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October 13, 2022

SEC Plans to Reform Clearing Agency Governance Will Help Address Conflicts of Interest, but Agency Must Go Further

WASHINGTON, D.C.— Stephen Hall, Legal Director and Securities Specialist, issued the following statement in connection with Better Markets’ comment letter filed with the Securities and Exchange Commission (SEC) in response to a proposed rule to reform the governance and the management of conflicts of interest at financial clearing agencies.

“Clearing agencies play a vital role in our financial system even though they are often forgotten. Among other roles, they stand behind each side of a trade to help reduce the harm when buyers or sellers default.   We’ve seen serious market stresses since the 2008 financial crisis, including the COVID pandemic and the recent ‘meme’ stock frenzy, and clearing agencies can play an especially important role in managing systemic risk during such periods. However, clearing agencies face pressures from competing interests, including their owners, the financial institutions that use their settlement services, and even the clearing agency’s own senior management. When one of these stakeholder groups has too much influence over the clearing agency, its ability to fairly manage and distribute risk can be compromised, which puts our wider financial system in jeopardy.

“The SEC has proposed a thoughtful solution to a number of these governance concerns. The proposed rule requires a majority of the clearing agency’s board of directors to be independent from the clearing agency or its corporate affiliates. Also, the board must set up a special risk management committee with representatives from both the owners and the participating financial institutions. Finally, the board of directors must seek out and consider views from all of its key constituents.

“As we explain in our comment letter, however, the proposal could and should go further. Ensuring board independence is not enough.  For example, the SEC should require the owners of clearing agencies to have ‘skin in the game,’ including a share of liability in the default waterfall that helps ensure against losses when a participating entity defaults on a trade.  In addition, we urge the SEC to address other powerful conflicts, particularly those arising from the influence of dominant dealers in some of the derivatives markets.  By strengthening the proposal as outlined in our letter, the Commission can more effectively limit the conflicts of interest that undermine the fairness and stability of these critical market participants, the clearing agencies.”


Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit

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