UPDATE: US Regulators Back More Coordination On Clearinghouse Oversight

U.S. federal financial regulators, in a report Thursday, signaled they would consult more with each other on the supervision of clearing firms with the aim of reducing risks to the financial system.

In their report, the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission backed several steps to enhance consultation among themselves on the oversight of clearing organizations, which stand between counterparties to a trade.

Under one proposal, the CFTC and SEC would consult with the Fed at least once a year on their approach to planned examinations of clearing firms and give the Fed a chance to participate in the exams.

A council of top regulators approved a process Monday for determining which clearinghouses are crucial to the health of the financial system, but those clearinghouses have not yet been named.

The Financial Stability Oversight Council, created by the financial-overhaul law and headed by Treasury Secretary Timothy Geithner, outlined criteria for determining which clearinghouses are "systemically important," a designation that will subject those firms to greater regulatory scrutiny but also allow them access to Federal Reserve lending.

Major clearinghouses operated by IntercontinentalExchange Inc. (ICE) and CME Group Inc. (CME) could be subject to the new oversight if they are deemed systemically important.

Clearinghouses stand between two parties to guarantee trades and protect against potential default. As clearinghouses take on more trades, Federal Reserve Chairman Ben Bernanke and others have raised concerns about what would happen if a clearinghouse defaulted. The Commodity Futures Trading Commission currently regulates about 16 clearinghouses, and that number is expected to rise.

Thursday's report fulfills a Dodd-Frank requirement for regulators to issue recommendations on the oversight and risk management of clearing firms.

-By Jamila Trindle, Dow Jones Newswires; 202-862-6684; jamila.trindle@dowjones.com

--Alan Zibel contributed to this report.

CME (NASDAQ:CME)
Historical Stock Chart
From Jun 2024 to Jul 2024