DTCC Connection

Jun 01, 2012 • DTCC Connection

Supervisors Adopt New Standards For Market Infrastructures

by Roland Kielman


Related Information

Assessment, Transparency

Market infrastructure providers now have a common set of standards for operations and governance, thanks to a recently finalized report issued by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements and the Technical Committee of the International Organization of Securities Commissions (IOSCO).


The new “Principles for Financial Market Infrastructures” are designed to improve the resiliency of the global financial system by implementing new and more stringent standards for global payment, clearing and settlement systems.


“This is an important step towards mitigating risk in the financial markets globally and further strengthening financial infrastructures against market turmoil,” said Larry Thompson, DTCC General Counsel. “These principles will help to ensure robust standards for the sound operation of our financial systems and will serve as a guide for harmonizing new financial rules being developed throughout the world.”


24 principles

The new standards are set forth in the form of 24 principles that touch on subjects such as governance, credit and liquidity risk management, settlement, default management, efficiency and transparency. They will apply to all systemically important financial market infrastructures (FMIs), including payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories. According to CPSS-IOSCO, the new standards establish heightened requirements for key areas, including:


  • Financial resources and risk management procedures an FMI uses to cope with the default of participants;
  • Mitigation of operational risk;
  • Links and other interdependencies between FMIs through which operational and financial risks can spread;
  • Segregation and portability of customer positions and collateral;
  • Tiered participation (managing risk of failure of a clearing participant’s customer);
  • General business risk.

Getting there

The final principles come nearly three years after the leaders of the Group of 20 upped the ante on FMIs by requiring all standardized over-the-counter (OTC) derivatives to be traded on exchanges or electronic platforms, cleared through a central counterparty and ultimately reported to a trade repository.


The new principles replace three existing sets of CPSS-IOSCO standards for payment and settlement systems, which came under review after the 2008 financial crisis highlighted the critical role played by market infrastructures. CPSS-IOSCO originally issued a draft of the new principles for public comment in March 2011. DTCC, as the operator of the primary infrastructure for the U.S. cash securities markets, owner of a central counterparty for equities in Europe and operator of global trade repositories for the OTC derivatives markets, was among a large number of infrastructure organizations to submit formal comments on the proposal.


Implementation by year-end

Now that the final standards have been agreed, national supervisors are responsible for determining which FMIs will be considered systemically important and thus subject to the heightened requirements.


CPSS-IOSCO is urging its members to adopt the principles by the close of 2012 in line with the G20 commitments for OTC derivatives market reform. FMIs are expected to comply with the heightened requirements “as soon as possible” – presumably a short time after national regulators complete the systemically important designation process. With the final principles now in hand, DTCC is reviewing the report in its entirety in order to assess its implications for market participants and for the overall operation of its financial infrastructure. @


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