[Federal Register Volume 78, Number 42 (Monday, March 4, 2013)]
[Proposed Rules]
[Pages 14024-14029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04841]


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FEDERAL RESERVE SYSTEM

12 CFR Part 234

[Regulation HH; Docket No. R-1455]
RIN No. 7100-AD 94


Financial Market Utilities

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: Section 806(a) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act'' or ``Act'') permits the 
Board of Governors of the Federal Reserve System (the ``Board'') to 
authorize a Federal Reserve Bank to establish and maintain an account 
for, and through the account provide certain financial services to, 
financial market utilities (``FMUs'') that are designated as 
systemically important by the Financial Stability Oversight Council 
(the ``Council''). In addition, section 806(c) of the Dodd-Frank Act 
permits a Reserve Bank to pay interest on the balances maintained by or 
on behalf of a designated FMU. The Board is proposing to add two new 
sections to Part 234 of Title 12 of the Code of Federal Regulations to 
implement these provisions of the Dodd-Frank Act.

DATES: Comments on this notice of proposed rulemaking must be received 
by May 3, 2013.

ADDRESSES: You may submit comments, identified by Docket No. R-1455 and 
RIN No. 7100-AD-94, by any of the following methods:
     Agency Web Site: http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Facsimile: (202) 452-3819 or (202) 452-3102.
     Mail: Robert deV. Frierson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Jeff Stehm, Senior Associate Director 
(202) 452-2217 or Stuart Sperry, Assistant Director (202) 452-2832, 
Division of Reserve Bank Operations and Payment Systems; Christopher W. 
Clubb, Special Counsel (202) 452-3904 or Kara L. Handzlik, Counsel 
(202) 452-3852, Legal Division; for users of Telecommunications Device 
for the Deaf (TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Dodd-Frank Wall Street Reform and Consumer Protection Act

    FMUs, such as payment systems, central securities depositories, and 
central counterparties, are critical components of the nation's 
financial system that provide the essential infrastructure to clear and 
settle payments and other financial transactions, upon which the 
financial markets and the broader economy rely to function effectively. 
FMUs operate multilateral systems in which financial institutions, such 
as banks, participate pursuant to a common set of rules and

[[Page 14025]]

procedures, a technical infrastructure, and a risk-management 
framework.\1\
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    \1\ Under section 803 of the Act, an FMU is defined as a 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. 12 U.S.C. 5462(6).
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    Title VIII of the Dodd-Frank Act, titled the ``Payment, Clearing, 
and Settlement Supervision Act of 2010,'' was enacted to mitigate 
systemic risk in the financial system and to promote financial 
stability, in part, through an enhanced supervisory framework for FMUs 
designated as systemically important by the Council.\2\ Designation by 
the Council makes an FMU subject to the supervisory and risk reduction 
framework set out in Title VIII of the Dodd-Frank Act. This framework 
includes risk management standards, promulgated by the designated FMU's 
Supervisory Agency, that take into consideration relevant international 
standards and existing prudential requirements, with the objectives of 
promoting robust risk management and safety and soundness of the 
designated FMU, reducing systemic risks, and supporting the stability 
of the broader financial system.\3\ The framework also includes ex ante 
review of changes to the rules, procedures, or operations of a 
designated FMU that could materially affect the nature or level of risk 
presented by the designated FMU, enhanced annual examinations of 
designated FMUs, and enhanced enforcement and information collection 
provisions.
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    \2\ The Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376, was 
signed into law on July 21, 2010. Section 803(9) of the Act 
authorizes the Council to designate an FMU for enhanced supervision 
when the Council finds, among other things, that the failure of, or 
a disruption to the functioning of, an FMU would 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. 
12 U.S.C. 5462(3) and (9).
    \3\ Pursuant to section 803(8) of the Act, the ``Supervisory 
Agency'' generally means the Federal agency that has primary 
jurisdiction over a designated FMU under Federal banking, 
securities, or commodity futures law, including the Securities and 
Exchange Commission (SEC) with respect to a designated FMU that is a 
clearing agency registered with the SEC, the Commodity Futures 
Trading Commission (CFTC) with respect to a designated FMU that is a 
derivatives clearing organization registered with the CFTC, and the 
Board with respect to a designated FMU that is an institution 
subject to the Board's jurisdiction as described in section 3(q) of 
the Federal Deposit Insurance Act. The Board is also the Supervisory 
Agency for any designated FMU that is otherwise not subject to the 
jurisdiction of any agency as listed in section 803(8) of the Act.
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    In addition to these provisions, section 806(a) of the Act permits 
the Board to authorize a Federal Reserve Bank to establish and maintain 
an account for a designated FMU and provide to the designated FMU the 
services listed in section 11A(b) of the Federal Reserve Act (12 U.S.C. 
248a(b)) that the Federal Reserve Bank is authorized to provide to a 
depository institution, subject to any applicable rules, orders, 
standards, or guidelines prescribed by the Board.\4\ The services 
listed in Section 11A(b) include wire transfers, settlement, and 
securities safekeeping, as well as services regarding currency and 
coin, check clearing and collection, and automated clearing house 
transactions.
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    \4\ Section 806(a) of the Act also permits the Board to 
authorize a Reserve Bank to establish deposit accounts under the 
first undesignated paragraph of section 13 of the Federal Reserve 
Act (12 U.S.C. 342).
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    Section 806(c) of the Dodd-Frank Act permits a Federal Reserve Bank 
to pay earnings on balances maintained by or on behalf of a designated 
FMU in the same manner and to the same extent as the Federal Reserve 
Bank may pay earnings to a depository institution under the Federal 
Reserve Act, subject to any applicable rules, orders, standards, or 
guidelines prescribed by the Board.

II. Explanation of Proposed Rules

    On August 2, 2012, the Board published a final rule adding a new 
Part 234 to Title 12 of the Code of Federal Regulations, Regulation HH, 
containing risk management standards for designated FMUs pursuant to 
section 805(a) of the Act, as well as an advance notice requirement of 
any changes of a designated FMU's rules, procedures, or operations that 
could materially affect the nature or level of risks presented pursuant 
to section 806(e) of the Act.\5\ The rules being proposed by this 
notice would be added to the end of Regulation HH. The Board is 
requesting public comment on all aspects of the proposed amendments to 
Regulation HH contained in this notice.
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    \5\ 77 FR 45907.
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A. Proposed Sec.  234.1(b)--Authority, Purpose, and Scope

    The amendments proposed by this notice to Sec.  234.1(b) of 
Regulation HH clarify that Part 234 also includes standards, 
restrictions, and guidelines for the establishment and maintenance of 
an account at, and provision of financial services from, a Federal 
Reserve Bank for a designated FMU. In addition, the proposed amendments 
clarify the authority and terms for a Reserve Bank to pay interest on 
any balances held by a designated FMU in its account at a Reserve Bank. 
The Board requests comment on whether these additions to the purpose 
and scope provisions of Regulation HH are sufficient and clear for the 
proposed rules herein.\6\
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    \6\ Section 234.1(a) of Regulation HH already cites to section 
806 of the Dodd-Frank Act, so the rules proposed by this notice 
would not require any modification of the authority citation.
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B. Proposed Sec.  234.6--Access to Reserve Bank Accounts and Services

    Proposed Sec.  234.6 sets out the conditions and requirements for a 
Federal Reserve Bank to establish and maintain an account for, and 
provide services to, a designated FMU pursuant to section 806(a) of the 
Act. The proposed terms and conditions for access to Federal Reserve 
Bank accounts and services are intended to facilitate the use of 
Reserve Bank accounts and services by a designated FMU in order to 
reduce settlement risk and strengthen settlement processes, while 
limiting the risk presented by the designated FMU to the Reserve Banks. 
In particular, the proposed terms and conditions are designed to 
provide the Federal Reserve with sufficient information to assess a 
designated FMU's ongoing condition as it pertains to the FMU's ability 
to settle promptly and to manage its settlement process and Reserve 
Bank account(s) safely. Proposed Sec.  234.6(a) provides that, after 
receiving the Board's authorization with respect to a particular 
designated FMU and subject to any applicable Board direction, the 
Reserve Bank may enter into agreements governing the details of the 
establishment, maintenance, and operation of such account and services, 
consistent with Board direction.
    The Board expects that Reserve Banks would provide services that 
are consistent with a designated FMU's need for safe and sound 
settlement processes under account and service agreements generally 
consistent with the provisions of existing Reserve Bank operating 
circulars for such services, but recognizes that there may be a need 
for some flexibility to tailor certain parts of such agreements or 
provide for certain restrictions because of the wide variety of 
organizations, operations, and business models presented by designated 
FMUs. In addition, unlike depository institutions, designated FMUs do 
not have regular access to discount window lending, so the Board also 
expects that Reserve Banks will provide accounts and services, and 
designated FMUs will structure their settlement processes and use of 
Reserve Bank accounts and services, in a manner that would seek to 
avoid any intraday account overdraft, and that a designated

[[Page 14026]]

FMU would have the resources to promptly rectify any inadvertent 
overdraft.
    Proposed Sec.  234.6(b) requires that a Reserve Bank ensure that 
its establishment and maintenance of an account for, or provision of 
services to, a designated FMU does not create undue credit, settlement, 
or other risks to the Reserve Bank and, in this regard, sets out 
minimum conditions that a designated FMU must meet, in the Reserve 
Bank's judgment, in order for the Reserve Bank to establish and 
maintain an account for, or provide services to, a designated FMU. 
These minimum conditions are intended to address certain risks and 
other concerns that may face a Reserve Bank when establishing and 
maintaining an account for, and providing services to, a designated 
FMU.\7\ The Reserve Bank must determine whether a designated FMU meets 
these minimum conditions and then determine, based on the facts and 
circumstances, whether additional measures or information are needed to 
address the risk presented by the designated FMU to the Reserve Bank. 
The minimum requirements for establishing an account or receiving 
services set out in proposed Sec.  234.6(b)(1) through (4) are 
discussed below.
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    \7\ Risks to the Reserve Bank may include the potential for 
inadvertent overdrafts in certain circumstances, as well as the 
risks that may arise from new or different FMU settlement designs or 
processes that may arise in the future. The establishment of an 
account for a designated FMU at a Reserve Bank also may entail 
broader policy considerations and implications.
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    Proposed Sec.  234.6(b)(1) requires the designated FMU to be in 
generally sound financial condition. Although there are a number of 
criteria that may be used to determine financial soundness, in general 
a designated FMU should maintain adequate capital to support its 
ongoing operations and absorb reasonable business losses and have 
sufficient operating revenue and working capital to cover its actual 
and projected operating expenses, giving due regard to the economic 
conditions and circumstances in the market in which the designated FMU 
operates. These resources would be separate and in addition to 
resources held to cover participant defaults that may arise through a 
designated FMU's payment, clearing, or settlement activities.
    Proposed Sec.  234.6(b)(2) requires the designated FMU to be in 
compliance, based on information provided by the Supervisory Agency, 
with requirements imposed by its Supervisory Agency regarding financial 
resources, liquidity, participant default management, and other aspects 
of risk management. The three agencies that currently serve as 
Supervisory Agencies (i.e., the Board, the Securities and Exchange 
Commission, and the Commodity Futures Trading Commission) have 
promulgated risk management standards that would be applicable to the 
FMUs that have been designated by the Council. As noted in proposed 
Sec.  234.6(d), the Board will consult with the Supervisory Agency of a 
designated FMU prior to authorizing a Federal Reserve Bank to open an 
account to ascertain the views of the Supervisory Agency regarding, 
among other things, the designated FMU's compliance with the 
Supervisory Agency's risk management standards. At a minimum, the 
designated FMU should meet its Supervisory Agency's mandatory risk 
management standards.
    Proposed Sec.  234.6(b)(3) requires that a designated FMU be in 
compliance with Board orders and policies, Federal Reserve Bank 
operating circulars, and other applicable Federal Reserve requirements 
regarding the establishment and maintenance of a Reserve Bank account 
and the receipt of financial services from a Reserve Bank. A designated 
FMU will be expected to use Reserve Bank financial services, through 
its Reserve Bank account, in accordance with any applicable operating 
circular or Federal Reserve policy, as directed by the Reserve Bank.
    Proposed Sec.  234.6(b)(4) requires the Reserve Bank to determine 
that the designated FMU can demonstrate an ongoing ability, including 
during periods of market stress or a participant default, to meet all 
of its obligations under its agreement for a Federal Reserve Bank 
account and services. As noted above, designated FMUs would be expected 
to demonstrate an operational ability to avoid intraday overdrafts in 
its Reserve Bank account and have the financial resources to promptly 
rectify any inadvertent overdrafts if they were to occur.
    Proposed Sec.  234.6 also contains other provisions relevant to the 
establishment and maintenance of an account or provision of financial 
services by a Reserve Bank for a designated FMU. Proposed Sec.  
234.6(c) states that the Board or the relevant Reserve Bank may request 
that the designated FMU provide any information necessary regarding 
compliance with any conditions imposed under proposed Sec.  234.6. The 
designated FMU would also be required to provide any verification that 
the Board or the Reserve Bank requests regarding information received 
under this section.
    Proposed Sec.  234.6(d) states that the Board will consult with the 
Supervisory Agency of a designated FMU prior to authorizing a Reserve 
Bank to open an account, and periodically thereafter, to ascertain the 
views of the Supervisory Agency regarding the condition of the 
designated FMU and its compliance with the requirements of proposed 
Sec.  234.6, as well as to coordinate information requests to the 
designated FMU. For designated FMUs not supervised by the Board, the 
Board anticipates obtaining the views of the designated FMU's 
Supervisory Agency regarding the use of a Reserve Bank account and 
services and any concerns the Supervisory Agency may have with respect 
to the designated FMU. If a Reserve Bank account is established for the 
designated FMU, the Board expects that there will be an ongoing 
dialogue with the Supervisory Agency regarding the designated FMU's use 
of the account and services and its compliance with any conditions 
imposed under proposed Sec.  234.6 with regard to the account or 
services. The Board also anticipates coordinating any information 
requests it may have for the designated FMU with the Supervisory Agency 
in order to reduce regulatory burden on the designated FMU.
    Proposed Sec.  234.6(e) states that, in addition to any right that 
a Reserve Bank has to terminate an account or the use of a service 
pursuant to an agreement, the Board may direct the Reserve Bank to 
impose limits, restrictions, or other conditions on the availability or 
use of a Reserve Bank account or service by a designated FMU, including 
directing the Reserve Bank to terminate the use of a particular service 
or to close the account. The Reserve Bank, on its own initiative or at 
the direction of the Board, may close the account if significant issues 
are raised and not resolved in areas such as excessive risk to the 
Reserve Bank, violation of Federal Reserve rules or policies, violation 
of other applicable law or regulation, or other compliance issues.
    The Board requests comment on all aspects of proposed Sec.  234.6. 
In particular, the Board requests comment on the conditions for 
establishing an account at a Reserve Bank provided in proposed Sec.  
234.6(b) and whether there are any other conditions that should be 
imposed in order to accomplish the Board's goals of reducing settlement 
and systemic risks and strengthening the settlement processes of 
designated FMUs through the use of Reserve Bank accounts and services, 
while limiting risk to the Reserve Banks.

[[Page 14027]]

C. Proposed Sec.  234.7--Interest on Balances

    Pursuant to section 806(c) of the Act, proposed Sec.  234.7 
clarifies the authority of a Federal Reserve Bank to pay interest on 
any balance that a designated FMU maintains in its account with that 
Reserve Bank. Section 806(c) of the Act states that a Reserve Bank may 
pay earnings on balances maintained by a designated FMU ``in the same 
manner and to the same extent as the Federal Reserve Bank may pay 
earnings to a depository institution under the Federal Reserve Act, 
subject to any applicable rules, orders, standards, or guidelines 
prescribed by the Board of Governors.'' \8\ Section 19(b)(12) of the 
Federal Reserve Act (FRA) authorizes a Federal Reserve Bank to pay, at 
least once each calendar quarter, interest on balances maintained at 
the Federal Reserve Bank by or on behalf of a depository institution, 
at a rate or rates not to exceed the general level of short-term 
interest rates.\9\
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    \8\ 12 U.S.C. 5465(c).
    \9\ 12 U.S.C. 461(b)(12)(A). This statutory authority has been 
implemented through Sec.  204.10 of the Board's Regulation D. 12 CFR 
204.10.
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    Proposed Sec.  234.7(a) provides that a Federal Reserve Bank may 
pay interest on balances maintained by a designated FMU in its account 
at the Reserve Bank in accordance with the provisions of proposed Sec.  
234.7 and under such other terms and conditions as the Board may 
prescribe. This subsection essentially incorporates the statutory 
authority provided by section 806(c) of the Act.
    Proposed Sec.  234.7(b) states that interest on balances paid under 
this section shall be at the rate paid on balances of depository 
institutions or another rate determined by the Board from time to time, 
not to exceed the general level of ``short-term interest rates.'' 
Proposed Sec.  234.7(c) incorporates the definition of ``short-term 
interest rates'' set out in Sec.  204.10(b)(3) of the Board's 
Regulation D, which states that ``short-term interest rates'' are rates 
on obligations with maturities of no more than one year, such as the 
primary credit rate and rates on term federal funds, term repurchase 
agreements, commercial paper, term Eurodollar deposits, and other 
similar instruments.\10\
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    \10\ 12 CFR 204.10(b)(3).
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III. Administrative Law Matters

A. Regulatory Flexibility Act Analysis

    Congress enacted the Regulatory Flexibility Act (the ``RFA'') (5 
U.S.C. 601 et seq.) to address concerns related to the effects of 
agency rules on small entities, and the Board is sensitive to the 
impact their rules may impose on small entities. The RFA requires 
agencies either to provide an initial regulatory flexibility analysis 
with a proposed rule or to certify that the proposed rule will not have 
a significant economic impact on a substantial number of small 
entities. In accordance with section 3(a) of the RFA, the Board has 
reviewed the proposed regulation. In this case, the proposed rule would 
apply to FMUs that are designated by the Council as systemically 
important to the U.S. financial system. Based on current information, 
the Board believes that the FMUs that have been and would likely be 
designated by the Council would not be ``small entities'' for purposes 
of the RFA, and so, the proposed rule likely would not have a 
significant economic impact on a substantial number of small entities 
(5 U.S.C. 605(b)). The authority to designate systemically important 
FMUs, however, resides with the Council, rather than the Board, and the 
Board cannot therefore be assured of the identity of the FMUs that the 
Council may designate in the future. Accordingly, an Initial Regulatory 
Flexibility Analysis has been prepared in accordance with 5 U.S.C. 603, 
based on current information. The Board requests comment on all aspects 
of this Initial Regulatory Flexibility Analysis. The Board will, if 
necessary, conduct a final regulatory flexibility analysis after 
consideration of comments received during the public comment period.
    1. Statement of the need for, objectives of, and legal basis for, 
the proposed rule. The Board is proposing additional regulations to 
implement certain provisions of Title VIII of the Dodd-Frank Act. 
Pursuant to section 806(a) of the Act, proposed Sec.  234.6 sets out 
conditions under which the Board would authorize a Federal Reserve Bank 
to establish and maintain an account for a designated FMU and provide 
the designated FMU services through the account. Pursuant to section 
806(c) of the Dodd-Frank Act, proposed Sec.  234.7 sets out conditions 
for a Reserve Bank to pay interest on the balances maintained by a 
designated FMU at the Reserve Banks.
    Under section 806 of the Act, all of these authorities are subject 
to any applicable rules or regulations that the Board may prescribe. 
The Board believes that the proposed regulations herein are necessary 
to provide guidance to the Federal Reserve Banks in implementing these 
authorities of the Act in an appropriate and uniform manner and to 
inform the affected institutions and the public of the conditions for 
obtaining accounts and services.
    2. Small entities affected by the proposed rule. The proposed rule 
would affect FMUs that the Council designates as systemically important 
to the U.S. financial system. The Council has designated eight FMUs 
that would meet these conditions and be affected by this proposed rule. 
Pursuant to regulations issued by the Small Business Administration 
(the ``SBA'') (13 CFR 121.201), a ``small entity'' includes an 
establishment engaged in (i) financial transaction processing, reserve 
and liquidity services, and/or clearinghouse services with an average 
revenue of $7 million or less (NAICS code 522320); (ii) securities and/
or commodity exchange activities with an average revenue of $7 million 
or less (NAICS code 523210); and (iii) trust, fiduciary, and/or custody 
activities with an average revenue of $7 million or less (NAICS code 
523991). Based on current information, the Board does not believe that 
any of the FMUs that have been or would likely be designated by the 
Council would be ``small entities'' pursuant to the SBA regulation.
    3. Projected reporting, recordkeeping, and other compliance 
requirements. The proposed rule imposes certain reporting, 
recordkeeping, and other compliance requirements for a designated FMU. 
For example, proposed Sec.  234.6(b)(1) requires the designated FMU to 
be in generally sound financial condition. In addition, proposed Sec.  
234.6(b)(4) requires a designated FMU to demonstrate an ongoing 
ability, including during periods of market stress or a participant 
default, to meet all of its obligations under its agreement for a 
Reserve Bank account and services. Proposed Sec.  234.6(c) also 
clarifies that the Board or Reserve Bank may request a designated FMU 
to provide any information or verification necessary to determine 
compliance with any conditions imposed under proposed Sec.  234.6.
    4. Identification of duplicative, overlapping, or conflicting 
Federal rules. The Board does not believe that any Federal rules 
conflict with the proposed rules. Certain entities that are designated 
FMUs under Title VIII of the Act may maintain an account with a Reserve 
Bank under other statutory authority, such as an entity that is 
chartered as a depository institution, state member bank, or Edge 
corporation. This rulemaking would provide additional authority for the 
entity to establish and maintain an account at a Reserve Bank and, 
arguably, be duplicative or overlapping with such other authority. This 
rulemaking would not, however, create any conflicting requirements for 
a designated FMU that is permitted to maintain an account

[[Page 14028]]

with a Reserve Bank under multiple sources of authority.
    5. Significant alternatives to the proposed rule. In lieu of the 
proposed rules, the Board could have proposed fewer or less stringent 
conditions on designated FMUs. The Board believes, however, that the 
proposed rules are necessary to address risk to the Reserve Banks in 
offering accounts and services and that the information required from 
designated FMUs under the proposed rules is needed to mitigate such 
risks. In addition, the Board does not believe that providing fewer or 
less stringent conditions for designated FMUs that are small entities 
would achieve the regulation's purpose because the risks to the Reserve 
Banks are the same regardless of whether the designated FMU is a small 
entity. The Board also considered a more expansive list of detailed 
conditions, but decided instead to set the overall standard as avoiding 
undue risk to the Reserve Bank, while providing a limited number of 
minimum requirements in meeting that standard. As noted above, the 
proposed rules provide some flexibility to the Reserve Bank in 
determining whether any additional measures are necessary to mitigate 
the risks presented by that designated FMU, given the facts and 
circumstances of the designated FMU seeking the account or services.

B. Paperwork Reduction Act Analysis

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320, Appendix A.1), the Board reviewed the proposed rule 
under the authority delegated to the Board by the Office of Management 
and Budget. The proposed rule contains no requirements subject to the 
PRA.

IV. Statutory Authority

    Pursuant to the authority in Title VIII of the Dodd-Frank Act and 
particularly sections 806(a) and (b) (12 U.S.C. 5465(a) and (b)), the 
Board proposes two new sections to part 234 (Regulation HH).

List of Subjects in 12 CFR Part 234

    Banks, Banking, Commodity futures, Credit, Electronic funds 
transfers, Financial market utilities, Securities.

Authority and Issuance

    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR Chapter II as set forth below.

PART 234--DESIGNATED FINANCIAL MARKET UTILITIES (REGULATION HH)

0
1. The authority citation for part 234 continues to read as follows:

    Authority:  12 U.S.C. 5461 et seq.

0
2. Amend Sec.  234.1 by revising paragraph (b) to read as follows:


Sec.  234.1  Authority, purpose, and scope.

* * * * *
    (b) Purpose and scope. This part establishes risk-management 
standards governing the operations related to the payment, clearing, 
and settlement activities of designated financial market utilities. In 
addition, this part sets out requirements and procedures for a 
designated financial market utility that proposes to make a change to 
its rules, procedures, or operations that could materially affect the 
nature or level of risks presented by the designated financial market 
utility and for which the Board is the Supervisory Agency (as defined 
below). The risk management standards do not apply, however, to 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), which are governed by the risk-management 
standards promulgated by the Commodity Futures Trading Commission or 
the Securities and Exchange Commission, respectively, for which each is 
the Supervisory Agency. This part also sets out standards, 
restrictions, and guidelines regarding a Federal Reserve Bank 
establishing and maintaining an account for, and providing services to, 
a designated financial market utility. In addition, this part confirms 
the terms under which a Reserve Bank may pay a designated financial 
market utility interest on the designated financial market utility's 
balances held at the Reserve Bank.
0
3. Add Sec. Sec.  234.6 and 234.7 to read as follows:


Sec.  234.6  Access to Federal Reserve Bank accounts and services.

    (a) This section applies to any designated financial market utility 
for which the Board may authorize a Federal Reserve Bank to open an 
account or provide services in accordance with section 806(a) of the 
Dodd-Frank Act. Upon receipt of Board authorization and subject to any 
limitations, restrictions, or other requirements established by the 
Board, a Federal Reserve Bank may enter into agreements governing the 
details of its accounts and services with a designated financial market 
utility, consistent with this section and any other applicable Board 
direction.
    (b) A Federal Reserve Bank should ensure that its establishment and 
maintenance of an account for or provision of services to a designated 
financial market utility does not create undue credit, settlement, or 
other risk to the Reserve Bank. At a minimum, to establish and maintain 
an account with a Federal Reserve Bank or receive financial services 
from a Federal Reserve Bank, a designated financial market utility 
must, in the Federal Reserve Bank's judgment--
    (1) Be in generally sound financial condition;
    (2) Be in compliance, based on information provided by the 
Supervisory Agency, with requirements imposed by its Supervisory Agency 
regarding financial resources, liquidity, participant default 
management, and other aspects of risk management;
    (3) Be in compliance with Board orders and policies, Federal 
Reserve Bank operating circulars, and other applicable Federal Reserve 
requirements regarding the establishment and maintenance of an account 
at a Federal Reserve Bank and the receipt of financial services from a 
Federal Reserve Bank; and
    (4) Demonstrate an ongoing ability, including during periods of 
market stress or a participant default, to meet all of its obligations 
under its agreement for a Federal Reserve Bank account and services.
    (c) The Board or Federal Reserve Bank may request that the 
designated financial market utility provide any information or 
verification necessary regarding compliance with any conditions imposed 
under this section.
    (d) The Board will consult with the Supervisory Agency of a 
designated financial market utility prior to authorizing a Federal 
Reserve Bank to open an account, and periodically thereafter, to 
ascertain the views of the Supervisory Agency regarding the condition 
of the designated financial market utility and compliance with the 
requirements of this section or to coordinate information requests.
    (e) In addition to any right that a Reserve Bank has to terminate 
an account or the use of a service pursuant to an agreement, the Board 
may direct the Federal Reserve Bank to impose limits, restrictions, or 
other conditions on the availability or use of a Federal Reserve Bank 
account or service by a designated financial market utility, including 
directing the Reserve Bank to terminate the use of a particular service 
or to close the account.

[[Page 14029]]

Sec.  234.7  Interest on balances.

    (a) A Federal Reserve Bank may pay interest on balances maintained 
by a designated financial market utility at the Federal Reserve Bank in 
accordance with this section and under such other terms and conditions 
as the Board may prescribe.
    (b) Interest on balances paid under this section shall be at the 
rate paid on balances maintained by depository institutions or another 
rate determined by the Board from time to time, not to exceed the 
general level of short-term interest rates.
    (c) For purposes of this section, ``short-term interest rates'' 
shall have the same meaning as the meaning provided for that term in 
Sec.  204.10(b)(3) of this chapter.

    By order of the Board of Governors of the Federal Reserve 
System, February 26, 2013.
Robert deV. Frierson,
Secretary to the Board.
[FR Doc. 2013-04841 Filed 3-1-13; 8:45 am]
BILLING CODE 6210-01-P