PART 1320—DESIGNATION OF FINANCIAL MARKET UTILITIES Authority: 12 U.S.C. 5321; 12 U.S.C. 5322; 12 U.S.C. 5463; 12 U.S.C. 5468; 12 U.S.C. 5469 Source: 76 FR 44773, July 27, 2011, unless otherwise noted. Subpart A—General § 1320.1 Authority and purpose. (a) Authority. (b) Purpose. § 1320.2 Definitions. The terms used in this part have the following meanings: Appropriate Federal banking agency. appropriate Federal banking agency” Board of Governors. Board of Governors” Council. Council” Designated clearing entity. designated clearing entity” Designated financial market utility. designated financial market utility” Financial institution. financial institution” (1) Means— (i) A depository institution as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); (ii) A branch or agency of a foreign bank, as defined in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101); (iii) An organization operating under section 25 or 25A of the Federal Reserve Act (12 U.S.C. 601-604a and 611 through 631); (iv) A credit union, as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752); (v) A broker or dealer, as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c); (vi) An investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3); (vii) An insurance company, as defined in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2); (viii) An investment adviser, as defined in section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2); (ix) A futures commission merchant, commodity trading advisor, or commodity pool operator, as defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a); and (x) Any company engaged in activities that are financial in nature or incidental to a financial activity, as described in section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)). (2) Does not include designated contract markets, registered futures associations, swap data repositories, and swap execution facilities registered under the Commodity Exchange Act (7 U.S.C. 1 et seq. et seq. Financial market utility. (1) Means any 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; and (2) Does not include— (i) Designated contract markets, registered futures associations, swap data repositories, and swap execution facilities registered under the Commodity Exchange Act (7 U.S.C. 1 et seq. et seq. (ii) Any broker, dealer, transfer agent, or investment company, or any futures commission merchant, introducing broker, commodity trading advisor, or commodity pool operator, solely by reason of functions performed by such institution as part of brokerage, dealing, transfer agency, or investment company activities, or solely by reason of acting on behalf of a financial market utility or a participant therein in connection with the furnishing by the financial market utility of services to its participants or the use of services of the financial market utility by its participants, provided that services performed by such institution do not constitute critical risk management or processing functions of the financial market utility. Hearing date. (1) The date on which the Council receives all of the written materials timely submitted by the financial market utility for a hearing that is conducted without oral testimony; or (2) The final date on which the Council convenes for the financial market utility to present oral testimony. Payment, clearing, or settlement activity. (1) The term “payment, clearing, or settlement activity” means an activity carried out by 1 or more financial institutions to facilitate the completion of financial transactions, but shall not include any offer or sale of a security under the Securities Act of 1933 (15 U.S.C. 77a et seq. (2) For purposes of paragraph (1) of this definition, the term “financial transaction” includes— (i) Funds transfers; (ii) Securities contracts; (iii) Contracts of sale of a commodity for future delivery; (iv) Forward contracts; (v) Repurchase agreements; (vi) Swaps; (vii) Security-based swaps; (viii) Swap agreements; (ix) Security-based swap agreements; (x) Foreign exchange contracts; (xi) Financial derivatives contracts; and (xii) Any similar transaction that the Council determines to be a financial transaction for purposes of this part. (3) When conducted with respect to a financial transaction, payment, clearing, and settlement activities may include— (i) The calculation and communication of unsettled financial transactions between counterparties; (ii) The netting of transactions; (iii) Provision and maintenance of trade, contract, or instrument information; (iv) The management of risks and activities associated with continuing financial transactions; (v) Transmittal and storage of payment instructions; (vi) The movement of funds; (vii) The final settlement of financial transactions; and (viii) Other similar functions that the Council may determine. (4) Payment, clearing, and settlement activities shall not include public reporting of swap transactions under section 727 or 763(i) of the Dodd-Frank Act. Supervisory Agency. (i) Has primary jurisdiction over a designated financial market utility under Federal banking, securities, or commodity futures laws as follows— (A) The Securities and Exchange Commission, with respect to a designated financial market utility that is a clearing agency registered with the Securities and Exchange Commission; (B) The Commodity Futures Trading Commission, with respect to a designated financial market utility that is a derivatives clearing organization registered with the Commodity Futures Trading Commission; (C) The appropriate Federal banking agency, with respect to a designated financial market utility that is an institution described in section 3(q) of the Federal Deposit Insurance Act; (D) The Board of Governors, with respect to a designated financial market utility that is otherwise not subject to the jurisdiction of any agency listed in paragraphs (1)(i), (ii), and (iii) of this definition; or (ii) Would have primary jurisdiction over a financial market utility if the financial market utility were a designated financial market utility under paragraph (1) of this definition. (2) If a financial market utility is subject to the jurisdictional supervision of more than one agency listed in paragraph (1) of this definition, then such agencies should agree on one agency to act as the Supervisory Agency, and if such agencies cannot agree on which agency has primary jurisdiction, the Council shall decide which is the Supervisory Agency for purposes of this part. Systemically important and systemic importance. Subpart B—Consultations, Determinations and Hearings § 1320.10 Factors for consideration in designations. In making any proposed or final determination with respect to whether a financial market utility is, or is likely to become, systemically important under this part, the Council shall take into consideration: (a) The aggregate monetary value of transactions processed by the financial market utility, including without limitation— (1) The number of transactions processed, cleared or settled; (2) The value of transactions processed, cleared or settled; and (3) The value of other financial flows. (b) The aggregate exposure of the financial market utility to its counterparties, including without limitation— (1) Credit exposures, which includes but is not limited to potential future exposures; and (2) Liquidity exposures. (c) The relationship, interdependencies, or other interactions of the financial market utility with other financial market utilities or payment, clearing, or settlement activities, including without limitation interactions with different types of participants in those utilities or activities. (d) The effect that the failure of or a disruption to the financial market utility would have on critical markets, financial institutions, or the broader financial system, including without limitation— (1) Role of the financial market utility in the market served; (2) Availability of substitutes; (3) Concentration of participants; (4) Concentration by product type; (5) Degree of tiering; and (6) Potential impact or spillover in the event of a failure or disruption. (e) Any other factors that the Council deems appropriate. § 1320.11 Consultation with financial market utility. Before providing a financial market utility notice of a proposed determination under § 1320.12, the Council shall provide the financial market utility with— (a) Written notice that the Council is considering whether to make a proposed determination with respect to the financial market utility under § 1320.13; and (b) An opportunity to submit written materials to the Council, within such time as the Council determines to be appropriate, concerning— (1) Whether the financial market utility is systemically important taking into consideration the factors set out in § 1320.10; and (2) Proposed changes by the financial market utility that could— (i) Reduce or increase the inherent systemic risk the financial market utility poses and the need for designation under § 1320.13; or (ii) Reduce or increase the appropriateness of rescission under § 1320.13. (3) The Council shall consider any written materials timely submitted by the financial market utility under this section before making a proposed determination under section 1320.13. § 1320.12 Advance notice of proposed determination. (a) Notice of proposed determination and opportunity for hearing. (b) Request for hearing. (c) Written submissions. § 1320.13 Council determination regarding systemic importance. (a) Designation determination. (b) Rescission determination. (c) Vote required. (1) Be made by the Council and must not be delegated by the Council; and (2) Require the vote of not fewer than two-thirds of the members of the Council then serving, including the affirmative vote of the Chairperson of the Council. (d) Consultations. § 1320.14 Emergency exception. (a) Emergency exception. (1) The Council determines that the waiver or modification is necessary to prevent or mitigate an immediate threat to the financial system posed by the financial market utility; and (2) The Council provides notice of the waiver or modification, and an explanation of the basis for the waiver or modification, to the financial market utility concerned, as soon as practicable, but not later than 24 hours after the waiver or modification. (b) Vote required. (1) Be made by the Council; and (2) Require the affirmative vote of not fewer than two-thirds of members then serving, including the affirmative vote of the Chairperson of Council. (c) Request for hearing. (d) Written submissions. (e) Notification of hearing determination. § 1320.15 Notification of final determination regarding systemic importance. (a) Notification of final determination after a hearing. (b) Notification of final determination if no hearing. § 1320.16 Extension of time periods. The Council may extend any time period established in § 1320.12, § 1320.14, or § 1320.15 as the Council determines to be necessary or appropriate. Subpart C—Information Collection § 1320.20 Council information collection and coordination. (a) Information collection to assess systemic importance. (b) Prerequisites to information collection. (1) Determine that it has reasonable cause to believe that the financial market utility is, or is likely to become, systemically important, considering the standards set out in § 1320.10; or (2) Determine that it has reasonable cause to believe that the designated financial market utility is no longer, or is no longer likely to become, systemically important, considering the standards set out in § 1320.10; and (3) Coordinate with the Supervisory Agency for the financial market utility to determine if the information is available from, or may be obtained by, the Supervisory Agency in the form, format, or detail required by the Council. (c) Timing of response from the appropriate Supervisory Agency. (d) Notice to financial market utility of information collection requirement. (1) Written notice that the Council is considering whether to make a proposed determination under § 1320.12; and (2) A description of the basis for the Council's belief under paragraphs (b)(1) or (b)(2) of this section.