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by Judy Inosanto

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The Financial Stability Oversight Council (FSOC) unanimously voted to designate DTCC’s U.S. clearing and depository subsidiaries as Systemically Important Financial Market Utilities (SIFMUs). The SIFMU designation covers National Securities Clearing Corporation (NSCC), The Depository Trust Company (DTC) and Fixed Income Clearing Corporation (FICC).

“We applaud FSOC’s efforts to strengthen the resiliency of the financial system even further, and we believe these designations underscore the critical role market infrastructures play in protecting the capital markets from future crises,” said Michael Bodson, DTCC President and CEO. “DTCC fully expected that our clearing and depository subsidiaries would receive the ‘systemically important’ designation, and it is consistent with our continued focus and commitment to bring greater risk mitigation, operational efficiency and transparency into the trading of securities, while also fostering growth in the capital markets.”

According to FSOC, financial market utilities (FMUs) represent the “plumbing of the financial system for their role in clearing and settling transactions between financial institutions.” DTCC’s subsidiaries were among eight organizations that received the designation. Others include The Clearing House Payments Company, L.L.C.; CLS Bank International; the Chicago Mercantile Exchange, Inc.; ICE Clear Credit LLC and The Options Clearing Corporation.

What it means

According to the Dodd-Frank Act, FSOC’s designation of a SIFMU requires these organizations to meet prescribed risk management standards and heightened oversight by the relevant U.S. regulatory authorities in order to promote robust risk management, safety and soundness, reduce systemic risk and support the stability of the broader financial system.

Under Dodd-Frank, FSOC must consider four specific factors when making a SIFMU designation. These are:

  • The aggregate monetary value of transactions processed by the organization;
  • Its aggregate exposure to counterparties;
  • Its relationship, interdependencies or other interactions with other FMUs or payment, clearing or settlement activities;
  • The effect that its failure or disruption would have on critical markets, financial institutions or the broader financial system.

  • “While we will continue to assess closely the implications of these SIFMU designations, DTCC remains committed to consistently operating to the highest of risk management standards,” said Bodson. “While we do not anticipate that these designations will either significantly change our day-to-day business or how we work with our clients, as NSCC, FICC and DTC are already highly regulated by the relevant U.S. authorities, we will nevertheless work with our Board to complete our assessment and ensure we consistently raise the effectiveness of our governance and management processes.”

    Authorities that have oversight of DTCC’s U.S. subsidiaries include the Federal Reserve System, the Securities and Exchange Commission and the New York State Department of Financial Services. @