WASHINGTON, D.C.— Legal Director and Securities Specialist Stephen Hall issued the following statement in response to the issuance of final rules by the Securities and Exchange Commission (SEC) designed to improve the governance of registered clearing agencies:

“Clearing agencies, although largely unnoticed by the public, are indispensable to our financial system.  But they are also buffeted by intense conflicts of interest, and the SEC’s new rules will help ensure that their boards exercise independent judgment in the interest of investors and the broader markets.

“Clearing agencies ensure that investors receive the securities or funds for which they have contracted; they take on counterparty risk so that investors may focus on trading; and they act as depositories for securities.  But because they are a counterparty to all participants, they also concentrate counterparty risk.  This means they must be governed and managed well.  Yet clearing agencies face pressure from the competing interests of several powerful constituencies—their owners, senior management, and the largest market participants.  The rules the SEC issued today protect investors from the conflicts of interest clearing agencies face.

“The SEC’s rules require that a majority of the clearing agency’s board of directors be independent from the clearing agency or its affiliates.  The rules require further that a clearing agency establish a nominating committee and a written process for evaluating board nominees and the independence of nominees and directors, as well as a risk management committee to assist the board in overseeing the agency’s risk management.  The rules also require that the board solicit, consider, and document the views of stakeholders.

“Although, as discussed in our comment letter, we wish the SEC would have gone even further, the rules the SEC adopted represent an important step towards addressing the conflicts of interest at clearing agencies and ensuring that they perform their vital functions.  The board plays a critical role in overseeing the development of effective risk management policy, and an independent board is more likely to adopt policies that best protect investors.  The SEC’s rules help ensure that directors exercise business judgment free from any self-interest.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis 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 www.bettermarkets.org.