Payment and Settlement Systems Regulation - White Paper - Principles for Financial Market Infrastructures - CPSS/IOSCO, April 2012

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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

April 2012

On April 16, 2012, the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) published a report on the principles for financial market infrastructures (FMIs). The report contains new and more demanding international standards for payment, clearing and settlement systems, including central counterparties. Issued by the CPSS and the International Organization of Securities Commissions (IOSCO), the new standards are designed to create a global payment system capable of withstanding systemic threats.

The principles apply to all systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories (collectively "financial market infrastructures"). The principles were first proposed in March 2011, followed by a public comment period. To view the comments received, click HERE.

The deadline for public comment was June 15, 2012.


Contents of the Report

The report includes:

  • Background information and key definitions
  • An overview of key risks in financial market infrastructures, including systemic risk, legal risk, credit risk, liquidity risk, general business risk, and occupational risk;
  • 21 principles covering areas such as governance, collateral and margin, settlement and delivery of cash and collateral, default procedures, and transparency.

Overview of Principles and Responsibilities of Financial Market Infrastructures (FMIs)

FMI principles include:

  • General organizational principles, such as a clear and transparent legal basis and governance, and have sound best practices in place for risk management;
  • Credit and liquidity risk management principles, such as having the ability to effectively measure, monitor, and manage its credit exposures, should accept collateral with low credit, liquidity and market risks and appropriately apply haircuts and concentration limits, and cover credit exposure through margining.
  • Settlement principles, including providing clear and certain final settlement, conduct money settlements in central bank money when available, monitor and manage risks associated with physical delivery, and ensure the safety of securities
  • Default management principles, including segregation and portability,
  • General business and operational risk management, including the holding of sufficient risk assets funded by equity, identify sources of operational risk, both internal and external,and mitigate their impact through the use of appropriate systems, policies, procedures, and controls.
  • Access principles, including criteria for participation, which permit fair and open access, managing risks of tiered access.
  • Efficiency principles, including the use of relevant internationally accepted communication procedures and standards in order to facilitate efficient payment, clearing,settlement, and recording.
  • Transparency principles, including the disclosure of rules, key procedures, and market data by market participants and trade repositories.

FMI Responsibilities include:

  • Regulation, supervision, and oversight of FMIs: FMIs should be subject to appropriate and effective regulation, supervision, and oversight bya central bank, market regulator, or other relevant authority.
  • Regulatory, supervisory, and oversight powers and resources: Central banks, market regulators, and other relevant authorities should have the powers andresources to carry out effectively their responsibilities in regulating, supervising, andoverseeing FMIs.
  • Disclosure of policies with respect to FMIs: Central banks, market regulators, and other relevant authorities should clearly define anddisclose their regulatory, supervisory, and oversight policies with respect to FMIs.
  • Application of the principles for FMIs: Central banks, market regulators, and other relevant authorities should adopt the CPSS-IOSCO Principles for financial market infrastructures and apply them consistently.
  • Cooperation with other authorities: Central banks, market regulators, and other relevant authorities should cooperate with eachother, both domestically and internationally, as appropriate, in promoting the safety andefficiency of FMIs.

Related Document: Final CPSS/IOSCO Report; Summary Note

References

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