated as systemically 
important in accordance with Title VIII.\9\ As noted in the NPRM, 
section 804(a)(2) of the DFA provides that, in determining whether an 
FMU should be designated as systemically important, the Council must 
consider:
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    \9\ Authority To Designate Financial Market Utilities as 
Systemically Important, 76 FR 17047 (March 28, 2011).
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    A. The aggregate monetary value of transactions processed by the 
FMU;
    B. The aggregate exposure of the FMU to its counterparties;
    C. The relationship, interdependencies, or other interactions of 
the FMU with other FMUs or payment, clearing or settlement activities;
    D. The effect that the failure of or a disruption to the FMU would 
have on critical markets, financial institutions, or the broader 
financial system; and
    E. Any other factors that the Council deems appropriate.\10\
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    \10\ 12 U.S.C. 5463(a)(2).
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    Under the approach described in the NPRM, the Council would 
evaluate FMUs under each of the four specific statutory considerations, 
as well as any other factors the Council deems relevant, using 
quantitative metrics where possible and appropriate. Informed by data 
collected with respect to each statutory consideration, the Council 
would use its judgment to determine whether an FMU should be designated 
as systemically important and thus subject to the relevant heightened 
risk management standards prescribed by the Board of Governors, the 
SEC, or the CFTC. Any determinations of the Council would ultimately be 
based on an evaluation of whether the failure or disruption of the FMU 
could pose a threat to the financial stability of the U.S. financial 
system as described in DFA section 803(9).\11\
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    \11\ Authority To Designate Financial Market Utilities as 
Systemically Important, 76 FR at 17055.
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    The NPRM indicated that the Council expected to use the statutory 
considerations discussed above as the base line criteria for assessing 
an FMU's systemic importance, regardless of the type of payment, 
clearing or settlement activities that the FMU is engaged in. However, 
the NPRM also stated that the application of the statutory 
considerations would be adapted for the risks presented by a particular 
type of FMU and business model. For example, the metrics that are best 
suited for assessing the systemic importance of a central counterparty 
will likely differ from the metrics used to assess the importance of an 
interbank payment system. In light of such differences, the Council 
will apply metrics in a manner that is appropriate to a specific FMU or 
market segment.\12\
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    \12\ Id.
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    In addition, the NPRM sets out a two-stage process for evaluating 
the systemic importance of an FMU prior to a vote of proposed 
designation by the Council. The first stage would consist of a largely 
data-driven process for the Council, working with its committees, to 
identify a preliminary set of FMUs, whose failure or disruption could 
potentially threaten the stability of the U.S. financial system.\13\ In 
the second stage, the FMUs identified through the first stage would be 
subject to a more in-depth review, with a greater focus on qualitative 
factors, in addition to institutional and market specific 
considerations. If an FMU reached the second stage of the evaluation 
process, the Council would notify the FMU under consideration and 
provide the FMU with an opportunity to submit written materials to the 
Council in support of or in opposition to designation as outlined in 
proposed rule section 1320.11. In the case of a proposed designation of 
systemic importance, an FMU would be notified and given the opportunity 
to request a written or oral hearing before the Council to demonstrate 
that the proposed determination is not supported by substantial 
evidence as outlined in proposed rule section 1320.12. Following this 
hearing, the Council would complete its considerations and carry out 
its final vote and notification to the FMU.\14\
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    \13\ Id.
    \14\ Id.
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Overview of the Public Comments

    The Council received 15 comments in response to the NPRM--including 
submissions from industry groups, clearinghouses, retail payment 
systems and other financial institutions \15\--addressing a wide 
variety of issues. Commenters submitted suggestions regarding the 
substantive criteria for designation, including the relevance of 
certain considerations to various types of FMUs operating across 
different markets, quantitative designation thresholds and other 
matters related to the description of potential metrics to be used by 
the Council, as outlined in the NPRM. With respect to the designation 
process, commenters made recommendations regarding the ability of an 
FMU to apply for designation or rescission, the periodic reevaluation 
of designated and non-designated FMUs, Council communication to FMUs, 
the collection of information from FMUs, deadlines for FMUs to request 
hearings and submit information, Council voting procedures, and the 
confidentiality of proceedings, notifications and information gathered 
by the Council. Several commenters addressed potential designations of 
FMUs operating ``retail payment systems,'' with some arguing that the 
final rule should categorically exclude, or contain a presumption 
against, the designation of retail payment systems, and others 
recommending designation of at least some retail payment systems. 
Commenters also suggested that, given the global nature of payment, 
clearing and settlement flows, the designation framework should account 
for international regulatory oversight and standards. Specific comments 
are discussed in more detail in the relevant portions of the section-
by-section analysis.
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    \15\ Comments were received from: Americans for Financial 
Reform, the American Bankers Association, American Express, Better 
Markets, Robert Brasell, the Committee on Capital Markets 
Regulation, the Council of Institutional Investors, LCH.Clearnet 
Group Limited, MasterCard Worldwide, the National Automated Clearing 
House Association, Sun Hong Rie, The Clearing House Association 
L.L.C. and The Clearing House Payments Company L.L.C., The 
Depository Trust & Clearing Corporation, The Financial Services 
Roundtable, and The Options Clearing Corporation.
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II. Final Rule

Overview

    After considering the comments, the Council has adopted a final 
rule to implement section 804 of the DFA. The final rule is 
substantially similar to the proposed rule, maintaining the two-stage 
designation process and the key considerations and the subcategories 
for

[[Page 44765]]

designation. However, the application of certain subcategories and 
illustrative metrics have been moved from stage one to stage two and 
the Council has added procedural provisions affording FMUs the right to 
an after-the-fact hearing following the Council's waiver or 
modification of a notice, hearing, or other requirement.\16\ A summary 
of the key provisions of the rule, highlighting certain portions of the 
designation process and analytical criteria, is provided below. This 
summary is followed by a section-by-section analysis of key sections of 
the regulatory text, relevant comment letters, and changes to the 
proposed rule.
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    \16\ In the NPRM, the Council laid out its analytical framework 
for stage one in which it proposed to begin considering each of the 
subcategories with corresponding illustrative metrics. Upon further 
evaluation, the Council has decided to begin applying certain 
subcategories and metrics in stage two rather than stage one to 
further enhance the transparency of the stage one process by relying 
upon readily available data that is generally easy to quantify.
     Specifically, the Council will begin applying the following 
four subcategories in section 1320.10(d)(3)-(6) at stage two: 
concentration of participants, concentration by product type, the 
degree of tiering, and potential impact or spillover in the event of 
a failure or disruption.
    The Council also decided to clarify several of the illustrative 
metrics or to begin considering such metrics at stage two. For 
example, certain metrics in stage one will be calculated on 
``average'' values, a more generic term, rather than the more 
specific ``mean'' or ``median'' terms for value, as indicated in the 
NPRM. The Council also moved the consideration of ``the mean and 
peak aggregate value of an FMU's financial resources held to address 
the credit risks arising from a potential participant default (i.e., 
participant, clearing or margin fund)'' from stage one to stage two.
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    The Council expects to use a two-stage process for evaluating FMUs 
prior to a vote of proposed designation. The first stage will consist 
of a largely data-driven process for the Council to identify a 
preliminary set of FMUs, whose failure or disruption could potentially 
threaten the stability of the U.S. financial system. In the second 
stage, the FMUs identified through the first stage of review will be 
subject to a more in-depth review, with a greater focus on qualitative 
factors, in addition to other institution and market specific 
considerations.
    The Council's analytical framework, which was summarized in the 
NPRM, is outlined below. As discussed in more detail in the section-by-
section analysis, metrics referenced herein are offered for purposes of 
illustration and their application will vary by specific market or 
institution. If information for a specific metric described below is 
not available or is not relevant to an FMU under consideration, the 
Council may consider an alternate or substitute metric for which 
information is available or which the Council considers more relevant. 
In appropriate cases, the Council may exclude a metric from 
consideration for a particular FMU. The Council may revise the metrics 
as new data become available and as the process for evaluating FMUs for 
designation evolves.
Analytical Framework: Stage One
    The Council is establishing subcategories to further address the 
specific statutory considerations that are set forth in section 
804(a)(2) of the DFA. These subcategories are substantively similar to 
those contained in the proposed rule. Certain subcategories and 
associated metrics are described below to illustrate how the 
considerations will be taken into account in assessing systemic 
importance.

Consideration (A): Aggregate Monetary Value of Transactions Processed 
by an FMU

 Subcategory (A)(1): Number of transactions processed, cleared 
or settled by the FMU

    Within subcategory (A)(1), examples of the types of metrics that 
the Council may consider include daily average \17\ and historical peak 
gross volumes processed, cleared or settled.
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    \17\ In considering ``average'' data, the Council will use mean 
or median values, depending on which is appropriate in a particular 
case.

 Subcategory (A)(2): Value of transactions processed, cleared 
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or settled, by the FMU

    Within subcategory (A)(2), examples of the types of metrics that 
the Council may consider include daily average and historical peak 
gross values processed, cleared or settled.

 Subcategory (A)(3): Value of other financial flows that may 
flow through an FMU

    Within subcategory (A)(3), the Council may consider the daily 
average and historical peak value of variation margin, as well as the 
change in average daily and peak daily initial margin.

Consideration (B): Aggregate Exposure of an FMU to Its Counterparties

 Subcategory (B)(1): Credit exposures \18\ to counterparties
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    \18\ In the context of derivatives clearing, the term ``credit 
exposures'' refers to potential future exposures.

    Within subcategory (B)(1), the Council may consider the use of 
metrics that measure the average aggregate daily value and peak 
aggregate dollar value of collateral (before or after haircut) posted 
to the FMU; average daily and peak aggregate intraday credit provided 
by an FMU to participants; and the mean and peak daily value of initial 
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margin held by an FMU.

 Subcategory (B)(2): Liquidity exposures to counterparties

    Within subcategory (B)(2), the Council may consider measures of the 
estimated peak liquidity need in the case of the default of the largest 
single counterparty to the FMU and the average and peak daily aggregate 
dollar value of pay outs by an FMU to its counterparties.

Consideration (C): Relationship, Interdependencies, or Other 
Interactions of an FMU With Other FMUs or Payment, Clearing or 
Settlement Activities

    Within consideration (C), the Council may consider metrics that 
measure the relationships and interdependencies of an FMU, including 
those that measure interactions of an FMU with different participants, 
such as systemically important financial and/or nonfinancial companies, 
central banks, or other payment, clearing or settlement systems, with 
trading platforms (such as exchanges and alternative trading systems), 
and with the market environment more generally, including contractual 
relationships, that support the operations of an FMU.

Consideration (D): Effect That the Failure of or Disruption to an FMU 
Would Have on Critical Markets, Financial Institutions or the Broader 
Financial System

 Subcategory (D)(1): Role of an FMU in the market served

    Within subcategory (D)(1), the Council may consider market share 
metrics such as an FMU's volume as a percentage of total market volume 
or value as a percentage of total market value.

 Subcategory (D)(2): Availability of substitutes

    Within subcategory (D)(2), the Council may consider whether there 
exist, and if so, the number of other FMUs that may provide the same 
function or product, or provide an alternative payment mechanism, and 
how readily available a potential substitute would be for participants, 
considering such additional factors as operational capability and 
timing.

Consideration (E): Any Other Factors That the Council Deems Appropriate

    Under this statutory consideration, the Council retains its ability 
to consider additional subcategories, metrics and qualitative factors 
as may be relevant and appropriate. Such additional factors may be 
based on the

[[Page 44766]]

particular characteristics of an FMU being reviewed, such as the nature 
of the FMU's operations, the FMU's corporate structure or the FMU's 
business model.

Analytical Framework: Stage Two

    The second stage will provide the Council with the opportunity to 
perform a more in-depth review and analysis of specific FMUs from both 
a quantitative and qualitative perspective. In this stage, the Council 
will place a greater focus on any elements that may be particular to a 
specific FMU or a market. The Council will conduct a tailored analysis 
of each FMU under consideration to determine whether it is or is likely 
to become systemically important.

Relationship Between Considerations (A)-(E) and the Statutory Basis for 
Designation

    Ultimately, the Council will use its assessment of Considerations 
(A) through (E), as described above, to reach a conclusion regarding 
whether an FMU meets the statutory basis for designation under section 
804(a)(1) of the DFA, which directs the Council to designate FMUs that 
the Council determines are, or are likely to become, systemically 
important.\19\ ``Systemically important'' is defined in section 803(9) 
of the DFA, and in section 1320.2 of the final rule, as a ``situation 
where the failure of or disruption to the functioning of a financial 
market utility * * * could create, or increase, the risk of significant 
liquidity or credit problems spreading among financial institutions or 
markets and thereby threaten the stability of the financial system of 
the United States.''\20\ Thus, the two critical determinations for an 
FMU designation are:
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    \19\ See 12 U.S.C. 5463(a)(1).
    \20\ See 12 U.S.C. 5462(9).
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    (1) Whether the failure of or a disruption to the functioning of 
the FMU now or in the future could create, or increase, the risk of 
significant liquidity or credit problems spreading among financial 
institutions or markets (the ``First Determination''); and
    (2) Whether the spread of such liquidity or credit problems among 
financial institutions or markets could threaten the stability of the 
financial system of the United States (the ``Second Determination'').
    Considerations (A) and (C) primarily relate to the First 
Determination. Whether the failure of or a disruption to the 
functioning of the FMU could create or increase the risk of significant 
liquidity or credit problems is a function of, among other things, the 
value of the transactions the FMU processes (Consideration (A)). The 
risk of significant liquidity or credit problems also depends on the 
interactions between the FMU and other FMUs or payment, clearing, or 
settlement (``PCS'') activities (Consideration (C)). For example, the 
risk of liquidity or credit problems is greater if the failure of an 
FMU would cause other FMUs to fail, but mitigated if other FMUs could, 
in a timely manner, act as substitutes for the failed FMU.
    Consideration (B) relates to both the First and the Second 
Determinations. The aggregate exposure of an FMU to its counterparties 
(Consideration (B)) is positively correlated with the probability that 
any failure or disruption of the FMU could potentially destabilize 
counterparties or the financial system. Consideration (D) primarily 
relates to the Second Determination.
    In light of the language and purpose of Title VIII, the Council 
notes that the judgment involved in the Second Determination is 
substantially informed by the First Determination. Title VIII enhances 
the supervision of systemically important FMUs and payment, clearing, 
and settlement activities so that the economy can enjoy the advantages 
of efficiency and risk reduction that these institutions provide to the 
financial system.\21\ A failure or disruption of an FMU that could 
create the risk of ``significant liquidity or credit problems spreading 
among financial institutions or markets'' will, absent extraordinary 
circumstances, weaken the financial system's ability to serve the 
economy and dramatically increase the risk of financial instability and 
economic downturn. The Second Determination, therefore, largely 
assesses whether possible disruptions are potentially severe, not 
necessarily in the sense that they themselves might trigger damage to 
the U.S. economy, but because such disruptions might reduce the ability 
of financial institutions or markets to perform their normal 
intermediation functions.
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    \21\ See 12 U.S.C. 5461.
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Section-by-Section Analysis

Section 1320.1 Authority and Purpose
    Proposed section 1320.1(a) states that sections 111, 112, 804, 809, 
and 810 of the DFA provide the statutory authority for the Council to 
designate FMUs. Proposed section 1320.1(b) explains that the purpose of 
part 1320 is to set forth standards and procedures governing the 
Council's designation of FMUs that the Council determines are, or are 
likely to become, systemically important.
    The Council did not receive any comments that requested changes to 
this section. The Council made one technical, non-substantive change.
Section 1320.2 Definitions
    In the proposed rule, the Council defined terms that are necessary 
to implement the final rule. The definitions (including ``financial 
market utility,'' ``Supervisory Agency,'' and ``systemically important 
and systemic importance'') use the statutory definitions in sections 2 
and 803 of the DFA.\22\ The definitions in the final rule are 
unchanged, except that the Council has made a technical addition to the 
definition of the term ``Supervisory Agency'' and added a definition of 
the term ``hearing date.''
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    \22\ 12 U.S.C. 5301 and 5462.
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    Financial Market Utility. One commenter suggested that, in 
evaluating systemic importance, the Council should identify the FMU 
functions within an organization, and separately apply the standards 
for systemic importance set forth in section 1320.10 of the proposed 
rule to individual subsidiaries performing such functions.\23\ The 
commenter stated that the Council should not apply the standards for 
systemic importance to non-FMU operating subsidiaries or at the parent-
company level. The Council generally agrees with the comment; 
specifically, where there is a parent holding company that has, for 
example, separately incorporated FMU subsidiaries whose operations and 
activities are not significantly interconnected, the Council expects to 
separately apply the standards for systemic importance set forth in 
section 1320.10 to each FMU subsidiary that potentially meets the 
standards of systemic importance. The Council generally does not expect 
to apply the standards for systemic importance to a parent holding 
company or subsidiaries that are not themselves FMUs. However, there 
may be instances of overlap between affiliates in the operation or 
management of FMU or PCS activities making it appropriate for the 
Council to evaluate whether more than one affiliate meets the standards 
for systemic importance, for example, if the parent holding company is 
actively managing the operations of a subsidiary that performs the 
function in question.
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    \23\ See comment letter from The Depository Trust & Clearing 
Corporation (May 27, 2011) (hereinafter ``DTCC letter''), p. 5.
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    Hearing date. The final rule includes a new definition of the term 
``hearing

[[Page 44767]]

date'' to be used to establish the date by which the Council must 
provide an FMU written notification of the final determination of the 
Council after a hearing under section 1320.14 or section 1320.15 of the 
final rule. The definition of the term ``hearing date'' distinguishes 
between hearings conducted through the submission of written materials 
and hearings conducted through oral argument and oral testimony. The 
Council expects to develop and implement more detailed procedures 
governing the conduct of hearings under this part at a later date.
    Payment, clearing, or settlement activity. One commenter suggested 
expanding the types of activities that fall within the definition of 
``payment, clearing, or settlement activity'' to include key risk 
management controls exercised by clearinghouses.\24\ The Council 
considered this comment and determined that the concept of risk 
management controls are already included in the proposed definition of 
payment, clearing, or settlement activity, which encompasses ``the 
management of risks and activities associated with continuing financial 
transactions.'' \25\ As such, expanding the definition of payment, 
clearing, or settlement activities to include risk management controls 
exercised by clearinghouses, but not other FMUs, is unnecessary.
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    \24\ See comment letter from LCH.Clearnet Group Limited (May 27, 
2011) (hereinafter ``LCH letter''), p. 4.
    \25\ See 12 U.S.C. 5462(7)(C)(iv).
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    Supervisory Agency. One commenter noted that while the definition 
of the term ``Supervisory Agency'' in the proposed rule would extend 
only to designated FMUs, the context of other sections of the proposed 
rule requires that it also apply to undesignated FMUs that are being 
considered for designation.\26\ Consistent with this comment, the 
commenter suggested a technical revision to apply the definition to 
both designated and undesignated FMUs. The final rule incorporates the 
suggested technical revision so that the definition of the term 
``Supervisory Agency'' will apply to both designated and undesignated 
FMUs.
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    \26\ See comment letter from The Options Clearing Corporation 
(May 26, 2011) (hereinafter ``OCC letter''), p. 2.
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    Systemically important and systemic importance. One commenter 
suggested that a term contained within the definitions of 
``systemically important'' and ``systemic importance''--specifically, 
``significant liquidity or credit problems''--should also be 
defined.\27\ Specifically, the commenter suggested that the Council 
should take into consideration definitions under deliberation by other 
G-20 countries, and coordinate the Council's efforts with those of the 
Committee on Payment and Settlement Systems (CPSS) and the 
International Organization of Securities Commissions (IOSCO) when 
crafting these and other relevant definitions. The Council considered 
this comment and determined that it is appropriate to leave unchanged 
the statutory definitions of systemically important and systemic 
importance. Doing so does not preclude the Council from taking into 
account definitions under consideration by, or from coordinating its 
efforts with, international organizations, including CPSS and IOSCO. 
Moreover, the Council believes that the term ``significant liquidity or 
credit problems'' does not lend itself to a specific definition in the 
context of this final rule because the nature of liquidity and credit 
problems will depend on particular facts and circumstances, and the 
Council will take those facts and circumstances into consideration in 
making designation determinations.
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    \27\ See comment letter from The Financial Services Roundtable 
(May 27, 2011) (hereinafter ``Financial Services Roundtable 
letter''), p. 3.
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Section 1320.10 Factors for Consideration in Designation
    In the proposed rule, the Council listed five considerations that 
section 804(a)(2) of the DFA requires the Council to consider in making 
such determinations. Of these considerations, four were specific: (1) 
Aggregate monetary value of transactions; (2) aggregate counterparty 
exposure; (3) relationships, interdependencies, or other interactions 
with market participants; and (4) the effect that a failure or 
disruption of an FMU would have on critical markets, financial 
institutions, or the broader financial system. The fifth 
consideration--any other factors that the Council deems appropriate--is 
open-ended. For each of the four specific considerations--the proposed 
rule contained non-exclusive subcategories to provide greater 
transparency as to how the Council will apply each of the specific 
considerations. The proposed rule did not provide for any categorical 
exclusions or exemptions.
    These considerations and subcategories, as well as the metrics 
discussed earlier, prompted a broad range of responses from commenters 
addressing how these considerations are formulated and the nature of 
proposed subcategories, including additional considerations for 
inclusion, and qualitative and quantitative assessments on the 
appropriateness of certain criteria or metrics.
    While several comments requested more detailed criteria, the 
Council believes that the establishment and application of rigid 
``bright-line'' standards or thresholds would unduly constrain the 
designation process. The Council believes that the diverse nature of 
businesses operated by FMUs--spanning a broad range of asset classes, 
counterparties and market structures--does not lend itself to a fixed 
formula drawn consistently from an array of pre-determined 
considerations. In this context, the Council believes that a reasonable 
degree of flexibility is appropriate to permit refinement of its 
approach to designations as market structure, technology and 
competition evolve across key markets.
    Two commenters observed that the standards for determining whether 
an FMU is, or is likely to become, systemically important are 
influenced by the financial market and economic conditions that might 
exist at the time of failure or disruption.\28\ In testing for systemic 
importance, both of these commenters recommended that the Council 
assume that the failure or disruption of an FMU occurs at a time of 
``extreme but plausible market conditions.'' They warned against 
relying on purely historical data in identifying such conditions on the 
grounds that damage caused by a build-up of systemic risk is most 
likely to occur as a result of unprecedented events. The Council 
considered these comments and agrees that, in determining whether the 
failure or disruption of an FMU could create, or increase, the risk of 
significant liquidity or credit problems, it should generally consider 
a range of circumstances, including ``extreme but plausible'' events. 
In considering such circumstances, the Council does not anticipate 
limiting itself to historical data.
---------------------------------------------------------------------------

    \28\ See comment letter from Americans for Financial Reform (May 
27, 2011) (hereinafter ``Americans for Financial Reform letter''), 
pp. 3-4; and see comment letter from Better Markets (May 27, 2011) 
(hereinafter ``Better Markets letter''), p. 2.
---------------------------------------------------------------------------

    With respect to the aggregate monetary value of transactions 
processed by an FMU, one commenter urged the Council to adopt a 
methodology for valuing derivatives transactions that does not distort 
comparisons made with securities or commodity transactions and 
suggested

[[Page 44768]]

that the Council analyze evaluation criteria in light of the currencies 
in which an FMU's obligations are denominated.\29\ This commenter also 
recommended that, in the case of an FMU that is a clearinghouse, any 
assessment of the FMU's potential liquidity exposures should consider 
liquidity strains from: (i) The failure of a bank or dealer which is a 
market counterparty of the clearinghouse for the purposes of investment 
of margin or other collateral; (ii) a delay in, or disruption to, 
collateral liquidation in the event of a participant's default; (iii) 
and the failure of a settlement bank. Finally, this commenter asserted 
that the Council should, in assessing the potential systemic importance 
of a clearinghouse, take into account its linkages to other 
clearinghouses and the regulatory oversight of an FMU's participants or 
members. As a general matter, the Council agrees with these comments 
and expects to apply the considerations set forth in section 1320.10 in 
a manner that is consistent with these recommendations, as appropriate 
to the circumstances of each FMU. However, as noted below, the Council 
does not believe that the extent of regulatory oversight of an FMU is a 
dispositive consideration because Congress recognized that most FMUs 
are already subject to regulatory oversight, but nevertheless found 
that enhancements to the existing regulation of systemically important 
FMUs are necessary to mitigate systemic risk and promote financial 
stability.\30\
---------------------------------------------------------------------------

    \29\ LCH letter, supra, at 5.
    \30\ See 12 U.S.C. 5461(a)(4).
---------------------------------------------------------------------------

    Quantifiable benchmarks. Two commenters recommended that the final 
rule contain quantifiable benchmarks to better equip an FMU to assess 
the likelihood of being designated.\31\ Conversely, two other 
commenters recognized the difficulty of establishing quantifiable 
benchmarks that would function as a bright-line standard for 
determining whether an FMU is systemically important.\32\ The latter 
two commenters noted that bright-line designation criteria could overly 
restrict the Council's ability to designate systemically important FMUs 
that might not otherwise meet certain size or risk thresholds, with one 
commenter specifically noting that it will be difficult to discern 
bright-line criteria in advance, as there is not always a correlation 
between size and risk. Another commenter noted that the Council should 
have flexibility to respond to the evolving market landscape, 
maintaining the ability to respond to unforeseen risks that may be 
difficult to define today.\33\
---------------------------------------------------------------------------

    \31\ See comment letters from the National Automated Clearing 
House Association (May 26, 2011) (hereinafter ``NACHA letter''), p. 
2 and MasterCard letter, supra, at 2.
    \32\ See DTCC letter, supra, p.2; and see comment letter from 
The Clearing House Association, L.L.C. and The Clearing House 
Payments Company L.L.C. (May 20, 2011) (hereinafter ``The Clearing 
House letter''), p. 3.
    \33\ Americans for Financial Reform letter, supra, at 4.
---------------------------------------------------------------------------

    While clear, identifiable ``triggers'' could provide predictable 
outcomes, the application of bright-line standards is not likely to 
achieve the stated purposes of Title VIII given the breadth of FMUs 
operating across diverse and rapidly evolving marketplaces. The Council 
believes that any degree of certainty provided by quantifiable 
benchmarks is outweighed by the risk that such benchmarks could prevent 
the Council from designating systemically important FMUs in as 
effective a manner as necessary to achieve the objectives of Title 
VIII.
    Therefore, the Council does not believe that it can effectively 
fulfill its mandate to mitigate risk and promote financial stability if 
it were to establish in advance bright-line triggers for determining 
systemic importance. This conclusion is underscored by the lack of 
consensus among commenters on the relative merits of certain 
subcategories, metrics, or other considerations to inform the 
designation process. Given the breadth of affected markets, not all 
metrics can be applied consistently across firms or asset classes. The 
Council serves its statutory mandate in preserving the flexibility to 
seek out and utilize substitute subcategories and metrics when 
appropriate to better inform the Council's assessment of systemic 
importance.
    At this stage, while the Council believes that it would be 
premature to pre-judge or otherwise narrow the identification and 
collection of pertinent data, the Council does not anticipate that it 
will employ all of the identified metrics in every determination, and 
expects to refine its approach, as appropriate, as its work progresses 
and markets evolve.\34\ The Council intends to rely on quantitative 
measures as inputs to the process, particularly for making its initial 
assessments at stage one of the designation process. As outlined in the 
NPRM, these metrics do not represent quantifiable thresholds, but 
rather provide an illustrative list of the types of metrics that will 
inform the Council's work. The Council believes that, in most cases, 
much of this data is available to regulators, although the relevance of 
particular metrics will vary by institution or market segment. If data 
are not available or otherwise applicable, the Council will endeavor to 
identify appropriate substitutes. In addition, the Council will, to the 
extent practicable, seek to avoid unnecessary and unintended anti-
competitive effects from its selection of appropriate metrics.
---------------------------------------------------------------------------

    \34\ In utilizing a more flexible approach, one commenter urged 
the Council to consider the potential for creating inconsistent 
standards that may lead to unintended competitive advantages. See 
DTCC letter, supra, p. 4.
---------------------------------------------------------------------------

    Retail payment systems. Several commenters made suggestions 
regarding the Council's consideration of FMUs operating retail payment 
systems, which one commenter defined as including check, Automated 
Clearing House (``ACH''), and debit and credit card networks.\35\ 
Specifically, a number of these commenters stated that retail payment 
systems are not systemically important and should not be designated as 
such for a variety of reasons, including the fact that they process low 
aggregate value transactions with broad availability of substitutes. 
These commenters urged the Council to reconsider its position against 
including a categorical exclusion of retail payment systems from 
consideration.\36\ Two commenters acknowledged the Council's proposed 
rationale for not categorically excluding retail payment systems, but 
suggested that the final rule contain a rebuttable presumption that 
retail payment systems are not systemically important.\37\ Some 
commenters suggested that in the absence of a categorical exclusion, 
the Council consider the extent of existing regulatory oversight over 
retail payment systems, the different structures of retail payment 
systems, and finality in settlement.\38\ One of these commenters 
suggested that the Council broadly interpret the ``availability of 
substitutes'' subcategory contained in section 1320.10(d)(2) of the 
proposed rule to include any payment method that satisfies the same 
payment need.\39\ Conversely, one commenter urged the Council to, at a 
minimum, designate large credit card systems, on the basis that not 
doing so would put the Council in a position where it would not be

[[Page 44769]]

fulfilling its responsibilities under the DFA.\40\
---------------------------------------------------------------------------

    \35\ See comment letter from the American Bankers Association 
(May 27, 2011) (hereinafter ``ABA letter''), p. 4.
    \36\ See e.g., MasterCard letter, supra, at 2 and AMEX letter, 
supra, at 2.
    \37\ MasterCard letter, supra, at 2, and NACHA letter, supra, at 
3.
    \38\ AMEX letter, supra, at 2-5, and NACHA letter, supra, at 3
    \39\ See e.g., NACHA letter, supra, at 4.
    \40\ Americans for Financial Reform letter, supra, at 3.
---------------------------------------------------------------------------

    The Council recognizes that the definition of an FMU covers a large 
number of systems and a larger number of system operators. Within 
payment systems, the Council expects to focus on FMUs that operate 
large-value systems and not on FMUs that operate low-value systems for 
which there appear to be readily available and timely alternative 
payment mechanisms. However, the Council has decided against including 
in the final rule any categorical exclusion for FMUs operating retail 
payment or other systems, both because there are not clear distinctions 
between various types of systems, and because such an exclusion would 
impair the Council's ability to respond appropriately to new 
information, changed circumstances, and future developments. The 
Council has also decided against including in the final rule a 
rebuttable presumption that retail payment systems are not systemically 
important. The Council believes that such a presumption is unnecessary 
because the initial task of determining whether any FMU is systemically 
important already rests with the Council.\41\
---------------------------------------------------------------------------

    \41\ See 12 U.S.C. 5463(c)(2)(C), which provides that an FMU may 
request a hearing before the Council to demonstrate that the 
Council's proposed determination is not supported by substantial 
evidence.
---------------------------------------------------------------------------

    The Council also decided not to add considerations more narrowly 
tailored to the characteristics of retail payment systems, because the 
Council does not believe additional considerations are necessary or 
appropriate at this time. For example, as discussed above, the Council 
does not believe that the extent of regulatory oversight is an 
appropriate consideration.\42\ Lastly, under section 1320.10(d)(2), the 
Council will consider with respect to retail payment systems, the 
availability of substitute mechanisms to make low-value payments.
---------------------------------------------------------------------------

    \42\ See 12 U.S.C. 5461.
---------------------------------------------------------------------------

    Subcategories. In the NPRM, the Council requested comment on 
whether the subcategories in the proposed rule for each specific 
consideration were clear, sufficiently detailed, and appropriate. To 
the extent applicable, the Council also sought feedback on the merits 
of potential additional subcategories, as well as the elimination or 
modification of the subcategories.
    The Council received several comments on the proposed 
subcategories. One commenter suggested that the Council consider a 
common methodology for determining the value of derivatives 
transactions across various asset classes and currencies; an FMU's 
potential liquidity exposure in the event of a participant default; 
counterparty credit exposure to the FMU; and the nature of regulatory 
oversight and intermarket linkages of a particular FMU.\43\ Another 
commenter asserted that corporate governance arrangements and risk 
management oversight practices should be considered by the Council.\44\
---------------------------------------------------------------------------

    \43\ LCH letter, supra, at 5.
    \44\ See comment letter from the Council of Institutional 
Investors (May 13, 2011) (hereinafter ``Council letter''), p. 1.
---------------------------------------------------------------------------

    The Council has considered these recommendations for designation 
determinations and has adopted the proposed subcategories in the final 
rule, with one technical change in section1320.10(c) regarding 
interactions with participants to make clear that the Council should 
consider interactions between participants of the same type of FMU or 
PCS activity. Importantly, these subcategories are neither exclusive 
nor rigid, and are provided as illustrative examples of potential 
criteria to improve transparency to market participants regarding 
factors that may be considered in the Council's determinations. 
Nonetheless, the comments offered on the subcategories will inform the 
Council's analysis. Furthermore, the Council may consider additional 
subcategories or find certain subcategories inapplicable to specific 
cases.
Section 1320.11 Stage Two Consultation With Financial Market Utility
    In general. In the NPRM, the Council outlined the two-stage process 
that the Council, working with its committees, will use to designate 
FMUs. The NPRM described the stage one assessment process and explained 
that those FMUs that are determined to warrant further assessment will 
advance to stage two (such advancement does not require a two-thirds 
vote of Council members then serving).\45\ The NPRM explained that FMUs 
that advance to stage two will receive written notification from the 
Council that they are under consideration for designation, and that 
each such FMU may voluntarily submit written materials to the Council 
in support of, or in opposition to, designation by the Council within 
such time as the Council determines appropriate. The Council stated 
that the stage two consultation process would help the Council make 
better informed decisions in determining whether to propose or not 
propose the designation of an FMU. The Council also noted that the 
stage two consultation process would benefit an FMU by, for example, 
enabling it to demonstrate that it is not systemically important.
---------------------------------------------------------------------------

    \45\ Section 804 of the DFA requires a vote of no fewer than 
two-thirds of the members of the Council then serving, including the 
affirmative vote of the Chairperson of the Council, before the 
Council may either designate an FMU or rescind the designation of an 
FMU. 12 U.S.C. 5463. The stage 1 and stage 2 processes, including 
the section 1320.11 consultation process, precede any Council 
proposed or final determination to designate an FMU.
---------------------------------------------------------------------------

    Section 1320.11(a) Content of consultation notices. Two commenters 
suggested that the Council's notices should specify why the Council is 
considering the FMU for potential designation so that the FMU can 
prepare an appropriate response.\46\ One commenter suggested that the 
Council provide the FMU with all applicable information the Council 
relied on in making the determination to advance an FMU to stage 
two.\47\ The Council agrees that some degree of specificity is 
appropriate in all circumstances, and additional clarification may be 
appropriate under certain circumstances, such as when the Council 
believes it will help an FMU tailor its response. Accordingly, under 
section 1320.12(a) of the final rule, the Council's notice of proposed 
determination to designate an FMU as systemically important will 
contain proposed findings of fact supporting the Council's proposed 
determination. Further, the Council expects that additional clarity, 
for example, may be appropriate where an FMU operates more than one 
system and the Council is focusing on only one particular system for 
designation. Under those circumstances, the Council expects that its 
notice will identify the system the Council is reviewing when 
considering the FMU for designation.
---------------------------------------------------------------------------

    \46\ See e.g., AMEX letter, supra, at 5-6.
    \47\ Financial Services Roundtable letter, supra, at 2.
---------------------------------------------------------------------------

    The Council has decided not to include in the rule a standard or 
requirement to provide FMUs with the stage one information that 
informed its decision to advance an FMU to stage two. The Council 
anticipates relying upon publicly available information and data from 
the appropriate Supervisory Agencies during stage one. Accordingly, 
information obtained from one or more federal agencies with 
jurisdiction over an FMU could in some instances contain confidential 
supervisory information not appropriate for disclosure. Because an FMU 
under consideration will have an opportunity

[[Page 44770]]

to understand the information considered by the Council to be most 
relevant if the Council proposes to designate the FMU, the Council 
believes its decision not to include in the rule a standard or 
requirement regarding providing stage one information to an FMU to be 
appropriate.
    Confidentiality of notices. One commenter suggested that the final 
rule should clarify that the Council will keep confidential a notice or 
information request to an FMU regarding its potential designation.\48\ 
Another commenter suggested that the Council implement procedures that 
provide market participants the opportunity to offer input on the 
possible designation of an FMU.\49\ The Council considered these two 
comments and determined that it will not publicize the notices or 
information requests \50\ submitted to FMUs. The Council understands 
that maintaining the confidentiality of the notices and information 
requests is important to prevent potentially destabilizing market 
speculation that could occur if the Council were to make such notices 
public. This approach also is consistent with the DFA, which provides 
that any materials prepared by the Council regarding its assessment of 
the systemic importance of FMUs shall be exempt from disclosure 
pursuant to the Freedom of Information Act.\51\ Finally, the Council 
will in its annual report to Congress disclose publicly its final 
designation determinations and the basis for those determinations as 
required by Section 112 of the DFA.\52\
---------------------------------------------------------------------------

    \48\ AMEX letter, supra, at 5.
    \49\ DTCC letter, supra, at 6.
    \50\ Council information requests to FMUs are covered by section 
1320.20 of the proposed rule, which provides that the Council's 
notice must describe the basis for the Council's belief that the FMU 
is, or is likely to become, systemic important.
    \51\ 5 U.S.C. 552. See 12 U.S.C. 5468(g). At the same time, the 
Council recognizes that the FMU itself (as opposed to the Council or 
a Supervisory Agency) may be required to disclose notices or 
information requests to the extent required by applicable law, 
particularly if the FMU is a public company required to comply with 
federal securities laws.
    \52\ 12 U.S.C. 5322(a)(2)(N)(iv).
---------------------------------------------------------------------------

    Section 1320.11(b) Timeframe to respond to notices. In the NPRM, 
the Council requested comment on the merits of establishing a set time 
period for FMUs to submit written materials to the Council or whether 
flexibility in the time permitted for FMUs to submit information is 
appropriate. One commenter stated that FMUs should have at least 60 
days to provide information to the Council after receiving a 
consultative notice and that the final rule should contain a mechanism 
by which an FMU can request an extension.\53\ Another commenter 
suggested that, in the absence of an emergency, FMUs should be given 90 
days to respond to Council notices or requests.\54\ The Council 
considered these comments and determined that a set 60-day or 90-day 
response time is too inflexible and, in most cases, too long, 
particularly in light of the fact that any FMU that the Council may 
later propose to designate will have a second opportunity to submit 
written materials to the Council under section 1320.12 of the final 
rule. However, the Council believes that there may be exceptional 
circumstances where a 60-day, 90-day, or even longer response time may 
be appropriate. As a result, the Council believes that it is 
appropriate to preserve administrative flexibility to tailor a response 
time to the particular facts and circumstances for each FMU, so as to 
avoid pro forma delay in inappropriate circumstances.
---------------------------------------------------------------------------

    \53\ Financial Services Roundtable letter, supra, at 2.
    \54\ AMEX letter, supra, at 5.
---------------------------------------------------------------------------

    Therefore, the final rule is substantively similar to the proposed 
rule, except that the Council revised section 1320.11(b)(3) to require 
the Council to consider only those written materials that are 
``timely'' submitted by the FMU.
Section 1320.12 Advance Notice of Proposed Determination
    The proposed rule outlined the process by which the Council will 
provide an FMU with advance notice and an opportunity for a hearing to 
contest the Council's proposed designation of an FMU as systemically 
important or a proposed rescission of a prior designation. One 
commenter noted that a two-thirds vote of the Council is necessary for 
a proposed designation and suggested that section 1320.12 directly 
state the two-thirds Council vote standard.\55\ The Council agrees with 
the suggestion, and has revised section 1320.12(a) of the final rule to 
state that a proposed determination of designation or rescission shall 
be made by a vote of the Council under section 1320.13(c).
---------------------------------------------------------------------------

    \55\ Financial Services Roundtable letter, supra, at 2.
---------------------------------------------------------------------------

    The Council has also made several non-substantive changes to 
section 1320.12 to provide greater clarity.\56\
---------------------------------------------------------------------------

    \56\ For example, changes to Sec.  1320.12 clarify that before 
the Council makes a final determination to rescind a designated 
FMU's designation of systemic importance, the Council must provide 
the designated FMU with advance notice of the proposed rescission, 
including the right to request a written or oral hearing to 
challenge the proposed rescission.
---------------------------------------------------------------------------

Section 1320.13 Council Determination Regarding Systemic Importance
    The proposed rule set out the requirement for the Council to 
designate an FMU and rescind the designation of an FMU depending on 
whether the FMU is, or is likely to become, systemically important. The 
proposed rule provided that any proposed or final determination by the 
Council is non-delegable and requires at least a two-thirds vote of the 
voting members then serving, including the affirmative vote of the 
Chairperson of the Council. These requirements track the language in 
section 804(a)(1) of the DFA.\57\
---------------------------------------------------------------------------

    \57\ See 12 U.S.C. 5463(a)(1).
---------------------------------------------------------------------------

    In the NPRM, the Council proposed to reassess designated FMUs at 
least annually, as well as conduct stage one reviews of FMUs that 
appear to be, or that appear likely to become, systemically important. 
One commenter recommended adding a provision allowing an FMU to apply 
to be designated as systemically important as well as to apply to have 
such designation rescinded.\58\ Another commenter suggested that the 
final rule provide for periodic reexamination and reevaluation of FMU 
designations.\59\ The Council agrees that a periodic review of each 
designated FMU should help to maintain the integrity of the designation 
process and minimize the risk of unnecessary regulatory burdens on a 
designated FMU, particularly in light of the fact that an FMU's role in 
the financial system will not be static. Similarly, the Council 
believes that a periodic review of any FMUs that are potentially 
systemically important, but that have not been designated as such, is 
important to evaluate any new developments in the roles these FMUs have 
in the financial system. As a result, the Council anticipates 
conducting reviews of both designated FMUs and potentially systemically 
important FMUs on a periodic basis.
---------------------------------------------------------------------------

    \58\ See LCH letter, supra, at 7.
    \59\ See DTCC letter, supra, at 4.
---------------------------------------------------------------------------

    However, the Council believes that it is important to retain 
flexibility in the timing for periodic reviews in order to take into 
account evolving market conditions. Accordingly, the Council is not 
including a provision regarding periodic reviews in the final rule. In 
addition, taking into consideration the anticipated periodic reviews, 
the Council does not believe that it is necessary or appropriate to 
include provisions in the final rule for an ``application process'' 
that an FMU could use to apply for designation or to seek rescission of 
a designation.

[[Page 44771]]

    Section 1320.13(a) Likely to become systemically important. One 
commenter suggested that when a designation is based on an assessment 
that an FMU is likely to become systemically important, as opposed to 
an FMU already being systemically important, the Council should make 
this differentiation clear.\60\ The Council considered this comment and 
expects that it will state in both its proposed determination letter, 
under section 1320.12, and its final determination letter, under 
section 1320.15, whether the proposed and final determinations are 
based on whether the FMU is systemically important or is likely to 
become systemically important.
---------------------------------------------------------------------------

    \60\ LCH letter, supra, at 7.
---------------------------------------------------------------------------

    The Council also recognizes that for newly formed or start-up FMUs, 
complete information regarding each of the four specific considerations 
may not be available or cover a sufficient historical period. In such 
cases, the Council will need to consider whether such an FMU ``is 
likely to become systematically important.'' In doing so, the Council 
will take into consideration available information regarding the four 
specific considerations, including estimates and projections of volume 
and value of cleared or settled transactions. In addition, the Council 
will consider the importance to the financial system and financial 
institutions of the market(s) and products to be supported by the FMU, 
the availability of substitutes for the FMU, the type and nature of 
expected participants and risks to be borne by the FMU. In designating 
a newly formed FMU that is likely to become systemically important, the 
Council also recognizes that the FMU may not in fact ultimately achieve 
over time a level and scope of activity that would pose systemic risk 
to the U.S. financial system. As a general matter, the Council expects 
to evaluate annually whether any previous designations should be 
rescinded. Where a newly formed FMU does not achieve a level and scope 
of activity that would pose systemic risk to the U.S. financial system, 
the Council would then consider rescinding the FMU designation under 
section 1320.13(b).
    Section 1320.13(c) Council membership at time of designation 
determinations. One commenter suggested that the Council make no 
proposed or final determinations regarding designations of FMUs until 
all voting and non-voting members of the Council are in place.\61\ The 
Council determined that this suggestion conflicts with language in the 
DFA specifying that designations are to be made ``by a vote of not 
fewer than \2/3\ of members then serving. * * * '' \62\ As a result, 
the Council decided to retain the language of the proposed rule. The 
Council has also made several non-substantive changes to provide 
greater clarity with regard to proposed and final determinations.
---------------------------------------------------------------------------

    \61\ Financial Services Roundtable letter, supra, at 2.
    \62\ 12 U.S.C. 5463(a)(1) (emphasis added).
---------------------------------------------------------------------------

Section 1320.14 Emergency Exception
    The proposed rule authorized the Council to waive or modify any or 
all of the notice, hearing, and other requirements of sections 1320.11 
and 1320.12 with respect to an FMU if (1) the Council determined that 
the waiver or modification is necessary to prevent or mitigate an 
immediate threat to the financial system posed by the FMU and (2) the 
Council provides notice of the waiver or modification to the applicable 
FMU, as soon as practicable, but not later than 24 hours after the 
waiver or modification. Invoking the emergency exception would require 
the affirmative vote of at least two-thirds of the Council members then 
serving, including the affirmative vote of the Chairperson of the 
Council. The Council requested comment on whether it should provide a 
designated FMU an opportunity for a hearing to contest the Council's 
determination to waive the notification and hearing requirements and 
the extent to which the opportunity for a hearing should mirror section 
113(f)(4) and (5) of the DFA.
    One commenter suggested that, when the Council invokes the 
emergency exception, the Council should disclose the basis for its 
decision and give the FMU the option of an after-the-fact hearing to 
contest such decision.\63\ The Council agrees with the comment and has 
revised section 1320.14 accordingly. The procedures governing the 
conduct of an after-the-fact hearing are substantively similar to those 
contained in section 1320.12 of the final rule, except that any waiver 
or modification under the emergency exception will take effect 
immediately.
---------------------------------------------------------------------------

    \63\ LCH letter, supra, at 8.
---------------------------------------------------------------------------

Section 1320.15 Notification of Final Determination Regarding Systemic 
Importance
    The proposed rule set the deadline for the Council to notify an FMU 
of the Council's final determination after providing the FMU notice of 
the proposed determination and an opportunity for a hearing. The 
proposed rule substantially mirrored the requirements contained in the 
DFA. The Council requested comment on whether it should provide 
findings of fact in its final determination notification to an FMU that 
did not timely request a hearing. One commenter suggested that the 
Council's final determination notification to an FMU that did not 
timely request a hearing should include the Council's factual 
findings.\64\ The Council has decided not to include findings of fact 
in the ``notification of final determination if no hearing'' because 
the section substantively mirrors the DFA.\65\ The Council revised 
section 1320.15 of the final rule to clarify the date by which the 
Council must provide to an FMU written notification of the final 
determination of the Council after a hearing. Specifically, the Council 
must provide written notification within 60 calendar days of the 
``hearing date.'' The definition of the term ``hearing date'' 
distinguishes between hearings conducted through the submission of 
written materials and hearings conducted through oral argument and oral 
testimony.
---------------------------------------------------------------------------

    \64\ LCH letter, supra, at 8.
    \65\ See 12 U.S.C. 5463(d)(2).
---------------------------------------------------------------------------

Section 1320.16 Extension of Time Period
    The proposed rule authorized the Council to extend the time periods 
by which an FMU may request a hearing and submit written materials to 
contest the Council's proposed determination, the 24 hour time period 
for the Council to notify an FMU of an emergency designation, and the 
time period for the Council to notify an FMU of its final 
determination. One commenter suggested that FMUs should have no longer 
than 90 days to request a hearing and submit written materials to 
contest a proposed determination; that the Council should not extend 
the 24-hour time period for the Council to notify an FMU of an 
emergency designation; and that the Council should notify an FMU of its 
final determination within 90 days.\66\ The Council considered the 
suggestions and decided to adopt section 1320.16 substantially as 
proposed, because it substantively mirrors the DFA and provides the 
Council with flexibility to grant itself and FMUs extensions of time as 
necessary or appropriate.\67\ The final rule contains one change in 
that it clarifies that the Council may extend ``any'' time period 
established in sections 1320.12, 1320.14, or 1320.15.
---------------------------------------------------------------------------

    \66\ LCH letter, supra, at 8.
    \67\ See 12 U.S.C. 5363(e).

---------------------------------------------------------------------------

[[Page 44772]]

Section 1320.20 Council Information Collection and Coordination
    The proposed rule authorized the Council to require an FMU to 
submit information that the Council may require for the sole purpose of 
assessing whether the FMU is systemically important. However, before 
the Council may impose an information collection burden on an FMU, the 
Council must have reasonable cause to believe that the FMU meets the 
standards for systemic importance. The Council must also coordinate 
with the FMU's Supervisory Agency to determine if the requested 
information is available from or may be obtained by the Supervisory 
Agency. If the Supervisory Agency is unable to provide the Council with 
the requested information in less than 15 calendar days after the date 
the material is requested, the Council may then request the information 
directly from the FMU. In requesting information from an FMU, the 
Council must provide a written explanation of the basis for the 
Council's reasonable cause determination. The Council requested comment 
on the utility of providing an FMU with a written explanation of the 
basis for its belief that the FMU is systemically important.
    Several commenters generally supported the proposed approach. For 
example, one commenter agreed that, before requiring an FMU to provide 
information for purposes of assessing systemic significance, the 
Council should determine that it has reasonable cause to believe that 
the FMU meets the standards for systemic importance and that such 
information cannot be timely obtained from the FMU's Supervisory 
Agency.\68\ Another commenter agreed that the Council should provide an 
FMU with a written explanation of the basis for the Council's belief 
that the FMU is systemically important before requiring an FMU to 
provide information to the Council.\69\
---------------------------------------------------------------------------

    \68\ Financial Services Roundtable letter, supra, at 4.
    \69\ LCH letter, supra, at 9.
---------------------------------------------------------------------------

    Several commenters, on the other hand, suggested revisions. For 
example, one commenter stated that FMUs should be able to bypass 
information submission requirements by consenting to designation.\70\ 
Another commenter suggested that the Council redraft the regulatory 
text to make clear that the Council will not collect information 
directly from FMUs during stage one.\71\ This commenter also suggested 
that the Council take into account the expense of the FMU data 
collection process when it makes requests for information from retail 
FMUs.\72\
---------------------------------------------------------------------------

    \70\ OCC letter, supra, at 2.
    \71\ ABA letter, supra, at 4.
    \72\ ABA letter, supra, at 3.
---------------------------------------------------------------------------

    The Council considered these comments and has determined to adopt 
section 1320.20 substantially as proposed. The Council will not allow 
an FMU to bypass information submission requirements by consenting to 
designation. The Council has a responsibility to determine whether an 
FMU meets the standards for systemic importance. With respect to the 
suggestion that the Council restrict itself from collecting information 
directly from FMUs during stage one and that the Council take into 
account the expenses involved in data collection, the Council expects, 
as a general matter, not to collect any information from FMUs during 
stage one; rather, the Council expects that, in most instances, it will 
obtain the required information during stage one from publicly 
available sources and an FMU's Supervisory Agency. Nevertheless, the 
final rule limits the Council's ability to require FMUs to submit 
information by providing that the Council can request information only 
if it has reasonable cause to believe the FMU is, or is likely to 
become, systemically important and after coordinating with the FMU's 
Supervisory Agency. Accordingly, the Council has not adopted additional 
restrictions on the methods or timing of collecting information from 
FMUs in the final rule because the Council believes that these 
restrictions appropriately balance the needs of the Council to timely 
obtain sufficient information about FMUs with the costs associated with 
collecting such information. Once the Council has completed at least 
one full cycle of designations and reevaluations of designated FMUs, 
the Council will reexamine whether any changes to its analytical 
framework are warranted, including whether any changes to the 
information-collection provisions of the rule may be appropriate.
    Moreover, the final rule makes clarifying changes to one of the 
prerequisites for the Council to collect information from an FMU. The 
proposed rule required the Council to determine that it has reasonable 
cause to believe that an FMU meets the standards for systemic 
importance. The final rule provides that the Council must determine 
that it has reasonable cause to believe that the FMU is, or is likely 
to become, systemically important. The Council made this change to 
conform this information collection prerequisite to the standard in 
section 1320.10 by which the Council will determine whether to make a 
proposed or final determination.

III. Administrative Law Matters

Regulatory Flexibility Act

    The Council certifies that this final rule will not have a 
significant economic impact on a substantial number of small entities. 
The final rule would apply only to FMUs whose failure could pose a 
threat to the stability of the U.S. financial system. Size is an 
important factor, although not the exclusive factor, in assessing 
whether an FMU's failure could pose a threat to the stability of the 
U.S. financial system. However, the Council does not expect the rule to 
directly affect a substantial number of small entities. Accordingly, a 
final regulatory flexibility analysis under the Regulatory Flexibility 
Act (5 U.S.C. 601, et seq.) is not required.

Paperwork Reduction Act

    The collection of information contained in this final rule has been 
reviewed and approved by the Office of Management and Budget (OMB) in 
accordance with the requirements of the Paperwork Reduction Act of 1995 
(44 U.S.C. 3507(d)) under control number 1505-. An agency may not 
conduct or sponsor, and an organization is not required to respond to, 
a collection of information unless it displays a valid control number 
assigned by OMB.
    The collection of information that is contained in this final 
rulemaking is found in sections section 1320.11, section 1320.12, 
section 1320.14, and section 1320.20. The collection of information in 
section 1320.11 affords financial market utilities that are under 
consideration for designation, or rescission of designation, an 
opportunity to submit written materials to the Council in support of, 
or in opposition to, designation or rescission of designation. The 
collection of information in section 1320.12 is required by section 
804(c)(2)(C) of the DFA and affords financial market utilities an 
opportunity to contest a proposed determination of the Council by 
requesting a hearing and submitting written materials (or, at the sole 
discretion of the Council, oral testimony and oral argument). The 
collection of information in section 1320.14 affords financial market 
utilities an opportunity to contest the Council's waiver or 
modification of the notice, hearing, or other requirements contained in 
section 1320.11 and section 1320.12 by requesting a hearing and 
submitting written materials (or, at the sole discretion of the 
Council, oral testimony

[[Page 44773]]

and oral argument). The collection of information in section 1320.20 is 
authorized by section 809 of the DFA and will be used by the Council to 
determine whether to designate or rescind the designation of an FMU. 
The collection of information under section 1320.20 is mandatory. The 
likely respondents are businesses or other for-profit and not-for-
profit organizations.
    The estimated total annual reporting burden associated with the 
collection of information in this final rule is 500 hours.

Executive Order 12866

    Executive Orders 13563 and 12866 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. 
This rule has been designated a ``significant regulatory action'' 
although not economically significant, under section 3(f) of Executive 
Order 12866. Accordingly, the rule has been reviewed by the Office of 
Management and Budget.

IV. Text of Final Rule

List of Subjects in 12 CFR Part 1320

    Administrative practice and procedure, Banks, Banking, Commodity 
futures, Electronic funds transfers, Financial market utilities, 
Securities.

    For the reasons set forth in the preamble, the Financial Stability 
Oversight Council establishes 12 CFR chapter XIII, consisting of part 
1320, to read as follows:

CHAPTER XIII--FINANCIAL STABILITY OVERSIGHT COUNCIL

PART 1320--DESIGNATION OF FINANCIAL MARKET UTILITIES

Sec.
Subpart A--General
1320.1 Authority and purpose.
1320.2 Definitions.
Subpart B--Consultations, Determinations and Hearings
1320.10 Factors for consideration in designations.
1320.11 Consultation with financial market utility.
1320.12 Advance notice of proposed determination
1320.13 Council determination regarding systemic importance.
1320.14 Emergency exception.
1320.15 Notification of final determination regarding systemic 
importance.
1320.16 Extension of time periods.
Subpart C--Information Collection
1320.20 Council information collection and coordination.

    Authority:  12 U.S.C. 5321; 12 U.S.C. 5322; 12 U.S.C. 5463; 12 
U.S.C. 5468; 12 U.S.C. 5469

Subpart A--General


Sec.  1320.1  Authority and purpose.

    (a) Authority. This part is issued by the Financial Stability 
Oversight Council under sections 111, 112, 804, 809, and 810 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank 
Act'') (12 U.S.C. 5321, 5322, 5463, 5468, and 5469).
    (b) Purpose. The purpose of this part is to set forth the standards 
and procedures governing the Council's designation of a financial 
market utility that the Council determines is, or is likely to become, 
systemically important.


Sec.  1320.2  Definitions.

    The terms used in this part have the following meanings:
    Appropriate Federal banking agency. The term ``appropriate Federal 
banking agency'' has the same meaning as in section 3(q) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(q)), as amended.
    Board of Governors. The term ``Board of Governors'' means the Board 
of Governors of the Federal Reserve System.
    Council. The term ``Council'' means the Financial Stability 
Oversight Council.
    Designated clearing entity. The term ``designated clearing entity'' 
means a designated financial market utility that is a derivatives 
clearing organization registered under section 5b of the Commodity 
Exchange Act (7 U.S.C. 7a-1) or a clearing agency registered with the 
Securities and Exchange Commission under section 17A of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q-1).
    Designated financial market utility. The term ``designated 
financial market utility'' means a financial market utility that the 
Council has designated as systemically important under Sec.  1320.13.
    Financial institution. The term ``financial institution''--
    (1) Means--
    (i) A depository institution as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813);
    (ii) A branch or agency of a foreign bank, as defined in section 
1(b) of the International Banking Act of 1978 (12 U.S.C. 3101);
    (iii) An organization operating under section 25 or 25A of the 
Federal Reserve Act (12 U.S.C. 601-604a and 611 through 631);
    (iv) A credit union, as defined in section 101 of the Federal 
Credit Union Act (12 U.S.C. 1752);
    (v) A broker or dealer, as defined in section 3 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c);
    (vi) An investment company, as defined in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3);
    (vii) An insurance company, as defined in section 2 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2);
    (viii) An investment adviser, as defined in section 202 of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-2);
    (ix) A futures commission merchant, commodity trading advisor, or 
commodity pool operator, as defined in section 1a of the Commodity 
Exchange Act (7 U.S.C. 1a); and
    (x) Any company engaged in activities that are financial in nature 
or incidental to a financial activity, as described in section 4 of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
    (2) Does not include designated contract markets, registered 
futures associations, swap data repositories, and swap execution 
facilities registered under the Commodity Exchange Act (7 U.S.C. 1 et 
seq.), or national securities exchanges, national securities 
associations, alternative trading systems, securities information 
processors solely with respect to the activities of the entity as a 
securities information processor, security-based swap data 
repositories, and swap execution facilities registered under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), or designated 
clearing entities, provided that the exclusions in this paragraph apply 
only with respect to the activities that require the entity to be so 
registered.
    Financial market utility. The term ``financial market utility''--
    (1) Means any person that manages or operates a multilateral system 
for the purpose of transferring, clearing, or settling payments, 
securities, or other financial transactions among financial 
institutions or between financial institutions and the person; and
    (2) Does not include--
    (i) Designated contract markets, registered futures associations, 
swap data repositories, and swap execution facilities registered under 
the Commodity Exchange Act (7 U.S.C. 1 et seq.), or national securities 
exchanges,

[[Page 44774]]

national securities associations, alternative trading systems, 
security-based swap data repositories, and swap data execution 
facilities registered under the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.), solely by reason of their providing facilities for 
comparison of data respecting the terms of settlement of securities or 
futures transactions effected on such exchange or by means of any 
electronic system operated or controlled by such entities, provided 
that the exclusions in this clause apply only with respect to the 
activities that require the entity to be so registered; and
    (ii) Any broker, dealer, transfer agent, or investment company, or 
any futures commission merchant, introducing broker, commodity trading 
advisor, or commodity pool operator, solely by reason of functions 
performed by such institution as part of brokerage, dealing, transfer 
agency, or investment company activities, or solely by reason of acting 
on behalf of a financial market utility or a participant therein in 
connection with the furnishing by the financial market utility of 
services to its participants or the use of services of the financial 
market utility by its participants, provided that services performed by 
such institution do not constitute critical risk management or 
processing functions of the financial market utility.
    Hearing date. The term ``hearing date'' means the later of--
    (1) The date on which the Council receives all of the written 
materials timely submitted by the financial market utility for a 
hearing that is conducted without oral testimony; or
    (2) The final date on which the Council convenes for the financial 
market utility to present oral testimony.
    Payment, clearing, or settlement activity.
    (1) The term ``payment, clearing, or settlement activity'' means an 
activity carried out by 1 or more financial institutions to facilitate 
the completion of financial transactions, but shall not include any 
offer or sale of a security under the Securities Act of 1933 (15 U.S.C. 
77a et seq.), or any quotation, order entry, negotiation, or other pre-
trade activity or execution activity.
    (2) For purposes of paragraph (1) of this definition, the term 
``financial transaction'' includes--
    (i) Funds transfers;
    (ii) Securities contracts;
    (iii) Contracts of sale of a commodity for future delivery;
    (iv) Forward contracts;
    (v) Repurchase agreements;
    (vi) Swaps;
    (vii) Security-based swaps;
    (viii) Swap agreements;
    (ix) Security-based swap agreements;
    (x) Foreign exchange contracts;
    (xi) Financial derivatives contracts; and
    (xii) Any similar transaction that the Council determines to be a 
financial transaction for purposes of this part.
    (3) When conducted with respect to a financial transaction, 
payment, clearing, and settlement activities may include--
    (i) The calculation and communication of unsettled financial 
transactions between counterparties;
    (ii) The netting of transactions;
    (iii) Provision and maintenance of trade, contract, or instrument 
information;
    (iv) The management of risks and activities associated with 
continuing financial transactions;
    (v) Transmittal and storage of payment instructions;
    (vi) The movement of funds;
    (vii) The final settlement of financial transactions; and
    (viii) Other similar functions that the Council may determine.
    (4) Payment, clearing, and settlement activities shall not include 
public reporting of swap transactions under section 727 or 763(i) of 
the Dodd-Frank Act.
    Supervisory Agency. (1) The term ``Supervisory Agency'' means the 
Federal agency that--
    (i) Has primary jurisdiction over a designated financial market 
utility under Federal banking, securities, or commodity futures laws as 
follows--
    (A) The Securities and Exchange Commission, with respect to a 
designated financial market utility that is a clearing agency 
registered with the Securities and Exchange Commission;
    (B) The Commodity Futures Trading Commission, with respect to a 
designated financial market utility that is a derivatives clearing 
organization registered with the Commodity Futures Trading Commission;
    (C) The appropriate Federal banking agency, with respect to a 
designated financial market utility that is an institution described in 
section 3(q) of the Federal Deposit Insurance Act;
    (D) The Board of Governors, with respect to a designated financial 
market utility that is otherwise not subject to the jurisdiction of any 
agency listed in paragraphs (1)(i), (ii), and (iii) of this definition; 
or
    (ii) Would have primary jurisdiction over a financial market 
utility if the financial market utility were a designated financial 
market utility under paragraph (1) of this definition.
    (2) If a financial market utility is subject to the jurisdictional 
supervision of more than one agency listed in paragraph (1) of this 
definition, then such agencies should agree on one agency to act as the 
Supervisory Agency, and if such agencies cannot agree on which agency 
has primary jurisdiction, the Council shall decide which is the 
Supervisory Agency for purposes of this part.
    Systemically important and systemic importance. The terms 
``systemically important'' and ``systemic importance'' mean a situation 
where the failure of or a disruption to the functioning of a financial 
market utility could create, or increase, the risk of significant 
liquidity or credit problems spreading among financial institutions or 
markets and thereby threaten the stability of the financial system of 
the United States.

Subpart B--Consultations, Determinations and Hearings


Sec.  1320.10   Factors for consideration in designations.

    In making any proposed or final determination with respect to 
whether a financial market utility is, or is likely to become, 
systemically important under this part, the Council shall take into 
consideration:
    (a) The aggregate monetary value of transactions processed by the 
financial market utility, including without limitation--
    (1) The number of transactions processed, cleared or settled;
    (2) The value of transactions processed, cleared or settled; and
    (3) The value of other financial flows.
    (b) The aggregate exposure of the financial market utility to its 
counterparties, including without limitation--
    (1) Credit exposures, which includes but is not limited to 
potential future exposures; and
    (2) Liquidity exposures.
    (c) The relationship, interdependencies, or other interactions of 
the financial market utility with other financial market utilities or 
payment, clearing, or settlement activities, including without 
limitation interactions with different types of participants in those 
utilities or activities.
    (d) The effect that the failure of or a disruption to the financial 
market utility would have on critical markets, financial institutions, 
or the broader financial system, including without limitation--
    (1) Role of the financial market utility in the market served;
    (2) Availability of substitutes;
    (3) Concentration of participants;
    (4) Concentration by product type;
    (5) Degree of tiering; and

[[Page 44775]]

    (6) Potential impact or spillover in the event of a failure or 
disruption.
    (e) Any other factors that the Council deems appropriate.


Sec.  1320.11  Consultation with financial market utility.

    Before providing a financial market utility notice of a proposed 
determination under Sec.  1320.12, the Council shall provide the 
financial market utility with--
    (a) Written notice that the Council is considering whether to make 
a proposed determination with respect to the financial market utility 
under Sec.  1320.13; and
    (b) An opportunity to submit written materials to the Council, 
within such time as the Council determines to be appropriate, 
concerning--
    (1) Whether the financial market utility is systemically important 
taking into consideration the factors set out in Sec.  1320.10; and
    (2) Proposed changes by the financial market utility that could--
    (i) Reduce or increase the inherent systemic risk the financial 
market utility poses and the need for designation under Sec.  1320.13; 
or
    (ii) Reduce or increase the appropriateness of rescission under 
Sec.  1320.13.
    (3) The Council shall consider any written materials timely 
submitted by the financial market utility under this section before 
making a proposed determination under section 1320.13.


Sec.  1320.12  Advance notice of proposed determination.

    (a) Notice of proposed determination and opportunity for hearing. 
Before making any final determination on designation or rescission 
under Sec.  1320.13, the Council shall propose a determination and 
provide the financial market utility with advance notice of the 
proposed determination, and proposed findings of fact supporting that 
determination. A proposed determination shall be made by a vote of the 
Council in the manner described in Sec.  1320.13(c).
    (b) Request for hearing. Within 30 calendar days from the date of 
any provision of notice of the proposed determination of the Council, 
the financial market utility may request, in writing, an opportunity 
for a written or oral hearing before the Council to demonstrate that 
the proposed designation or rescission of designation is not supported 
by substantial evidence.
    (c) Written submissions. Upon receipt of a timely request, the 
Council shall fix a time, not more than 30 calendar days after receipt 
of the request, unless extended by the Council at the request of the 
financial market utility, and place at which the financial market 
utility may appear, personally or through counsel, to submit written 
materials, or, at the sole discretion of the Council, oral testimony 
and oral argument.


Sec.  1320.13  Council determination regarding systemic importance.

    (a) Designation determination. The Council shall designate a 
financial market utility if the Council determines that the financial 
market utility is, or is likely to become, systemically important.
    (b) Rescission determination. The Council shall rescind a 
designation of systemic importance for a designated financial market 
utility if the Council determines that the financial market utility no 
longer meets the standards for systemic importance.
    (c) Vote required. Any determination under paragraph (a) or (b) of 
this section and any proposed determination under Sec.  1320.12 shall--
    (1) Be made by the Council and must not be delegated by the 
Council; and
    (2) Require the vote of not fewer than two-thirds of the members of 
the Council then serving, including the affirmative vote of the 
Chairperson of the Council.
    (d) Consultations. Before making any determination under paragraph 
(a) or (b) of this section or any proposed determination under Sec.  
1320.12, the Council shall consult with the relevant Supervisory Agency 
and the Board of Governors.


Sec.  1320.14  Emergency exception.

    (a) Emergency exception. Notwithstanding Sec. Sec.  1320.11 and 
1320.12, the Council may waive or modify any or all of the notice, 
hearing, and other requirements of Sec. Sec.  1320.11 and 1320.12 with 
respect to a financial market utility if--
    (1) The Council determines that the waiver or modification is 
necessary to prevent or mitigate an immediate threat to the financial 
system posed by the financial market utility; and
    (2) The Council provides notice of the waiver or modification, and 
an explanation of the basis for the waiver or modification, to the 
financial market utility concerned, as soon as practicable, but not 
later than 24 hours after the waiver or modification.
    (b) Vote required. Any determination by the Council under paragraph 
(a) to waive or modify any of the requirements of Sec. Sec.  1320.11 
and 1320.12 shall--
    (1) Be made by the Council; and
    (2) Require the affirmative vote of not fewer than two-thirds of 
members then serving, including the affirmative vote of the Chairperson 
of Council.
    (c) Request for hearing. Within 10 calendar days from the date of 
any provision of notice of waiver or modification of the Council, the 
financial market utility may request, in writing, an opportunity for a 
written or oral hearing before the Council to demonstrate that the 
basis for the waiver or modification is not supported by substantial 
evidence.
    (d) Written submissions. Upon receipt of a timely request, the 
Council shall fix a time, not more than 30 calendar days after receipt 
of the request, and place at which the financial market utility may 
appear, personally or through counsel, to submit written materials, or, 
at the sole discretion of the Counsel, oral testimony and oral 
argument.
    (e) Notification of hearing determination. If a financial market 
utility makes a timely request for a hearing under paragraph (c) of 
this section, the Council shall, not later than 30 calendar days after 
the hearing date, notify the financial market utility of the 
determination of the Council, which shall include a statement of the 
basis for the determination of the Council.


Sec.  1320.15  Notification of final determination regarding systemic 
importance.

    (a) Notification of final determination after a hearing. Within 60 
calendar days of the hearing date, the Council shall provide to the 
financial market utility written notification of the final 
determination of the Council under Sec.  1320.13, which shall include 
findings of fact upon which the determination of the Council is based.
    (b) Notification of final determination if no hearing. If the 
Council does not receive a timely request for a hearing under Sec.  
1320.12, the Council shall provide the financial market utility written 
notification of the final determination of the Council under Sec.  
1320.13 not later than 30 calendar days after the expiration of the 
date by which a financial market utility could have requested a 
hearing.


Sec.  1320.16  Extension of time periods.

    The Council may extend any time period established in Sec. Sec.  
1320.12, 1320.14, or 1320.15 as the Council determines to be necessary 
or appropriate.

Subpart C--Information Collection


Sec.  1320.20  Council information collection and coordination.

    (a) Information collection to assess systemic importance. The 
Council may require any financial market utility to

[[Page 44776]]

submit such information to the Council as the Council may require for 
the sole purpose of assessing whether the financial market utility is 
systemically important.
    (b) Prerequisites to information collection. Before requiring any 
financial market utility to submit information to the Council under 
paragraph (a) of this section, the Council shall--
    (1) Determine that it has reasonable cause to believe that the 
financial market utility is, or is likely to become, systemically 
important, considering the standards set out in Sec.  1320.10; or
    (2) Determine that it has reasonable cause to believe that the 
designated financial market utility is no longer, or is no longer 
likely to become, systemically important, considering the standards set 
out in Sec.  1320.10; and
    (3) Coordinate with the Supervisory Agency for the financial market 
utility to determine if the information is available from, or may be 
obtained by, the Supervisory Agency in the form, format, or detail 
required by the Council.
    (c) Timing of response from the appropriate Supervisory Agency. If 
the information, reports, records, or data requested by the Council 
under paragraph (b)(3) of this section are not provided in full by the 
Supervisory Agency in less than 15 calendar days after the date on 
which the material is requested, the Council may request the 
information directly from the financial market utility with notice to 
the Supervisory Agency.
    (d) Notice to financial market utility of information collection 
requirement. In requiring a financial market utility to submit 
information to the Council, the Council shall provide to the financial 
market utility the following--
    (1) Written notice that the Council is considering whether to make 
a proposed determination under Sec.  1320.12; and
    (2) A description of the basis for the Council's belief under 
paragraphs (b)(1) or (b)(2) of this section.

    Dated: July 20, 2011.
Alastair Fitzpayne,
Deputy Chief of Staff and Executive Secretary, Department of the 
Treasury.
[FR Doc. 2011-18948 Filed 7-26-11; 8:45 am]
BILLING CODE 4810-25-P-P