Alert July 26, 2011

CFTC, SEC and FRB Submit Report on Risk Management Supervision of Designated Clearing Entities

The CFTC, SEC and FRB delivered the report to the Senate Committees on Banking, Housing, and Urban Affairs and Agriculture, Nutrition, and Forestry and the House Committees on Financial Services and Agriculture mandated by Section 813 of the Dodd-Frank Act, which requires them to jointly develop risk management supervision programs for clearing entities that have been identified as systemically important (“DCEs”) by the Financial Stability Oversight Council. As directed by Section 813, the report makes recommendations in four areas: (1) improving consistency in the DCE oversight programs of the SEC and CFTC, (2) promoting robust risk management by DCEs, (3) promoting robust risk management oversight by regulators of DCEs, and (4) improving regulators’ ability to monitor the potential effects of DCE risk management on the stability of the financial system of the United States. The report also provides an introduction to the role of systemically important financial market utilities generally and DCEs specifically in the financial system, a high-level overview of DCE risks and risk management, an outline of the generally accepted elements of a sound risk-based supervisory program and an overview of the current supervisory programs at the CFTC, the SEC, and the FRB.