Federal Reserve Final Rule: Financial Market Utilities

From MarketsReformWiki
Jump to: navigation, search
Timeline, Regulation HH (Financial Market Utilities), Federal Reserve
Effective Date, Reg. HH Proposed Amendment 2nd Proposed Amendment
September 14, 2012 March 4, 2013 January 22, 2014

On July 30, 2012, the Board of Governors of the Federal Reserve System issued its final rules on risk management standards for financial market utilities (FMUs) that are designated "systemically important" by the Financial Stability Oversight Council (FSOC). [1] Among the provisions of the rule, which is known as "Regulation HH:"

  • the establishment of procedures for when an FMU requests material changes to its rules, procedures or operations; and
  • the establishment of risk management standards governing the operations related to the payment, clearing, and settlement activities.

The rule covers systemically important FMUs, except those under the jurisdiction of the Securities and Exchange Commission or the Commodity Futures Trading Commission. The rules are based on the CPSS/IOSCO principles for financial market infrastructures, April 2012.

Section 803 of the Dodd-Frank Act defines an FMU as "a person that manages or operates a multilateral system for the purpose of transferring, clearing, or settling payments, securities, or other financial transactions among financial institutions or between financial institutions and the person."

Amendment to Reg. HH, March 4, 2013

On March 4, 2013, the Federal Register published an amendment to Reg. HH that adds certain conditions and requirements for a Federal Reserve Bank to open and maintain accounts for and provide financial services to FMUs designated as "systemically important" by the Financial Stability Oversight Council.

Additionally, the proposed rule would authorize a Reserve Bank to pay interest on the balances maintained by an FMU.

In order to be allowed to set up an account, the FMU must:

  • Be in generally sound financial condition;
  • Be in compliance with risk management requirements and Fed orders and policies; and
  • Demonstrate an ongoing ability, to meet all of its obligations under its agreement for a Federal Reserve Bank account and services.

Finally, under the proposed rule, interest paid shall not exceed current short-term interest rates.

Second Amendment to Reg. HH, January 22, 2014

On January 22, 2014, the Federal Reserve Board approved a propsed amendment to Reg. HH that would standardize risk management practices among FMUs designated as systemically important by the Financial Stability Oversight Council. The rules are intended to be consistent with the CPSS/IOSCO Principles for Financial Market Infrastructures, April 2012. The deadline for public comment was March 31, 2014.

Related Documents: Final Regulation HH; Proposed Amendment from March 2013; Proposed Risk Management Standards, January 2014

References

  1. Press Release. Board of Governors of the Federal Reserve System. Retrieved on August 2, 2012.

MarketsReformWiki Sponsors

RSM US LLP ADM Investor Services Cinnober Fidessa