Statement on Clearinghouse Resiliency, Recovery, and Wind-Down

Today, the Commission approved amendments to help ensure the continuity of clearing services during times of significant stress. I am pleased to support the amendments because they enhance the resiliency of an important part of our market plumbing, clearinghouses, which are fundamental for the capital markets to operate.

Clearinghouses facilitate what happens after one executes a transaction through the time that it settles. Working on a classic hub-and-spoke model, they sit in the middle of the markets and reduce risks amongst and between counterparties.

Well-regulated and well-managed clearinghouses also help lower risk for the public.

Clearinghouses themselves, however, are not without risks. That's why it's important to maintain robust risk management with regards to collecting sufficient margin, default management procedures, and liquidity.

Prudent risk management also means maintaining plans for an unlikely tail event in which a clearinghouse would be unable to provide critical services for its members. Such a failure would undermine the financial system, causing harm to investors and issuers in the markets.

Today's amendments add greater detail to current requirements (adopted in 2016) regarding clearinghouses' plans and the tools they use, if needed, to carry out those plans.

First, clearinghouses will be required to add policies and procedures specific to intraday exposure. In the age of digitization, markets and member positions can experience major moves within a matter of minutes. For example, the January 2021 "meme-stock" events and recent periods of heightened Treasury volatility revealed the importance of clearinghouses' ability to respond to volatility.

While clearinghouses have had to maintain policies and procedures regarding the collection of intraday margin, they will need to monitor intraday exposures, as well as incorporate into their policies and procedures specific circumstances for making intraday margin calls.

Second, clearinghouses must designate alternative methods to calculate margin in the event that key data are not readily available or reliable. For instance, if a clearinghouse relies on an external vendor for an input to its margin model, they would need to have a plan in the event that the vendor is unable to provide such information.

Finally, today's amendments will require clearinghouse recovery and wind-down plans to account for nine specific elements. These elements include describing the clearinghouse's core services, as well as identifying critical personnel and service providers needed to support them. Additionally, clearinghouses will need to identify scenarios that potentially prevent them from operating, along with the criteria that would trigger a recovery plan and the tools they would use.

In essence, recovery and wind-down plans should be about ensuring that water continues to flow in our market plumbing even in times of significant stress. Such continuity is critical for our capital markets to function. Nobody would want this plumbing to be backed up.

Recovery and wind-down planning enhances the resiliency and continuity of our market plumbing. This benefits investors, issuers, and the markets alike.

In addition to thanking our excellent staff for their work on these matters, I'd like to thank the staff of the Federal Deposit Insurance Corporation (FDIC) for their collaboration. My thanks also to the staff at the Federal Reserve and the Commodity Futures Trading Commission.

I'd like to thank the members of the SEC staff who worked on this proposal, including:

• Haoxiang Zhu, Andrea Orr, Jeff Mooney, Elizabeth Fitzgerald, Matt Lee, David Li, Jesse Capelle, Adam Allogramento, Haley Holliday, and Will Miller from the Division of Trading and Markets;
• Caroline Schulte, Charles Woodworth, Woodrow Johnson, Matthew Pacino, Anne Yang, Lauren Moore, Juan Echeverri, and Gregory Price from the Division of Economic and Risk Analysis;
• Meridith Mitchell, Robert Teply, Donna Chambers, and Sean Bennett from the Office of the General Counsel;
• Carrie O'Brien and Katherine Lesker from the Division of Examinations; and
• Wendy Tepperman and Eric Kirsch from the Division of Enforcement.