Financial Utilities That Are Too Important To Fail


By Gordon Platt

Two years after Dodd-Frank became law, US regulators identified eight “systemically important” clearing and payment firms that provide critical infrastructure to the country’s financial system.

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Systemically important financial utilities named

None of the firms objected to the designation, although they will be subject to increased oversight and costs.

Regulators in Asia complained, however, that US efforts to regulate swaps and other derivatives and force them to be centrally cleared could have unintended consequences in their markets and could cause systemic risk to increase as firms seek to comply with conflicting demands of home and foreign regulators. The US is working through the G20 to try to get Asian nations, as well as those in Europe, to accept global rules that would level the playing field for bank capital requirements and derivatives trading.

Intercontinental Exchange (ICE), whose credit default swap clearinghouse is one of the eight US firms identified as a critical financial utility, said that “the application of uniform rules across systemically important clearinghouses globally will support market confidence and reduce risk.”

In 2010 the UK Treasury designated ICE Clear, Europe’s payment system, as a “recognized system” subject to oversight. However, there still is no timetable for global standard-setting bodies to designate “systemically important” financial market infrastructures.

In the European Union, national authorities still regulate derivatives trading. The European Commission would like to see a single regulator for all banks in the eurozone, run by the European Central Bank, but that could take time to coordinate. Meanwhile the CME, another US firm designated as “systemically important,” is planning to open a derivatives market in London to compete with Liffe and Eurex for the business that is heading for exchanges and clearinghouses.

Clearing House Payments, CLS Bank, Depository Trust Company, Fixed Income Clearing, National Securities Clearing, and Options Clearing Corporation are the other US financial utilities named as systemically important.