Financial Market Utilities, 14024-14029 [2013-04841]
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14024
Proposed Rules
Federal Register
Vol. 78, No. 42
Monday, March 4, 2013
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF ENERGY
10 CFR Part 431
[Docket No. EERE–2012–BT–STD–0029]
RIN 1904–AC82
Energy Efficiency Program for
Commercial and Industrial Equipment:
Public Meeting and Availability of the
Framework Document for Packaged
Terminal Air Conditioners and
Packaged Terminal Heat Pumps;
Correction
the public meeting. The public meeting
will now be held on Monday, March 18,
2013, beginning at 9 a.m.
The purpose of the meeting is to
discuss and receive comments on DOE’s
planned analytical approach and issues
it will address in initiating a rulemaking
and data collection process to consider
amending energy conservation
standards for this equipment.
Issued in Washington, DC, on February 26,
2013.
Kathleen B. Hogan,
Deputy Assistant Secretary for Energy
Efficiency, Energy Efficiency and Renewable
Energy.
[FR Doc. 2013–04878 Filed 3–1–13; 8:45 am]
BILLING CODE 6450–01–P
FEDERAL RESERVE SYSTEM
Office of Energy Efficiency and
Renewable Energy, DOE.
ACTION: Notice of public meeting and
availability of the framework document;
correction.
12 CFR Part 234
The U.S. Department of
Energy (DOE) published a notice in the
Federal Register on February 22, 2013,
concerning an announcement of a
public meeting and availability of the
framework document for packaged
terminal air conditioners and heat
pumps. This document corrects the date
of the public meeting.
FOR FURTHER INFORMATION CONTACT: Mr.
Ronald Majette, U.S. Department of
Energy, Office of Energy Efficiency and
Renewable Energy, Building
Technologies, EE–2J, 1000
Independence Avenue SW.,
Washington, DC 20585–0121.
Telephone: (202) 586–7935. Email:
PTACs@ee.doe.gov.
Ms. Jennifer Tiedeman, U.S.
Department of Energy, Office of the
General Counsel, GC–71, 1000
Independence Avenue SW.,
Washington, DC 20585–0121.
Telephone: (202) 287–6111. Email:
Jennifer.Tiedeman@hq.doe.gov.
Financial Market Utilities
AGENCY:
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SUMMARY:
Correction
DOE published a notice in the Federal
Register on February 22, 2013 (78 FR
12252), concerning an announcement of
a public meeting and availability of the
framework document for packaged
terminal air conditioners and heat
pumps. This notice corrects the date of
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[Regulation HH; Docket No. R–1455]
RIN No. 7100–AD 94
Board of Governors of the
Federal Reserve System.
ACTION: Notice of Proposed Rulemaking.
AGENCY:
Section 806(a) of the DoddFrank Wall Street Reform and Consumer
Protection Act (the ‘‘Dodd-Frank Act’’ or
‘‘Act’’) permits the Board of Governors
of the Federal Reserve System (the
‘‘Board’’) to authorize a Federal Reserve
Bank to establish and maintain an
account for, and through the account
provide certain financial services to,
financial market utilities (‘‘FMUs’’) that
are designated as systemically important
by the Financial Stability Oversight
Council (the ‘‘Council’’). In addition,
section 806(c) of the Dodd-Frank Act
permits a Reserve Bank to pay interest
on the balances maintained by or on
behalf of a designated FMU. The Board
is proposing to add two new sections to
Part 234 of Title 12 of the Code of
Federal Regulations to implement these
provisions of the Dodd-Frank Act.
DATES: Comments on this notice of
proposed rulemaking must be received
by May 3, 2013.
ADDRESSES: You may submit comments,
identified by Docket No. R–1455 and
RIN No. 7100–AD–94, by any of the
following methods:
SUMMARY:
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• Agency Web Site: https://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email:
regs.comments@federalreserve.gov.
Include the docket number in the
subject line of the message.
• Facsimile: (202) 452–3819 or (202)
452–3102.
• Mail: Robert deV. Frierson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue NW., Washington,
DC 20551.
All public comments are available
from the Board’s Web site at https://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons.
Accordingly, your comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper form in Room MP–500 of the
Board’s Martin Building (20th and C
Streets NW.) between 9 a.m. and 5 p.m.
on weekdays.
Jeff
Stehm, Senior Associate Director (202)
452–2217 or Stuart Sperry, Assistant
Director (202) 452–2832, Division of
Reserve Bank Operations and Payment
Systems; Christopher W. Clubb, Special
Counsel (202) 452–3904 or Kara L.
Handzlik, Counsel (202) 452–3852,
Legal Division; for users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
I. Background
A. Dodd-Frank Wall Street Reform and
Consumer Protection Act
FMUs, such as payment systems,
central securities depositories, and
central counterparties, are critical
components of the nation’s financial
system that provide the essential
infrastructure to clear and settle
payments and other financial
transactions, upon which the financial
markets and the broader economy rely
to function effectively. FMUs operate
multilateral systems in which financial
institutions, such as banks, participate
pursuant to a common set of rules and
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procedures, a technical infrastructure,
and a risk-management framework.1
Title VIII of the Dodd-Frank Act,
titled the ‘‘Payment, Clearing, and
Settlement Supervision Act of 2010,’’
was enacted to mitigate systemic risk in
the financial system and to promote
financial stability, in part, through an
enhanced supervisory framework for
FMUs designated as systemically
important by the Council.2 Designation
by the Council makes an FMU subject
to the supervisory and risk reduction
framework set out in Title VIII of the
Dodd-Frank Act. This framework
includes risk management standards,
promulgated by the designated FMU’s
Supervisory Agency, that take into
consideration relevant international
standards and existing prudential
requirements, with the objectives of
promoting robust risk management and
safety and soundness of the designated
FMU, reducing systemic risks, and
supporting the stability of the broader
financial system.3 The framework also
includes ex ante review of changes to
the rules, procedures, or operations of a
designated FMU that could materially
affect the nature or level of risk
presented by the designated FMU,
enhanced annual examinations of
designated FMUs, and enhanced
enforcement and information collection
provisions.
In addition to these provisions,
section 806(a) of the Act permits the
Board to authorize a Federal Reserve
Bank to establish and maintain an
1 Under section 803 of the Act, an FMU is defined
as a 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. 12
U.S.C. 5462(6).
2 The Dodd-Frank Act, Public Law 111–203, 124
Stat. 1376, was signed into law on July 21, 2010.
Section 803(9) of the Act authorizes the Council to
designate an FMU for enhanced supervision when
the Council finds, among other things, that the
failure of, or a disruption to the functioning of, an
FMU would create, or increase, the risk of
significant liquidity or credit problems spreading
among financial institutions or markets and thereby
threaten the stability of the financial system of the
United States. 12 U.S.C. 5462(3) and (9).
3 Pursuant to section 803(8) of the Act, the
‘‘Supervisory Agency’’ generally means the Federal
agency that has primary jurisdiction over a
designated FMU under Federal banking, securities,
or commodity futures law, including the Securities
and Exchange Commission (SEC) with respect to a
designated FMU that is a clearing agency registered
with the SEC, the Commodity Futures Trading
Commission (CFTC) with respect to a designated
FMU that is a derivatives clearing organization
registered with the CFTC, and the Board with
respect to a designated FMU that is an institution
subject to the Board’s jurisdiction as described in
section 3(q) of the Federal Deposit Insurance Act.
The Board is also the Supervisory Agency for any
designated FMU that is otherwise not subject to the
jurisdiction of any agency as listed in section 803(8)
of the Act.
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account for a designated FMU and
provide to the designated FMU the
services listed in section 11A(b) of the
Federal Reserve Act (12 U.S.C. 248a(b))
that the Federal Reserve Bank is
authorized to provide to a depository
institution, subject to any applicable
rules, orders, standards, or guidelines
prescribed by the Board.4 The services
listed in Section 11A(b) include wire
transfers, settlement, and securities
safekeeping, as well as services
regarding currency and coin, check
clearing and collection, and automated
clearing house transactions.
Section 806(c) of the Dodd-Frank Act
permits a Federal Reserve Bank to pay
earnings on balances maintained by or
on behalf of a designated FMU in the
same manner and to the same extent as
the Federal Reserve Bank may pay
earnings to a depository institution
under the Federal Reserve Act, subject
to any applicable rules, orders,
standards, or guidelines prescribed by
the Board.
II. Explanation of Proposed Rules
On August 2, 2012, the Board
published a final rule adding a new Part
234 to Title 12 of the Code of Federal
Regulations, Regulation HH, containing
risk management standards for
designated FMUs pursuant to section
805(a) of the Act, as well as an advance
notice requirement of any changes of a
designated FMU’s rules, procedures, or
operations that could materially affect
the nature or level of risks presented
pursuant to section 806(e) of the Act.5
The rules being proposed by this notice
would be added to the end of Regulation
HH. The Board is requesting public
comment on all aspects of the proposed
amendments to Regulation HH
contained in this notice.
A. Proposed § 234.1(b)—Authority,
Purpose, and Scope
The amendments proposed by this
notice to § 234.1(b) of Regulation HH
clarify that Part 234 also includes
standards, restrictions, and guidelines
for the establishment and maintenance
of an account at, and provision of
financial services from, a Federal
Reserve Bank for a designated FMU. In
addition, the proposed amendments
clarify the authority and terms for a
Reserve Bank to pay interest on any
balances held by a designated FMU in
its account at a Reserve Bank. The Board
requests comment on whether these
4 Section 806(a) of the Act also permits the Board
to authorize a Reserve Bank to establish deposit
accounts under the first undesignated paragraph of
section 13 of the Federal Reserve Act (12 U.S.C.
342).
5 77 FR 45907.
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additions to the purpose and scope
provisions of Regulation HH are
sufficient and clear for the proposed
rules herein.6
B. Proposed § 234.6—Access to Reserve
Bank Accounts and Services
Proposed § 234.6 sets out the
conditions and requirements for a
Federal Reserve Bank to establish and
maintain an account for, and provide
services to, a designated FMU pursuant
to section 806(a) of the Act. The
proposed terms and conditions for
access to Federal Reserve Bank accounts
and services are intended to facilitate
the use of Reserve Bank accounts and
services by a designated FMU in order
to reduce settlement risk and strengthen
settlement processes, while limiting the
risk presented by the designated FMU to
the Reserve Banks. In particular, the
proposed terms and conditions are
designed to provide the Federal Reserve
with sufficient information to assess a
designated FMU’s ongoing condition as
it pertains to the FMU’s ability to settle
promptly and to manage its settlement
process and Reserve Bank account(s)
safely. Proposed § 234.6(a) provides
that, after receiving the Board’s
authorization with respect to a
particular designated FMU and subject
to any applicable Board direction, the
Reserve Bank may enter into agreements
governing the details of the
establishment, maintenance, and
operation of such account and services,
consistent with Board direction.
The Board expects that Reserve Banks
would provide services that are
consistent with a designated FMU’s
need for safe and sound settlement
processes under account and service
agreements generally consistent with
the provisions of existing Reserve Bank
operating circulars for such services, but
recognizes that there may be a need for
some flexibility to tailor certain parts of
such agreements or provide for certain
restrictions because of the wide variety
of organizations, operations, and
business models presented by
designated FMUs. In addition, unlike
depository institutions, designated
FMUs do not have regular access to
discount window lending, so the Board
also expects that Reserve Banks will
provide accounts and services, and
designated FMUs will structure their
settlement processes and use of Reserve
Bank accounts and services, in a manner
that would seek to avoid any intraday
account overdraft, and that a designated
6 Section 234.1(a) of Regulation HH already cites
to section 806 of the Dodd-Frank Act, so the rules
proposed by this notice would not require any
modification of the authority citation.
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Federal Register / Vol. 78, No. 42 / Monday, March 4, 2013 / Proposed Rules
FMU would have the resources to
promptly rectify any inadvertent
overdraft.
Proposed § 234.6(b) requires that a
Reserve Bank ensure that its
establishment and maintenance of an
account for, or provision of services to,
a designated FMU does not create
undue credit, settlement, or other risks
to the Reserve Bank and, in this regard,
sets out minimum conditions that a
designated FMU must meet, in the
Reserve Bank’s judgment, in order for
the Reserve Bank to establish and
maintain an account for, or provide
services to, a designated FMU. These
minimum conditions are intended to
address certain risks and other concerns
that may face a Reserve Bank when
establishing and maintaining an account
for, and providing services to, a
designated FMU.7 The Reserve Bank
must determine whether a designated
FMU meets these minimum conditions
and then determine, based on the facts
and circumstances, whether additional
measures or information are needed to
address the risk presented by the
designated FMU to the Reserve Bank.
The minimum requirements for
establishing an account or receiving
services set out in proposed
§ 234.6(b)(1) through (4) are discussed
below.
Proposed § 234.6(b)(1) requires the
designated FMU to be in generally
sound financial condition. Although
there are a number of criteria that may
be used to determine financial
soundness, in general a designated FMU
should maintain adequate capital to
support its ongoing operations and
absorb reasonable business losses and
have sufficient operating revenue and
working capital to cover its actual and
projected operating expenses, giving
due regard to the economic conditions
and circumstances in the market in
which the designated FMU operates.
These resources would be separate and
in addition to resources held to cover
participant defaults that may arise
through a designated FMU’s payment,
clearing, or settlement activities.
Proposed § 234.6(b)(2) requires the
designated FMU to be in compliance,
based on information provided by the
Supervisory Agency, with requirements
imposed by its Supervisory Agency
regarding financial resources, liquidity,
participant default management, and
7 Risks to the Reserve Bank may include the
potential for inadvertent overdrafts in certain
circumstances, as well as the risks that may arise
from new or different FMU settlement designs or
processes that may arise in the future. The
establishment of an account for a designated FMU
at a Reserve Bank also may entail broader policy
considerations and implications.
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other aspects of risk management. The
three agencies that currently serve as
Supervisory Agencies (i.e., the Board,
the Securities and Exchange
Commission, and the Commodity
Futures Trading Commission) have
promulgated risk management standards
that would be applicable to the FMUs
that have been designated by the
Council. As noted in proposed
§ 234.6(d), the Board will consult with
the Supervisory Agency of a designated
FMU prior to authorizing a Federal
Reserve Bank to open an account to
ascertain the views of the Supervisory
Agency regarding, among other things,
the designated FMU’s compliance with
the Supervisory Agency’s risk
management standards. At a minimum,
the designated FMU should meet its
Supervisory Agency’s mandatory risk
management standards.
Proposed § 234.6(b)(3) requires that a
designated FMU be in compliance with
Board orders and policies, Federal
Reserve Bank operating circulars, and
other applicable Federal Reserve
requirements regarding the
establishment and maintenance of a
Reserve Bank account and the receipt of
financial services from a Reserve Bank.
A designated FMU will be expected to
use Reserve Bank financial services,
through its Reserve Bank account, in
accordance with any applicable
operating circular or Federal Reserve
policy, as directed by the Reserve Bank.
Proposed § 234.6(b)(4) requires the
Reserve Bank to determine that the
designated FMU can demonstrate an
ongoing ability, including during
periods of market stress or a participant
default, to meet all of its obligations
under its agreement for a Federal
Reserve Bank account and services. As
noted above, designated FMUs would be
expected to demonstrate an operational
ability to avoid intraday overdrafts in its
Reserve Bank account and have the
financial resources to promptly rectify
any inadvertent overdrafts if they were
to occur.
Proposed § 234.6 also contains other
provisions relevant to the establishment
and maintenance of an account or
provision of financial services by a
Reserve Bank for a designated FMU.
Proposed § 234.6(c) states that the Board
or the relevant Reserve Bank may
request that the designated FMU
provide any information necessary
regarding compliance with any
conditions imposed under proposed
§ 234.6. The designated FMU would
also be required to provide any
verification that the Board or the
Reserve Bank requests regarding
information received under this section.
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Proposed § 234.6(d) states that the
Board will consult with the Supervisory
Agency of a designated FMU prior to
authorizing a Reserve Bank to open an
account, and periodically thereafter, to
ascertain the views of the Supervisory
Agency regarding the condition of the
designated FMU and its compliance
with the requirements of proposed
§ 234.6, as well as to coordinate
information requests to the designated
FMU. For designated FMUs not
supervised by the Board, the Board
anticipates obtaining the views of the
designated FMU’s Supervisory Agency
regarding the use of a Reserve Bank
account and services and any concerns
the Supervisory Agency may have with
respect to the designated FMU. If a
Reserve Bank account is established for
the designated FMU, the Board expects
that there will be an ongoing dialogue
with the Supervisory Agency regarding
the designated FMU’s use of the account
and services and its compliance with
any conditions imposed under proposed
§ 234.6 with regard to the account or
services. The Board also anticipates
coordinating any information requests it
may have for the designated FMU with
the Supervisory Agency in order to
reduce regulatory burden on the
designated FMU.
Proposed § 234.6(e) states that, in
addition to any right that a Reserve
Bank has to terminate an account or the
use of a service pursuant to an
agreement, the Board may direct the
Reserve Bank to impose limits,
restrictions, or other conditions on the
availability or use of a Reserve Bank
account or service by a designated FMU,
including directing the Reserve Bank to
terminate the use of a particular service
or to close the account. The Reserve
Bank, on its own initiative or at the
direction of the Board, may close the
account if significant issues are raised
and not resolved in areas such as
excessive risk to the Reserve Bank,
violation of Federal Reserve rules or
policies, violation of other applicable
law or regulation, or other compliance
issues.
The Board requests comment on all
aspects of proposed § 234.6. In
particular, the Board requests comment
on the conditions for establishing an
account at a Reserve Bank provided in
proposed § 234.6(b) and whether there
are any other conditions that should be
imposed in order to accomplish the
Board’s goals of reducing settlement and
systemic risks and strengthening the
settlement processes of designated
FMUs through the use of Reserve Bank
accounts and services, while limiting
risk to the Reserve Banks.
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C. Proposed § 234.7—Interest on
Balances
Pursuant to section 806(c) of the Act,
proposed § 234.7 clarifies the authority
of a Federal Reserve Bank to pay interest
on any balance that a designated FMU
maintains in its account with that
Reserve Bank. Section 806(c) of the Act
states that a Reserve Bank may pay
earnings on balances maintained by a
designated FMU ‘‘in the same manner
and to the same extent as the Federal
Reserve Bank may pay earnings to a
depository institution under the Federal
Reserve Act, subject to any applicable
rules, orders, standards, or guidelines
prescribed by the Board of Governors.’’ 8
Section 19(b)(12) of the Federal Reserve
Act (FRA) authorizes a Federal Reserve
Bank to pay, at least once each calendar
quarter, interest on balances maintained
at the Federal Reserve Bank by or on
behalf of a depository institution, at a
rate or rates not to exceed the general
level of short-term interest rates.9
Proposed § 234.7(a) provides that a
Federal Reserve Bank may pay interest
on balances maintained by a designated
FMU in its account at the Reserve Bank
in accordance with the provisions of
proposed § 234.7 and under such other
terms and conditions as the Board may
prescribe. This subsection essentially
incorporates the statutory authority
provided by section 806(c) of the Act.
Proposed § 234.7(b) states that interest
on balances paid under this section
shall be at the rate paid on balances of
depository institutions or another rate
determined by the Board from time to
time, not to exceed the general level of
‘‘short-term interest rates.’’ Proposed
§ 234.7(c) incorporates the definition of
‘‘short-term interest rates’’ set out in
§ 204.10(b)(3) of the Board’s Regulation
D, which states that ‘‘short-term interest
rates’’ are rates on obligations with
maturities of no more than one year,
such as the primary credit rate and rates
on term federal funds, term repurchase
agreements, commercial paper, term
Eurodollar deposits, and other similar
instruments.10
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III. Administrative Law Matters
A. Regulatory Flexibility Act Analysis
Congress enacted the Regulatory
Flexibility Act (the ‘‘RFA’’) (5 U.S.C.
601 et seq.) to address concerns related
to the effects of agency rules on small
entities, and the Board is sensitive to the
impact their rules may impose on small
entities. The RFA requires agencies
8 12
U.S.C. 5465(c).
U.S.C. 461(b)(12)(A). This statutory authority
has been implemented through § 204.10 of the
Board’s Regulation D. 12 CFR 204.10.
10 12 CFR 204.10(b)(3).
9 12
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either to provide an initial regulatory
flexibility analysis with a proposed rule
or to certify that the proposed rule will
not have a significant economic impact
on a substantial number of small
entities. In accordance with section 3(a)
of the RFA, the Board has reviewed the
proposed regulation. In this case, the
proposed rule would apply to FMUs
that are designated by the Council as
systemically important to the U.S.
financial system. Based on current
information, the Board believes that the
FMUs that have been and would likely
be designated by the Council would not
be ‘‘small entities’’ for purposes of the
RFA, and so, the proposed rule likely
would not have a significant economic
impact on a substantial number of small
entities (5 U.S.C. 605(b)). The authority
to designate systemically important
FMUs, however, resides with the
Council, rather than the Board, and the
Board cannot therefore be assured of the
identity of the FMUs that the Council
may designate in the future.
Accordingly, an Initial Regulatory
Flexibility Analysis has been prepared
in accordance with 5 U.S.C. 603, based
on current information. The Board
requests comment on all aspects of this
Initial Regulatory Flexibility Analysis.
The Board will, if necessary, conduct a
final regulatory flexibility analysis after
consideration of comments received
during the public comment period.
1. Statement of the need for,
objectives of, and legal basis for, the
proposed rule. The Board is proposing
additional regulations to implement
certain provisions of Title VIII of the
Dodd-Frank Act. Pursuant to section
806(a) of the Act, proposed § 234.6 sets
out conditions under which the Board
would authorize a Federal Reserve Bank
to establish and maintain an account for
a designated FMU and provide the
designated FMU services through the
account. Pursuant to section 806(c) of
the Dodd-Frank Act, proposed § 234.7
sets out conditions for a Reserve Bank
to pay interest on the balances
maintained by a designated FMU at the
Reserve Banks.
Under section 806 of the Act, all of
these authorities are subject to any
applicable rules or regulations that the
Board may prescribe. The Board
believes that the proposed regulations
herein are necessary to provide
guidance to the Federal Reserve Banks
in implementing these authorities of the
Act in an appropriate and uniform
manner and to inform the affected
institutions and the public of the
conditions for obtaining accounts and
services.
2. Small entities affected by the
proposed rule. The proposed rule would
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affect FMUs that the Council designates
as systemically important to the U.S.
financial system. The Council has
designated eight FMUs that would meet
these conditions and be affected by this
proposed rule. Pursuant to regulations
issued by the Small Business
Administration (the ‘‘SBA’’) (13 CFR
121.201), a ‘‘small entity’’ includes an
establishment engaged in (i) financial
transaction processing, reserve and
liquidity services, and/or clearinghouse
services with an average revenue of $7
million or less (NAICS code 522320); (ii)
securities and/or commodity exchange
activities with an average revenue of $7
million or less (NAICS code 523210);
and (iii) trust, fiduciary, and/or custody
activities with an average revenue of $7
million or less (NAICS code 523991).
Based on current information, the Board
does not believe that any of the FMUs
that have been or would likely be
designated by the Council would be
‘‘small entities’’ pursuant to the SBA
regulation.
3. Projected reporting, recordkeeping,
and other compliance requirements.
The proposed rule imposes certain
reporting, recordkeeping, and other
compliance requirements for a
designated FMU. For example, proposed
§ 234.6(b)(1) requires the designated
FMU to be in generally sound financial
condition. In addition, proposed
§ 234.6(b)(4) requires a designated FMU
to demonstrate an ongoing ability,
including during periods of market
stress or a participant default, to meet
all of its obligations under its agreement
for a Reserve Bank account and services.
Proposed § 234.6(c) also clarifies that
the Board or Reserve Bank may request
a designated FMU to provide any
information or verification necessary to
determine compliance with any
conditions imposed under proposed
§ 234.6.
4. Identification of duplicative,
overlapping, or conflicting Federal
rules. The Board does not believe that
any Federal rules conflict with the
proposed rules. Certain entities that are
designated FMUs under Title VIII of the
Act may maintain an account with a
Reserve Bank under other statutory
authority, such as an entity that is
chartered as a depository institution,
state member bank, or Edge corporation.
This rulemaking would provide
additional authority for the entity to
establish and maintain an account at a
Reserve Bank and, arguably, be
duplicative or overlapping with such
other authority. This rulemaking would
not, however, create any conflicting
requirements for a designated FMU that
is permitted to maintain an account
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Federal Register / Vol. 78, No. 42 / Monday, March 4, 2013 / Proposed Rules
with a Reserve Bank under multiple
sources of authority.
5. Significant alternatives to the
proposed rule. In lieu of the proposed
rules, the Board could have proposed
fewer or less stringent conditions on
designated FMUs. The Board believes,
however, that the proposed rules are
necessary to address risk to the Reserve
Banks in offering accounts and services
and that the information required from
designated FMUs under the proposed
rules is needed to mitigate such risks. In
addition, the Board does not believe that
providing fewer or less stringent
conditions for designated FMUs that are
small entities would achieve the
regulation’s purpose because the risks to
the Reserve Banks are the same
regardless of whether the designated
FMU is a small entity. The Board also
considered a more expansive list of
detailed conditions, but decided instead
to set the overall standard as avoiding
undue risk to the Reserve Bank, while
providing a limited number of
minimum requirements in meeting that
standard. As noted above, the proposed
rules provide some flexibility to the
Reserve Bank in determining whether
any additional measures are necessary
to mitigate the risks presented by that
designated FMU, given the facts and
circumstances of the designated FMU
seeking the account or services.
B. Paperwork Reduction Act Analysis
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR 1320, Appendix A.1), the Board
reviewed the proposed rule under the
authority delegated to the Board by the
Office of Management and Budget. The
proposed rule contains no requirements
subject to the PRA.
IV. Statutory Authority
Pursuant to the authority in Title VIII
of the Dodd-Frank Act and particularly
sections 806(a) and (b) (12 U.S.C.
5465(a) and (b)), the Board proposes two
new sections to part 234 (Regulation
HH).
List of Subjects in 12 CFR Part 234
Banks, Banking, Commodity futures,
Credit, Electronic funds transfers,
Financial market utilities, Securities.
sroberts on DSK5SPTVN1PROD with PROPOSALS
Authority and Issuance
For the reasons set forth in the
preamble, the Board proposes to amend
12 CFR Chapter II as set forth below.
PART 234—DESIGNATED FINANCIAL
MARKET UTILITIES (REGULATION HH)
1. The authority citation for part 234
continues to read as follows:
■
VerDate Mar<15>2010
15:55 Mar 01, 2013
Jkt 229001
Authority: 12 U.S.C. 5461 et seq.
2. Amend § 234.1 by revising
paragraph (b) to read as follows:
■
§ 234.1
Authority, purpose, and scope.
*
*
*
*
*
(b) Purpose and scope. This part
establishes risk-management standards
governing the operations related to the
payment, clearing, and settlement
activities of designated financial market
utilities. In addition, this part sets out
requirements and procedures for a
designated financial market utility that
proposes to make a change to its rules,
procedures, or operations that could
materially affect the nature or level of
risks presented by the designated
financial market utility and for which
the Board is the Supervisory Agency (as
defined below). The risk management
standards do not apply, however, to a
designated financial market utility that
is a derivatives clearing organization
registered under section 5b of the
Commodity Exchange Act (7 U.S.C.
7a–1) or a clearing agency registered
with the Securities and Exchange
Commission under section 17A of the
Securities Exchange Act of 1934 (15
U.S.C. 78q–1), which are governed by
the risk-management standards
promulgated by the Commodity Futures
Trading Commission or the Securities
and Exchange Commission,
respectively, for which each is the
Supervisory Agency. This part also sets
out standards, restrictions, and
guidelines regarding a Federal Reserve
Bank establishing and maintaining an
account for, and providing services to,
a designated financial market utility. In
addition, this part confirms the terms
under which a Reserve Bank may pay a
designated financial market utility
interest on the designated financial
market utility’s balances held at the
Reserve Bank.
■ 3. Add §§ 234.6 and 234.7 to read as
follows:
§ 234.6 Access to Federal Reserve Bank
accounts and services.
(a) This section applies to any
designated financial market utility for
which the Board may authorize a
Federal Reserve Bank to open an
account or provide services in
accordance with section 806(a) of the
Dodd-Frank Act. Upon receipt of Board
authorization and subject to any
limitations, restrictions, or other
requirements established by the Board,
a Federal Reserve Bank may enter into
agreements governing the details of its
accounts and services with a designated
financial market utility, consistent with
this section and any other applicable
Board direction.
PO 00000
Frm 00005
Fmt 4702
Sfmt 4702
(b) A Federal Reserve Bank should
ensure that its establishment and
maintenance of an account for or
provision of services to a designated
financial market utility does not create
undue credit, settlement, or other risk to
the Reserve Bank. At a minimum, to
establish and maintain an account with
a Federal Reserve Bank or receive
financial services from a Federal
Reserve Bank, a designated financial
market utility must, in the Federal
Reserve Bank’s judgment—
(1) Be in generally sound financial
condition;
(2) Be in compliance, based on
information provided by the
Supervisory Agency, with requirements
imposed by its Supervisory Agency
regarding financial resources, liquidity,
participant default management, and
other aspects of risk management;
(3) Be in compliance with Board
orders and policies, Federal Reserve
Bank operating circulars, and other
applicable Federal Reserve requirements
regarding the establishment and
maintenance of an account at a Federal
Reserve Bank and the receipt of
financial services from a Federal
Reserve Bank; and
(4) Demonstrate an ongoing ability,
including during periods of market
stress or a participant default, to meet
all of its obligations under its agreement
for a Federal Reserve Bank account and
services.
(c) The Board or Federal Reserve Bank
may request that the designated
financial market utility provide any
information or verification necessary
regarding compliance with any
conditions imposed under this section.
(d) The Board will consult with the
Supervisory Agency of a designated
financial market utility prior to
authorizing a Federal Reserve Bank to
open an account, and periodically
thereafter, to ascertain the views of the
Supervisory Agency regarding the
condition of the designated financial
market utility and compliance with the
requirements of this section or to
coordinate information requests.
(e) In addition to any right that a
Reserve Bank has to terminate an
account or the use of a service pursuant
to an agreement, the Board may direct
the Federal Reserve Bank to impose
limits, restrictions, or other conditions
on the availability or use of a Federal
Reserve Bank account or service by a
designated financial market utility,
including directing the Reserve Bank to
terminate the use of a particular service
or to close the account.
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Federal Register / Vol. 78, No. 42 / Monday, March 4, 2013 / Proposed Rules
§ 234.7
Interest on balances.
By order of the Board of Governors of the
Federal Reserve System, February 26, 2013.
Robert deV. Frierson,
Secretary to the Board.
[FR Doc. 2013–04841 Filed 3–1–13; 8:45 am]
BILLING CODE 6210–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2013–0096; Directorate
Identifier 2012–NM–143–AD]
Examining the AD Docket
RIN 2120–AA64
Airworthiness Directives; Airbus
Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of Proposed Rulemaking
(NPRM).
AGENCY:
We propose to adopt a new
airworthiness directive (AD) for certain
Airbus Model A318–112, A319–111,
A319–112, A319–115, A319–132, and
A319–133 airplanes. This proposed AD
was prompted by a report that a
fastener, which connects the cargo door
keel beam foot to the circumferential
butt-strap and the section 13–14 lower
shell panel, was not installed on
airplanes during production. This
proposed AD would require inspecting
forward fuselage frame 24, stringer 39,
right hand, to determine if the fastener
is missing; measuring the hole
dimensions of the five holes
surrounding the missing fastener if
necessary; and related investigative and
corrective actions if necessary. We are
proposing this AD to detect and correct
the missing fastener, which could result
in reduced structural integrity of the
airplane.
sroberts on DSK5SPTVN1PROD with PROPOSALS
SUMMARY:
VerDate Mar<15>2010
15:55 Mar 01, 2013
We must receive comments on
this proposed AD by April 18, 2013.
ADDRESSES: You may send comments by
any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: (202) 493–2251.
• Mail: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE.,
Washington, DC 20590.
• Hand Delivery: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE.,
Washington, DC, between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
For service information identified in
this proposed AD, contact Airbus,
Airworthiness Office—EAS, 1 Rond
Point Maurice Bellonte, 31707 Blagnac
Cedex, France; telephone +33 5 61 93 36
96; fax +33 5 61 93 44 51; email
account.airworth-eas@airbus.com;
Internet https://www.airbus.com. You
may review copies of the referenced
service information at the FAA,
Transport Airplane Directorate, 1601
Lind Avenue SW., Renton, WA. For
information on the availability of this
material at the FAA, call 425–227–1221.
DATES:
(a) A Federal Reserve Bank may pay
interest on balances maintained by a
designated financial market utility at the
Federal Reserve Bank in accordance
with this section and under such other
terms and conditions as the Board may
prescribe.
(b) Interest on balances paid under
this section shall be at the rate paid on
balances maintained by depository
institutions or another rate determined
by the Board from time to time, not to
exceed the general level of short-term
interest rates.
(c) For purposes of this section,
‘‘short-term interest rates’’ shall have
the same meaning as the meaning
provided for that term in § 204.10(b)(3)
of this chapter.
Jkt 229001
You may examine the AD docket on
the Internet at https://
www.regulations.gov; or in person at the
Docket Operations office between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket
contains this proposed AD, the
regulatory evaluation, any comments
received, and other information. The
street address for the Docket Operations
office (telephone (800) 647–5527) is in
the ADDRESSES section. Comments will
be available in the AD docket shortly
after receipt.
FOR FURTHER INFORMATION CONTACT:
Sanjay Ralhan, Aerospace Engineer,
International Branch, ANM–116,
Transport Airplane Directorate, FAA,
1601 Lind Avenue SW., Renton,
Washington 98057–3356; telephone
(425) 227–1405; fax (425) 227–1149.
SUPPLEMENTARY INFORMATION:
Comments Invited
We invite you to send any written
relevant data, views, or arguments about
this proposed AD. Send your comments
to an address listed under the
ADDRESSES section. Include ‘‘Docket No.
FAA–2013–0096; Directorate Identifier
2012–NM–143–AD’’ at the beginning of
your comments. We specifically invite
PO 00000
Frm 00006
Fmt 4702
Sfmt 4702
14029
comments on the overall regulatory,
economic, environmental, and energy
aspects of this proposed AD. We will
consider all comments received by the
closing date and may amend this
proposed AD based on those comments.
We will post all comments we
receive, without change, to https://
www.regulations.gov, including any
personal information you provide. We
will also post a report summarizing each
substantive verbal contact we receive
about this proposed AD.
Discussion
The European Aviation Safety Agency
(EASA), which is the Technical Agent
for the Member States of the European
Community, has issued EASA
Airworthiness Directive 2012–0132,
dated July 19, 2012 (referred to after this
as the Mandatory Continuing
Airworthiness Information, or ‘‘the
MCAI’’), to correct an unsafe condition
for the specified products. The MCAI
states:
During a ground inspection of an A319
aeroplane in production, it was discovered
that one fastener was missing at stringer
(STGR) 39 on the right-hand (RH) side of FR
[forward fuselage frame] 24 (Section 13–14
side). The hole of the missing fastener was
not drilled. The missing fastener, a 4.8 mm
[millimeter] diameter titanium bolt, Part
Number (P/N) EN 6114 V3–7, should connect
the cargo door keel beam foot to the
circumferential butt-strap and the section 13–
14 lower shell panel. Further investigations
have revealed that the affected fastener has
not been installed on a limited number of
aeroplanes in production, due to incorrect
production instructions.
This condition, if not corrected, could
impair the structural integrity of the affected
aeroplanes.
*
*
*
*
*
The required actions include doing a
detailed inspection to determine if the
fastener is missing, measuring the hole
dimensions of the five holes
surrounding the missing fastener if
necessary, and related investigative and
corrective actions if necessary. The
related investigative actions include a
rototest inspection of the five holes for
cracking. The corrective actions include
repairing any holes with diameter
values that exceed the specified
dimensions, repairing any cracking
found, and installing new fasteners. You
may obtain further information by
examining the MCAI in the AD docket.
Relevant Service Information
Airbus has issued Service Bulletin
A320–53–1242, including Appendix 01,
dated May 22, 2012. The actions
described in this service information are
intended to correct the unsafe condition
identified in the MCAI.
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]]>Agencies
[Federal Register Volume 78, Number 42 (Monday, March 4, 2013)]
[Proposed Rules]
[Pages 14024-14029]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-04841]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 234
[Regulation HH; Docket No. R-1455]
RIN No. 7100-AD 94
Financial Market Utilities
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of Proposed Rulemaking.
-----------------------------------------------------------------------
SUMMARY: Section 806(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ``Dodd-Frank Act'' or ``Act'') permits the
Board of Governors of the Federal Reserve System (the ``Board'') to
authorize a Federal Reserve Bank to establish and maintain an account
for, and through the account provide certain financial services to,
financial market utilities (``FMUs'') that are designated as
systemically important by the Financial Stability Oversight Council
(the ``Council''). In addition, section 806(c) of the Dodd-Frank Act
permits a Reserve Bank to pay interest on the balances maintained by or
on behalf of a designated FMU. The Board is proposing to add two new
sections to Part 234 of Title 12 of the Code of Federal Regulations to
implement these provisions of the Dodd-Frank Act.
DATES: Comments on this notice of proposed rulemaking must be received
by May 3, 2013.
ADDRESSES: You may submit comments, identified by Docket No. R-1455 and
RIN No. 7100-AD-94, by any of the following methods:
Agency Web Site: https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: regs.comments@federalreserve.gov. Include the
docket number in the subject line of the message.
Facsimile: (202) 452-3819 or (202) 452-3102.
Mail: Robert deV. Frierson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments are available from the Board's Web site at
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Jeff Stehm, Senior Associate Director
(202) 452-2217 or Stuart Sperry, Assistant Director (202) 452-2832,
Division of Reserve Bank Operations and Payment Systems; Christopher W.
Clubb, Special Counsel (202) 452-3904 or Kara L. Handzlik, Counsel
(202) 452-3852, Legal Division; for users of Telecommunications Device
for the Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
A. Dodd-Frank Wall Street Reform and Consumer Protection Act
FMUs, such as payment systems, central securities depositories, and
central counterparties, are critical components of the nation's
financial system that provide the essential infrastructure to clear and
settle payments and other financial transactions, upon which the
financial markets and the broader economy rely to function effectively.
FMUs operate multilateral systems in which financial institutions, such
as banks, participate pursuant to a common set of rules and
[[Page 14025]]
procedures, a technical infrastructure, and a risk-management
framework.\1\
---------------------------------------------------------------------------
\1\ Under section 803 of the Act, an FMU is defined as a 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. 12 U.S.C. 5462(6).
---------------------------------------------------------------------------
Title VIII of the Dodd-Frank Act, titled the ``Payment, Clearing,
and Settlement Supervision Act of 2010,'' was enacted to mitigate
systemic risk in the financial system and to promote financial
stability, in part, through an enhanced supervisory framework for FMUs
designated as systemically important by the Council.\2\ Designation by
the Council makes an FMU subject to the supervisory and risk reduction
framework set out in Title VIII of the Dodd-Frank Act. This framework
includes risk management standards, promulgated by the designated FMU's
Supervisory Agency, that take into consideration relevant international
standards and existing prudential requirements, with the objectives of
promoting robust risk management and safety and soundness of the
designated FMU, reducing systemic risks, and supporting the stability
of the broader financial system.\3\ The framework also includes ex ante
review of changes to the rules, procedures, or operations of a
designated FMU that could materially affect the nature or level of risk
presented by the designated FMU, enhanced annual examinations of
designated FMUs, and enhanced enforcement and information collection
provisions.
---------------------------------------------------------------------------
\2\ The Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376, was
signed into law on July 21, 2010. Section 803(9) of the Act
authorizes the Council to designate an FMU for enhanced supervision
when the Council finds, among other things, that the failure of, or
a disruption to the functioning of, an FMU would create, or
increase, the risk of significant liquidity or credit problems
spreading among financial institutions or markets and thereby
threaten the stability of the financial system of the United States.
12 U.S.C. 5462(3) and (9).
\3\ Pursuant to section 803(8) of the Act, the ``Supervisory
Agency'' generally means the Federal agency that has primary
jurisdiction over a designated FMU under Federal banking,
securities, or commodity futures law, including the Securities and
Exchange Commission (SEC) with respect to a designated FMU that is a
clearing agency registered with the SEC, the Commodity Futures
Trading Commission (CFTC) with respect to a designated FMU that is a
derivatives clearing organization registered with the CFTC, and the
Board with respect to a designated FMU that is an institution
subject to the Board's jurisdiction as described in section 3(q) of
the Federal Deposit Insurance Act. The Board is also the Supervisory
Agency for any designated FMU that is otherwise not subject to the
jurisdiction of any agency as listed in section 803(8) of the Act.
---------------------------------------------------------------------------
In addition to these provisions, section 806(a) of the Act permits
the Board to authorize a Federal Reserve Bank to establish and maintain
an account for a designated FMU and provide to the designated FMU the
services listed in section 11A(b) of the Federal Reserve Act (12 U.S.C.
248a(b)) that the Federal Reserve Bank is authorized to provide to a
depository institution, subject to any applicable rules, orders,
standards, or guidelines prescribed by the Board.\4\ The services
listed in Section 11A(b) include wire transfers, settlement, and
securities safekeeping, as well as services regarding currency and
coin, check clearing and collection, and automated clearing house
transactions.
---------------------------------------------------------------------------
\4\ Section 806(a) of the Act also permits the Board to
authorize a Reserve Bank to establish deposit accounts under the
first undesignated paragraph of section 13 of the Federal Reserve
Act (12 U.S.C. 342).
---------------------------------------------------------------------------
Section 806(c) of the Dodd-Frank Act permits a Federal Reserve Bank
to pay earnings on balances maintained by or on behalf of a designated
FMU in the same manner and to the same extent as the Federal Reserve
Bank may pay earnings to a depository institution under the Federal
Reserve Act, subject to any applicable rules, orders, standards, or
guidelines prescribed by the Board.
II. Explanation of Proposed Rules
On August 2, 2012, the Board published a final rule adding a new
Part 234 to Title 12 of the Code of Federal Regulations, Regulation HH,
containing risk management standards for designated FMUs pursuant to
section 805(a) of the Act, as well as an advance notice requirement of
any changes of a designated FMU's rules, procedures, or operations that
could materially affect the nature or level of risks presented pursuant
to section 806(e) of the Act.\5\ The rules being proposed by this
notice would be added to the end of Regulation HH. The Board is
requesting public comment on all aspects of the proposed amendments to
Regulation HH contained in this notice.
---------------------------------------------------------------------------
\5\ 77 FR 45907.
---------------------------------------------------------------------------
A. Proposed Sec. 234.1(b)--Authority, Purpose, and Scope
The amendments proposed by this notice to Sec. 234.1(b) of
Regulation HH clarify that Part 234 also includes standards,
restrictions, and guidelines for the establishment and maintenance of
an account at, and provision of financial services from, a Federal
Reserve Bank for a designated FMU. In addition, the proposed amendments
clarify the authority and terms for a Reserve Bank to pay interest on
any balances held by a designated FMU in its account at a Reserve Bank.
The Board requests comment on whether these additions to the purpose
and scope provisions of Regulation HH are sufficient and clear for the
proposed rules herein.\6\
---------------------------------------------------------------------------
\6\ Section 234.1(a) of Regulation HH already cites to section
806 of the Dodd-Frank Act, so the rules proposed by this notice
would not require any modification of the authority citation.
---------------------------------------------------------------------------
B. Proposed Sec. 234.6--Access to Reserve Bank Accounts and Services
Proposed Sec. 234.6 sets out the conditions and requirements for a
Federal Reserve Bank to establish and maintain an account for, and
provide services to, a designated FMU pursuant to section 806(a) of the
Act. The proposed terms and conditions for access to Federal Reserve
Bank accounts and services are intended to facilitate the use of
Reserve Bank accounts and services by a designated FMU in order to
reduce settlement risk and strengthen settlement processes, while
limiting the risk presented by the designated FMU to the Reserve Banks.
In particular, the proposed terms and conditions are designed to
provide the Federal Reserve with sufficient information to assess a
designated FMU's ongoing condition as it pertains to the FMU's ability
to settle promptly and to manage its settlement process and Reserve
Bank account(s) safely. Proposed Sec. 234.6(a) provides that, after
receiving the Board's authorization with respect to a particular
designated FMU and subject to any applicable Board direction, the
Reserve Bank may enter into agreements governing the details of the
establishment, maintenance, and operation of such account and services,
consistent with Board direction.
The Board expects that Reserve Banks would provide services that
are consistent with a designated FMU's need for safe and sound
settlement processes under account and service agreements generally
consistent with the provisions of existing Reserve Bank operating
circulars for such services, but recognizes that there may be a need
for some flexibility to tailor certain parts of such agreements or
provide for certain restrictions because of the wide variety of
organizations, operations, and business models presented by designated
FMUs. In addition, unlike depository institutions, designated FMUs do
not have regular access to discount window lending, so the Board also
expects that Reserve Banks will provide accounts and services, and
designated FMUs will structure their settlement processes and use of
Reserve Bank accounts and services, in a manner that would seek to
avoid any intraday account overdraft, and that a designated
[[Page 14026]]
FMU would have the resources to promptly rectify any inadvertent
overdraft.
Proposed Sec. 234.6(b) requires that a Reserve Bank ensure that
its establishment and maintenance of an account for, or provision of
services to, a designated FMU does not create undue credit, settlement,
or other risks to the Reserve Bank and, in this regard, sets out
minimum conditions that a designated FMU must meet, in the Reserve
Bank's judgment, in order for the Reserve Bank to establish and
maintain an account for, or provide services to, a designated FMU.
These minimum conditions are intended to address certain risks and
other concerns that may face a Reserve Bank when establishing and
maintaining an account for, and providing services to, a designated
FMU.\7\ The Reserve Bank must determine whether a designated FMU meets
these minimum conditions and then determine, based on the facts and
circumstances, whether additional measures or information are needed to
address the risk presented by the designated FMU to the Reserve Bank.
The minimum requirements for establishing an account or receiving
services set out in proposed Sec. 234.6(b)(1) through (4) are
discussed below.
---------------------------------------------------------------------------
\7\ Risks to the Reserve Bank may include the potential for
inadvertent overdrafts in certain circumstances, as well as the
risks that may arise from new or different FMU settlement designs or
processes that may arise in the future. The establishment of an
account for a designated FMU at a Reserve Bank also may entail
broader policy considerations and implications.
---------------------------------------------------------------------------
Proposed Sec. 234.6(b)(1) requires the designated FMU to be in
generally sound financial condition. Although there are a number of
criteria that may be used to determine financial soundness, in general
a designated FMU should maintain adequate capital to support its
ongoing operations and absorb reasonable business losses and have
sufficient operating revenue and working capital to cover its actual
and projected operating expenses, giving due regard to the economic
conditions and circumstances in the market in which the designated FMU
operates. These resources would be separate and in addition to
resources held to cover participant defaults that may arise through a
designated FMU's payment, clearing, or settlement activities.
Proposed Sec. 234.6(b)(2) requires the designated FMU to be in
compliance, based on information provided by the Supervisory Agency,
with requirements imposed by its Supervisory Agency regarding financial
resources, liquidity, participant default management, and other aspects
of risk management. The three agencies that currently serve as
Supervisory Agencies (i.e., the Board, the Securities and Exchange
Commission, and the Commodity Futures Trading Commission) have
promulgated risk management standards that would be applicable to the
FMUs that have been designated by the Council. As noted in proposed
Sec. 234.6(d), the Board will consult with the Supervisory Agency of a
designated FMU prior to authorizing a Federal Reserve Bank to open an
account to ascertain the views of the Supervisory Agency regarding,
among other things, the designated FMU's compliance with the
Supervisory Agency's risk management standards. At a minimum, the
designated FMU should meet its Supervisory Agency's mandatory risk
management standards.
Proposed Sec. 234.6(b)(3) requires that a designated FMU be in
compliance with Board orders and policies, Federal Reserve Bank
operating circulars, and other applicable Federal Reserve requirements
regarding the establishment and maintenance of a Reserve Bank account
and the receipt of financial services from a Reserve Bank. A designated
FMU will be expected to use Reserve Bank financial services, through
its Reserve Bank account, in accordance with any applicable operating
circular or Federal Reserve policy, as directed by the Reserve Bank.
Proposed Sec. 234.6(b)(4) requires the Reserve Bank to determine
that the designated FMU can demonstrate an ongoing ability, including
during periods of market stress or a participant default, to meet all
of its obligations under its agreement for a Federal Reserve Bank
account and services. As noted above, designated FMUs would be expected
to demonstrate an operational ability to avoid intraday overdrafts in
its Reserve Bank account and have the financial resources to promptly
rectify any inadvertent overdrafts if they were to occur.
Proposed Sec. 234.6 also contains other provisions relevant to the
establishment and maintenance of an account or provision of financial
services by a Reserve Bank for a designated FMU. Proposed Sec.
234.6(c) states that the Board or the relevant Reserve Bank may request
that the designated FMU provide any information necessary regarding
compliance with any conditions imposed under proposed Sec. 234.6. The
designated FMU would also be required to provide any verification that
the Board or the Reserve Bank requests regarding information received
under this section.
Proposed Sec. 234.6(d) states that the Board will consult with the
Supervisory Agency of a designated FMU prior to authorizing a Reserve
Bank to open an account, and periodically thereafter, to ascertain the
views of the Supervisory Agency regarding the condition of the
designated FMU and its compliance with the requirements of proposed
Sec. 234.6, as well as to coordinate information requests to the
designated FMU. For designated FMUs not supervised by the Board, the
Board anticipates obtaining the views of the designated FMU's
Supervisory Agency regarding the use of a Reserve Bank account and
services and any concerns the Supervisory Agency may have with respect
to the designated FMU. If a Reserve Bank account is established for the
designated FMU, the Board expects that there will be an ongoing
dialogue with the Supervisory Agency regarding the designated FMU's use
of the account and services and its compliance with any conditions
imposed under proposed Sec. 234.6 with regard to the account or
services. The Board also anticipates coordinating any information
requests it may have for the designated FMU with the Supervisory Agency
in order to reduce regulatory burden on the designated FMU.
Proposed Sec. 234.6(e) states that, in addition to any right that
a Reserve Bank has to terminate an account or the use of a service
pursuant to an agreement, the Board may direct the Reserve Bank to
impose limits, restrictions, or other conditions on the availability or
use of a Reserve Bank account or service by a designated FMU, including
directing the Reserve Bank to terminate the use of a particular service
or to close the account. The Reserve Bank, on its own initiative or at
the direction of the Board, may close the account if significant issues
are raised and not resolved in areas such as excessive risk to the
Reserve Bank, violation of Federal Reserve rules or policies, violation
of other applicable law or regulation, or other compliance issues.
The Board requests comment on all aspects of proposed Sec. 234.6.
In particular, the Board requests comment on the conditions for
establishing an account at a Reserve Bank provided in proposed Sec.
234.6(b) and whether there are any other conditions that should be
imposed in order to accomplish the Board's goals of reducing settlement
and systemic risks and strengthening the settlement processes of
designated FMUs through the use of Reserve Bank accounts and services,
while limiting risk to the Reserve Banks.
[[Page 14027]]
C. Proposed Sec. 234.7--Interest on Balances
Pursuant to section 806(c) of the Act, proposed Sec. 234.7
clarifies the authority of a Federal Reserve Bank to pay interest on
any balance that a designated FMU maintains in its account with that
Reserve Bank. Section 806(c) of the Act states that a Reserve Bank may
pay earnings on balances maintained by a designated FMU ``in the same
manner and to the same extent as the Federal Reserve Bank may pay
earnings to a depository institution under the Federal Reserve Act,
subject to any applicable rules, orders, standards, or guidelines
prescribed by the Board of Governors.'' \8\ Section 19(b)(12) of the
Federal Reserve Act (FRA) authorizes a Federal Reserve Bank to pay, at
least once each calendar quarter, interest on balances maintained at
the Federal Reserve Bank by or on behalf of a depository institution,
at a rate or rates not to exceed the general level of short-term
interest rates.\9\
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\8\ 12 U.S.C. 5465(c).
\9\ 12 U.S.C. 461(b)(12)(A). This statutory authority has been
implemented through Sec. 204.10 of the Board's Regulation D. 12 CFR
204.10.
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Proposed Sec. 234.7(a) provides that a Federal Reserve Bank may
pay interest on balances maintained by a designated FMU in its account
at the Reserve Bank in accordance with the provisions of proposed Sec.
234.7 and under such other terms and conditions as the Board may
prescribe. This subsection essentially incorporates the statutory
authority provided by section 806(c) of the Act.
Proposed Sec. 234.7(b) states that interest on balances paid under
this section shall be at the rate paid on balances of depository
institutions or another rate determined by the Board from time to time,
not to exceed the general level of ``short-term interest rates.''
Proposed Sec. 234.7(c) incorporates the definition of ``short-term
interest rates'' set out in Sec. 204.10(b)(3) of the Board's
Regulation D, which states that ``short-term interest rates'' are rates
on obligations with maturities of no more than one year, such as the
primary credit rate and rates on term federal funds, term repurchase
agreements, commercial paper, term Eurodollar deposits, and other
similar instruments.\10\
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\10\ 12 CFR 204.10(b)(3).
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III. Administrative Law Matters
A. Regulatory Flexibility Act Analysis
Congress enacted the Regulatory Flexibility Act (the ``RFA'') (5
U.S.C. 601 et seq.) to address concerns related to the effects of
agency rules on small entities, and the Board is sensitive to the
impact their rules may impose on small entities. The RFA requires
agencies either to provide an initial regulatory flexibility analysis
with a proposed rule or to certify that the proposed rule will not have
a significant economic impact on a substantial number of small
entities. In accordance with section 3(a) of the RFA, the Board has
reviewed the proposed regulation. In this case, the proposed rule would
apply to FMUs that are designated by the Council as systemically
important to the U.S. financial system. Based on current information,
the Board believes that the FMUs that have been and would likely be
designated by the Council would not be ``small entities'' for purposes
of the RFA, and so, the proposed rule likely would not have a
significant economic impact on a substantial number of small entities
(5 U.S.C. 605(b)). The authority to designate systemically important
FMUs, however, resides with the Council, rather than the Board, and the
Board cannot therefore be assured of the identity of the FMUs that the
Council may designate in the future. Accordingly, an Initial Regulatory
Flexibility Analysis has been prepared in accordance with 5 U.S.C. 603,
based on current information. The Board requests comment on all aspects
of this Initial Regulatory Flexibility Analysis. The Board will, if
necessary, conduct a final regulatory flexibility analysis after
consideration of comments received during the public comment period.
1. Statement of the need for, objectives of, and legal basis for,
the proposed rule. The Board is proposing additional regulations to
implement certain provisions of Title VIII of the Dodd-Frank Act.
Pursuant to section 806(a) of the Act, proposed Sec. 234.6 sets out
conditions under which the Board would authorize a Federal Reserve Bank
to establish and maintain an account for a designated FMU and provide
the designated FMU services through the account. Pursuant to section
806(c) of the Dodd-Frank Act, proposed Sec. 234.7 sets out conditions
for a Reserve Bank to pay interest on the balances maintained by a
designated FMU at the Reserve Banks.
Under section 806 of the Act, all of these authorities are subject
to any applicable rules or regulations that the Board may prescribe.
The Board believes that the proposed regulations herein are necessary
to provide guidance to the Federal Reserve Banks in implementing these
authorities of the Act in an appropriate and uniform manner and to
inform the affected institutions and the public of the conditions for
obtaining accounts and services.
2. Small entities affected by the proposed rule. The proposed rule
would affect FMUs that the Council designates as systemically important
to the U.S. financial system. The Council has designated eight FMUs
that would meet these conditions and be affected by this proposed rule.
Pursuant to regulations issued by the Small Business Administration
(the ``SBA'') (13 CFR 121.201), a ``small entity'' includes an
establishment engaged in (i) financial transaction processing, reserve
and liquidity services, and/or clearinghouse services with an average
revenue of $7 million or less (NAICS code 522320); (ii) securities and/
or commodity exchange activities with an average revenue of $7 million
or less (NAICS code 523210); and (iii) trust, fiduciary, and/or custody
activities with an average revenue of $7 million or less (NAICS code
523991). Based on current information, the Board does not believe that
any of the FMUs that have been or would likely be designated by the
Council would be ``small entities'' pursuant to the SBA regulation.
3. Projected reporting, recordkeeping, and other compliance
requirements. The proposed rule imposes certain reporting,
recordkeeping, and other compliance requirements for a designated FMU.
For example, proposed Sec. 234.6(b)(1) requires the designated FMU to
be in generally sound financial condition. In addition, proposed Sec.
234.6(b)(4) requires a designated FMU to demonstrate an ongoing
ability, including during periods of market stress or a participant
default, to meet all of its obligations under its agreement for a
Reserve Bank account and services. Proposed Sec. 234.6(c) also
clarifies that the Board or Reserve Bank may request a designated FMU
to provide any information or verification necessary to determine
compliance with any conditions imposed under proposed Sec. 234.6.
4. Identification of duplicative, overlapping, or conflicting
Federal rules. The Board does not believe that any Federal rules
conflict with the proposed rules. Certain entities that are designated
FMUs under Title VIII of the Act may maintain an account with a Reserve
Bank under other statutory authority, such as an entity that is
chartered as a depository institution, state member bank, or Edge
corporation. This rulemaking would provide additional authority for the
entity to establish and maintain an account at a Reserve Bank and,
arguably, be duplicative or overlapping with such other authority. This
rulemaking would not, however, create any conflicting requirements for
a designated FMU that is permitted to maintain an account
[[Page 14028]]
with a Reserve Bank under multiple sources of authority.
5. Significant alternatives to the proposed rule. In lieu of the
proposed rules, the Board could have proposed fewer or less stringent
conditions on designated FMUs. The Board believes, however, that the
proposed rules are necessary to address risk to the Reserve Banks in
offering accounts and services and that the information required from
designated FMUs under the proposed rules is needed to mitigate such
risks. In addition, the Board does not believe that providing fewer or
less stringent conditions for designated FMUs that are small entities
would achieve the regulation's purpose because the risks to the Reserve
Banks are the same regardless of whether the designated FMU is a small
entity. The Board also considered a more expansive list of detailed
conditions, but decided instead to set the overall standard as avoiding
undue risk to the Reserve Bank, while providing a limited number of
minimum requirements in meeting that standard. As noted above, the
proposed rules provide some flexibility to the Reserve Bank in
determining whether any additional measures are necessary to mitigate
the risks presented by that designated FMU, given the facts and
circumstances of the designated FMU seeking the account or services.
B. Paperwork Reduction Act Analysis
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320, Appendix A.1), the Board reviewed the proposed rule
under the authority delegated to the Board by the Office of Management
and Budget. The proposed rule contains no requirements subject to the
PRA.
IV. Statutory Authority
Pursuant to the authority in Title VIII of the Dodd-Frank Act and
particularly sections 806(a) and (b) (12 U.S.C. 5465(a) and (b)), the
Board proposes two new sections to part 234 (Regulation HH).
List of Subjects in 12 CFR Part 234
Banks, Banking, Commodity futures, Credit, Electronic funds
transfers, Financial market utilities, Securities.
Authority and Issuance
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR Chapter II as set forth below.
PART 234--DESIGNATED FINANCIAL MARKET UTILITIES (REGULATION HH)
0
1. The authority citation for part 234 continues to read as follows:
Authority: 12 U.S.C. 5461 et seq.
0
2. Amend Sec. 234.1 by revising paragraph (b) to read as follows:
Sec. 234.1 Authority, purpose, and scope.
* * * * *
(b) Purpose and scope. This part establishes risk-management
standards governing the operations related to the payment, clearing,
and settlement activities of designated financial market utilities. In
addition, this part sets out requirements and procedures for a
designated financial market utility that proposes to make a change to
its rules, procedures, or operations that could materially affect the
nature or level of risks presented by the designated financial market
utility and for which the Board is the Supervisory Agency (as defined
below). The risk management standards do not apply, however, to a
designated financial market utility that is a derivatives clearing
organization registered under section 5b of the Commodity Exchange Act
(7 U.S.C. 7a-1) or a clearing agency registered with the Securities and
Exchange Commission under section 17A of the Securities Exchange Act of
1934 (15 U.S.C. 78q-1), which are governed by the risk-management
standards promulgated by the Commodity Futures Trading Commission or
the Securities and Exchange Commission, respectively, for which each is
the Supervisory Agency. This part also sets out standards,
restrictions, and guidelines regarding a Federal Reserve Bank
establishing and maintaining an account for, and providing services to,
a designated financial market utility. In addition, this part confirms
the terms under which a Reserve Bank may pay a designated financial
market utility interest on the designated financial market utility's
balances held at the Reserve Bank.
0
3. Add Sec. Sec. 234.6 and 234.7 to read as follows:
Sec. 234.6 Access to Federal Reserve Bank accounts and services.
(a) This section applies to any designated financial market utility
for which the Board may authorize a Federal Reserve Bank to open an
account or provide services in accordance with section 806(a) of the
Dodd-Frank Act. Upon receipt of Board authorization and subject to any
limitations, restrictions, or other requirements established by the
Board, a Federal Reserve Bank may enter into agreements governing the
details of its accounts and services with a designated financial market
utility, consistent with this section and any other applicable Board
direction.
(b) A Federal Reserve Bank should ensure that its establishment and
maintenance of an account for or provision of services to a designated
financial market utility does not create undue credit, settlement, or
other risk to the Reserve Bank. At a minimum, to establish and maintain
an account with a Federal Reserve Bank or receive financial services
from a Federal Reserve Bank, a designated financial market utility
must, in the Federal Reserve Bank's judgment--
(1) Be in generally sound financial condition;
(2) Be in compliance, based on information provided by the
Supervisory Agency, with requirements imposed by its Supervisory Agency
regarding financial resources, liquidity, participant default
management, and other aspects of risk management;
(3) Be in compliance with Board orders and policies, Federal
Reserve Bank operating circulars, and other applicable Federal Reserve
requirements regarding the establishment and maintenance of an account
at a Federal Reserve Bank and the receipt of financial services from a
Federal Reserve Bank; and
(4) Demonstrate an ongoing ability, including during periods of
market stress or a participant default, to meet all of its obligations
under its agreement for a Federal Reserve Bank account and services.
(c) The Board or Federal Reserve Bank may request that the
designated financial market utility provide any information or
verification necessary regarding compliance with any conditions imposed
under this section.
(d) The Board will consult with the Supervisory Agency of a
designated financial market utility prior to authorizing a Federal
Reserve Bank to open an account, and periodically thereafter, to
ascertain the views of the Supervisory Agency regarding the condition
of the designated financial market utility and compliance with the
requirements of this section or to coordinate information requests.
(e) In addition to any right that a Reserve Bank has to terminate
an account or the use of a service pursuant to an agreement, the Board
may direct the Federal Reserve Bank to impose limits, restrictions, or
other conditions on the availability or use of a Federal Reserve Bank
account or service by a designated financial market utility, including
directing the Reserve Bank to terminate the use of a particular service
or to close the account.
[[Page 14029]]
Sec. 234.7 Interest on balances.
(a) A Federal Reserve Bank may pay interest on balances maintained
by a designated financial market utility at the Federal Reserve Bank in
accordance with this section and under such other terms and conditions
as the Board may prescribe.
(b) Interest on balances paid under this section shall be at the
rate paid on balances maintained by depository institutions or another
rate determined by the Board from time to time, not to exceed the
general level of short-term interest rates.
(c) For purposes of this section, ``short-term interest rates''
shall have the same meaning as the meaning provided for that term in
Sec. 204.10(b)(3) of this chapter.
By order of the Board of Governors of the Federal Reserve
System, February 26, 2013.
Robert deV. Frierson,
Secretary to the Board.
[FR Doc. 2013-04841 Filed 3-1-13; 8:45 am]
BILLING CODE 6210-01-P
