Clearing Agency Governance and Conflicts of Interest (SIFMA AMG)
Summary
SIFMA AMG provided comments to the U.S. Securities and Exchange Commission (SEC) on the proposal to formalize and standardize governance practices for clearing agencies registered with the Commission (RCAs) to address potential conflicts between, and to promote the fair representation of, owners and participants; to establish requirements for the function and composition of RCA risk management committees (RMCs); and to increase transparency into RCA governance.
Excerpt
October 13, 2022
Vanessa A. Countryman
Secretary
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549-1090
Re: Clearing Agency Governance and Conflicts of Interest (File No. S7-21-22) (the “Proposal”)1
Dear Ms. Countryman:
The Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG”)2 appreciates the opportunity to provide comments to the Securities and Exchange Commission (the “Commission” or “SEC”) on the above-referenced Proposal to formalize and standardize governance practices for clearing agencies registered with the Commission (“RCAs”) to address potential conflicts between, and to promote the fair representation of, owners and participants; to establish requirements for the function and composition of RCA risk management committees (“RMCs”); and to increase transparency into RCA governance.
We note at the outset the parallel proposal by the Commodity Futures Trading Commission (the “CFTC”) to also address derivatives clearing organization (“DCO”) governance.3 The CFTC Proposal springs from recommendations from the CFTC’s Market Risk Advisory Committee’s (“MRAC”) CCP Risk and Governance Subcommittee (“MRAC CCP Governance Recommendations”)4 which included representatives of DCOs, futures commission merchants (“FCMs”), and market participants including several SIFMA AMG members.
Given the alignment of responsibilities of both RCAs and DCOs with respect to cleared products generally, and the fact that several are dually registered with both the SEC and CFTC, SIFMA AMG strongly believes the applicable rule sets of each of the SEC and CFTC should be fully aligned to maximize the transparency offered by such governance practices; require the engagement of clearing participants (including asset managers) with respect to material risk issues and new product offerings; and require that the views of clearing participants are considered in decision making, with the rationale for decisions contrary to participant recommendations explained to the participants and reported to the agencies for review. While it is true that some of the practices identified for rulemaking by the Commission are present in the rulebooks of some RCAs, we do not believe the critical area of RCA governance should be left to voluntary practices specified in rulebooks that can be modified in the event of business exigencies.
1 Clearing Agency Governance and Conflicts of Interest, Exchange Act Release No. 34-95431 (Aug. 8, 2022), 87 Fed. Reg. 51812 (Aug. 23, 2022).
2 SIFMA AMG brings the asset management community together to provide views on U.S. and global policy and to create industry best practices. SIFMA AMG’s members represent U.S. and global asset management firms whose combined assets under management exceed $45 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.
3 Governance Requirements for Derivatives Clearing Organizations, 87 Fed. Reg. 49559 (Aug. 11, 2022) (“CFTC Proposal”).
4 See CFTC Market Risk Advisory Committee, CCP Risk and Governance Subcommittee, Recommendations on CCP Governance and Summary of Subcommittee Constituent Perspectives (Feb. 23, 2021), available at https://www.cftc.gov/media/6201/MRAC_CCPRGS_RCCOG022321/download.