WASHINGTON (CN) - Clearing agencies must offer real time pricing and valuation information to market participants, according to new registration regulations proposed by the Securities and Exchange Commission and the Commodities Futures Trading Commission.
Clearing agencies also must have the capability to protect the confidentiality of the trading information of their counter parties, under the proposed regulations. Clearing agencies act as middlemen between buyers and sellers of credit and asset backed securities swaps.
Clearing agencies also must create dispute resolution procedures to which market participants affirmatively agree, and maintain extensive databases of market transactions for compliance with regulations and to aid in dispute resolution.
To insure the financial stability of agencies that offer central counterparty services, the proposed rules would require heightened financial resources for such agencies sufficient to cover the full balance of all security-based swap transactions in which they offer central counterparty services.
The agencies must allow people who are not securities dealers to participate in market transactions, and they may not place floors on the trading volume required to secure central counterparty services as long as they have financial resources in excess of $50 million. The regulations would require the agencies to check on the financial resources of market participants at least quarterly and, daily, check on the amount of capital reserve a participant has in an ongoing transaction. The SEC and the CFTC are asking if more frequent resource verifications should be required.
The minimum capital requirement of $50 million would be scalable for transactions in excess of that floor, to safeguard the agency from overextending its own resources while acting as the central counterparty to the buyer and the seller.
Regulators are concerned about competition between clearing agencies because for some types of swaps only one clearing agency may emerge as the preferred forum for transactions.
As a result, the proposed rules require clearing agencies to implement, maintain and enforce written policies and procedures "reasonably designed to provide that their operations are cost-effective in meeting the requirements of participants while maintaining the safety and security of operations."