§ 240.17ad-26 — Recovery and orderly wind-down plans of covered clearing agencies.

§ 240.17ad-26 Recovery and orderly wind-down plans of covered clearing agencies.

(a) The plans for the recovery and orderly wind-down of the covered clearing agency referenced in § 240.17ad-22(e)(3)(ii) must:

(1) Identify and describe the covered clearing agency's core payment, clearing, and settlement services and address how the covered clearing agency would continue to provide such core services in the event of a recovery and during an orderly wind-down, including by:

(i) Identifying the staffing roles necessary to support such core services; and

(ii) Analyzing how such staffing roles necessary to support such core services would continue in the event of a recovery and during an orderly wind-down;

(2)(i) Identify and describe any service providers for core services, specifying which core services each service provider supports; and

(ii) Address how the covered clearing agency would ensure that service providers for core services would continue to perform in the event of a recovery and during an orderly wind-down, including consideration of its written agreements with such service providers and whether the obligations under those written agreements are subject to alteration or termination as a result of initiation of the recovery and orderly wind-down plan;

(3) Identify and describe scenarios that may potentially prevent the covered clearing agency from being able to provide its core services identified in paragraph (a)(1) of this section as a going concern, including uncovered credit losses (as described in § 240.17ad-22(e)(4)(viii)), uncovered liquidity shortfalls (as described in § 240.17ad-22(e)(7)(viii)), and general business losses (as described in § 240.17ad-22(e)(15));

(4) Identify and describe criteria that could trigger the covered clearing agency's implementation of the recovery and orderly wind-down plans and the process that the covered clearing agency uses to monitor and determine whether the criteria have been met, including the governance arrangements applicable to such process;

(5) Identify and describe the rules, policies, procedures, and any other tools or resources on which the covered clearing agency would rely in a recovery or orderly wind-down;

(6) Address how the rules, policies, procedures, and any other tools or resources identified in paragraph (a)(5) of this section would ensure timely implementation of the recovery and orderly wind-down plan;

(7) Require the covered clearing agency to inform the Commission as soon as practicable when the covered clearing agency is considering implementing a recovery or orderly wind-down;

(8) Include procedures for testing the covered clearing agency's ability to implement the recovery and orderly wind-down plans at least every 12 months, including by:

(i) Requiring the covered clearing agency's participants and, when practicable, other stakeholders to participate in the testing of its plans;

(ii) Requiring that such testing be in addition to testing pursuant to § 240.17ad-22(e)(13);

(iii) Providing for reporting the results of such testing to the covered clearing agency's board of directors and senior management; and

(iv) Specifying the procedures for, as appropriate, amending the plans to address the results of such testing; and

(9) Include procedures requiring review and approval of the plans by the board of directors of the covered clearing agency at least every 12 months or following material changes to the covered clearing agency's operations that would significantly affect the viability or execution of the plans, with such review informed, as appropriate, by the covered clearing agency's testing of the plans.

(b) All terms used in this section have the same meaning as in the Securities Exchange Act of 1934, and unless the context otherwise requires, the following definitions apply for purposes of this section:

Affiliate means a person that directly or indirectly controls, is controlled by, or is under common control with the covered clearing agency.

Orderly wind-down means the actions of a covered clearing agency to effect the permanent cessation, sale, or transfer of one or more of its core services, as identified by the covered clearing agency pursuant to paragraph (a)(1) of this section, in a manner that would not increase the risk of significant liquidity, credit, or operational problems spreading among financial institutions or markets and thereby threaten the stability of the U.S. financial system.

Recovery means the actions of a covered clearing agency, consistent with its rules, procedures, and other ex ante contractual arrangements, to address any uncovered loss, liquidity shortfall, or capital inadequacy, whether arising from participant default or other causes (such as business, operational, or other structural weaknesses), including actions to replenish any depleted prefunded financial resources and liquidity arrangements, as necessary to maintain the covered clearing agency's viability as a going concern and to continue its provision of core services, as identified by the covered clearing agency pursuant to paragraph (a)(1) of this section.

Service provider for core services means any person, including an affiliate or a third party, that, through a written agreement for services provided to or on behalf of the covered clearing agency, on an ongoing basis, directly supports the delivery of core services, as identified by the covered clearing agency pursuant to paragraph (a)(1) of this section.

[89 FR 91059, Nov. 18, 2024]