One of the Council’s statutory purposes is to identify risks to financial stability that could arise from the material financial distress or failure, or ongoing activities, of nonbank financial companies. Under Section 113 of the Dodd-Frank Act, the Council is authorized to determine that a nonbank financial company’s material financial distress—or the nature, scope, size, scale, concentration, interconnectedness, or mix of its activities—could pose a threat to U.S. financial stability. Such companies will be subject to consolidated supervision by the Federal Reserve and enhanced prudential standards.
The Dodd-Frank Act also authorizes the Council to designate a Financial Market Utility (FMU) as “systemically important” if the Council determines that the failure of or a disruption to the functioning of the FMU could create or increase the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the U.S. financial system. Designated FMUs will become subject to the heightened prudential and supervisory provisions of Title VIII, which promote robust risk management and safety and soundness, including conducting their operations in compliance with applicable risk-management standards; providing advance notice and review of changes to their rules, procedures, and operations that could materially affect the nature or level of their risks; and being subject to relevant examination and enforcement provisions.
Following the publication of its final rule outlining the criteria, processes, and procedures for the designation of FMUs on July 27, 2011, the Council proposed the designation of an initial set of FMUs on May 22, 2012. At its July 18, 2012, meeting, the Council voted unanimously to designate eight FMUs as systemically important under Title VIII of the Dodd-Frank Act. The designated FMUs are:
- The Clearing House Payments Company L.L.C. on the basis of its role as operator of the Clearing House Interbank Payments System
- CLS Bank International
- Chicago mercantile Exchange, Inc.
- The Depository Trust Company
- Fixed Income Clearing Corporation
- ICE Clear Credit LLC
- National Securities Clearing Corporation
- The Options Clearing Corporation
The FMUs that the Council designated perform a variety of functions in the market, including the clearance and settlement of cash, securities, and derivatives transactions; many of them are central counterparties and are responsible for clearing a large majority of trades in their respective markets. The Council believes that the completion of the FMU designations process for this initial set of FMUs is a major milestone in the implementation of the Dodd-Frank Act and that the designation of these entities will instill confidence in their respective markets.