17Ad-26 - Supporting Statement (2023 Proposal)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 17Ad-26
Request for New OMB Control Number
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. 3501 et seq.
A. JUSTIFICATION
1. Necessity of Information Collection
Current Regulatory Framework for Clearing Agencies
i. Exchange Act
Section 17A of the Securities Exchange Act of 1934 (“Exchange Act”) directs the
Securities and Exchange Commission (“Commission”) to facilitate the establishment of a
national system for the prompt and accurate clearance and settlement of securities transactions
and provides the Commission with the authority to regulate those entities critical to the clearance
and settlement process.1 Section 17A of the Exchange Act also directs the Commission to have
due regard for the public interest, the protection of investors, the safeguarding of securities and
funds, and maintenance of fair competition among brokers and dealers, clearing agencies, and
transfer agents.2 Clearing agencies are broadly defined in the Exchange Act and undertake a
variety of functions.3 Under Section 17A of the Exchange Act and Rule 17Ab2-1 thereunder, an
entity that meets the definition of a clearing agency is required to register with the Commission
or obtain from the Commission an exemption from registration prior to performing the functions
of a clearing agency.4 To grant registration to a clearing agency, the Exchange Act requires the
Commission to determine that the rules and operations of the applicant clearing agency meet the
standards set forth in Section 17A of the Exchange Act.5

1

See 15 U.S.C. 78q-1(a)(2).

2

See 15 U.S.C. 78q-1(a)(2)(A).

See 15 U.S.C. 78c(a)(23)(A) (providing the definition of “clearing agency”); see also Exchange Act
Release No. 71699 (Mar. 12, 2014), 79 FR 16865 (Mar. 26, 2014), corrected at 79 FR 29507, 29510–11 (May 22,
2014) (“2014 Proposing Release”); Exchange Act Release No. 68080 (Oct. 22, 2012), 77 FR 66219, 66221–22
(Nov. 2, 2012) (“2012 Adopting Release”).
3

4

See 15 U.S.C. 78q-1; 17 CFR 240.17Ab2-1.

5

See 15 U.S.C. 78q-1(b)(3)(A)–(I) (identifying nine determinations that the Commission must make
regarding the rules and structure of a clearing agency to grant registration). In 1980, the Commission published a
statement of the views and positions of Commission staff regarding the requirements of Section 17A. See Exchange
Act Release No. 16900 (June 17, 1980), 45 FR 41920 (June 23, 1980).

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Following this registration process, the Commission supervises registered clearing
agencies using various tools. One of these tools is Section 17(a) of the Exchange Act, which
directs registered clearing agencies to make and keep for prescribed periods such records, furnish
such copies, and make and disseminate such reports as the Commission, by rule, prescribes as
necessary or appropriate in the public interest, for the protection of investors, or in furtherance of
the Exchange Act.6 In addition, Section 17A of the Exchange Act provides the Commission with
authority to adopt rules as necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Exchange Act and prohibits a
clearing agency from engaging in any activity in contravention of such rules and regulations.7
Section 23(a) of the Exchange Act further authorizes the Commission to make rules and
regulations as necessary or appropriate to implement the provisions of the Exchange Act.8
ii. Dodd-Frank Act
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DoddFrank Act”) added provisions to the Exchange Act that (i) require entities performing the
functions of a clearing agency with respect to security-based swaps (“security-based swap
clearing agencies”) to register with the Commission, and (ii) direct the Commission to adopt
rules with respect to security-based swap clearing agencies.9 Although Title VII directs the
Commission to focus specifically on conflicts of interest with respect to security-based swap
clearing agencies, the Commission believes that conflicts of interest concerns can arise across all
registered clearing agencies regardless of the asset classes served.
In addition, the Payment, Clearing, and Settlement Supervision Act of 2010 (“Clearing
Supervision Act”), enacted in Title VIII of the Dodd-Frank Act, provides for the enhanced
regulation of certain financial market utilities (“FMUs”).10 FMUs include clearing agencies that
manage or operate 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 FMU.11 The Financial Stability Oversight Council (“FSOC”) has
designated certain FMUs as systemically important or likely to become systemically important
(“SIFMUs”).12 The Commission is the supervisory agency for four SIFMUs: DTC, FICC,

6

See 15 U.S.C. 78q(a)

7

See 15 U.S.C. 78q-1(d).

8

See 15 U.S.C. 78w(a).

9

See 15 U.S.C. 78q-1(i), (j); Dodd-Frank Act, Sec. 763(b), 124 Stat. at 1768–69 (adding paragraphs (i) and
(j) to Section 17A of the Exchange Act).
10

The objectives and principles for the risk management standards prescribed under the Clearing Supervision
Act shall be to (i) promote robust risk management; (ii) promote safety and soundness; (iii) reduce systemic risks;
and (iv) support the stability of the broader financial system. See 12 U.S.C. 5464(b).
11

See 12 U.S.C. 5462(6).

12

See 12 U.S.C. 5463. An FMU is systemically important if the failure of or a disruption to the functioning of
such FMU could create or increase the risk of significant liquidity or credit problems spreading among financial

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NSCC, and OCC. The Commission jointly regulates ICC and OCC with the Commodity Futures
Trading Commission (“CFTC”). The Commission also jointly regulates ICE Clear Europe and
LCH SA, which have not been designated as systemically important by FSOC, with various
other regulators, including the CFTC and the Bank of England.
In 2012, the Commission adopted Rule 17Ad-22 under the Exchange Act to strengthen
the substantive regulation of clearing agencies, promote the safe and reliable operation of
covered clearing agencies, and improve efficiency, transparency, and access to covered clearing
agencies.13 At that time, the Commission noted that the implementation of Rule 17Ad-22 would
be an important first step in developing the regulatory changes contemplated by Titles VII and
VIII of the Dodd-Frank Act.14 In 2016, the Commission adopted Rule 17Ad-22(e), building on
the existing framework by establishing enhanced requirements for registered clearing agencies
that meet the definition of a “covered clearing agency.”15 In 2020, the Commission adopted
amendments to the definition of “covered clearing agency” and certain other definitions under
Rule 17Ad-22 so that the definitions encompass all registered clearing agencies performing the
functions of a central counterparty (“CCP”) or central securities depository (“CSD”).16
iii. Proposed Rule 17Ad-26
The proposed Rule 17Ad-26 would build upon existing Rule 17Ad-22(e)(3)(ii) that
requires the policies and procedures of a covered clearing agency to include recovery and orderly
wind-down plans (“RWP”). At the time Rule 17Ad-22(e)(3)(ii) became effective,17 the
Commission declined to include requirements for the content of an RWP, stating that, given the
nature of recovery and resolution planning, such plans are likely to closely reflect the specific
characteristics of the covered clearing agency, including its ownership, organizational, and
operational structures, as well as the size, systemic importance, global reach, and the risks

institutions or markets and thereby threaten the stability of the U.S. financial system. See 12 U.S.C. 5462(9). The
following registered clearing agencies have been designated as systemically important by the FSOC: CME Group
(“CME”), The Depository Trust Company (“DTC”), Fixed Income Clearing Corporation (“FICC”), ICE Clear
Credit (“ICC”), National Securities Clearing Corporation (“NSCC”), and The Options Clearing Corporation
(“OCC”).
13

See 17 CFR 240.17Ad-22; see also 2012 Adopting Release, supra note 3, at 66225–26.

14

See 2012 Adopting Release, supra note 3, at 66225–26.

15

See Standards for Covered Clearing Agencies, Exchange Act Release No. 78961 (Sept. 28, 2016), 81 FR
70786 (Oct. 13, 2016) (“2016 Adopting Release”).
16

See Definition of Covered Clearing Agency, Exchange Act Release No. 88616 (April 9, 2020), 85 FR
28853 (May 14, 2020) (“2020 Adopting Release”).
17

Rule 17Ad-22(e) became effective on December 12, 2016, and covered clearing agencies were required to
be in compliance with the amendments by April 11, 2017. See 2016 Adopting Release, 81 FR at 70848. The
Commission granted a temporary exemption to covered clearing agencies from compliance with Rule 17Ad22(e)(3)(ii) until December 31, 2017. See Exchange Act Release No. 80378 (Apr. 5, 2017), 82 FR 17300 (Apr. 10,
2017).

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inherent in the products it clears.18 The Commission continues to believe that an RWP should
closely reflect the specific characteristics of the covered clearing agency. However, at this time,
based on its supervisory experience considering the RWPs of the covered clearing agencies, the
Commission believes that there are certain elements that must be included in each covered
clearing agency’s plan, to ensure that the plan is fit for purpose and provides sufficient
identification of how a covered clearing agency would operate in a recovery and how it would
achieve an orderly wind-down, Accordingly, the Commission proposed new Rule 17Ad-26,
which identifies certain elements that a covered clearing agency would be required to include in
an RWP and would also include definitions of recovery and orderly wind-down, which would
identify the objective that these plans are designed to meet.19
Specifically, proposed Rule 17Ad-26 would require that a covered clearing agency’s
recovery and wind-down plan, the existence of which is required in current Rule 17Ad22(e)(3)(ii), shall: (1) identify and describe the covered clearing agency’s critical payment,
clearing, and settlement services and address how the covered clearing agency would continue to
provide such critical services in the event of recovery and during an orderly wind-down,
including the identification of the staffing necessary to support such critical services and analysis
of how such staffing would continue in the event of a recovery and during an orderly winddown; (2) identify and describe any service providers upon which the covered clearing agency
relies to provide its critical payment, clearing, and settlement services identified in paragraph (1),
specify to what critical services such service providers are relevant, and address how the covered
clearing agency would ensure that service providers would continue to provide such critical
services in the event of a recovery and during an orderly wind-down, including consideration of
contractual obligations with such service providers and whether those obligations 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 critical payment, clearing, and settlement services as a going concern,
including scenarios arising from uncovered credit losses, uncovered liquidity shortfalls, or
general business losses; (4) identify and describe criteria that could trigger the implementation of
the recovery and orderly wind-down plan 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 the covered clearing agency would use in a recovery or orderly wind-down;
(6) address how the rules, policies, procedures, and any other tools or resources identified in
paragraph (5) would ensure timely implementation of the recovery and orderly wind-down plans;
(7) include procedures for informing the Commission as soon as practicable when the covered
clearing agency is considering initiating a recovery or orderly wind-down; (8) include procedures
for testing the covered clearing agency’s ability to implement the recovery and wind-down plans
at least every twelve months, including by requiring the covered clearing agency’s participants
and, when practicable, other stakeholders to participate in the testing of its plans, providing for
reporting the results of the testing to the covered clearing agency’s board of directors and senior

18

See 2016 Adopting Release, 81 FR at 70808-09.

19

See Covered Clearing Agency Resilience and Recovery and Wind-Down Plans, Exchange Act Release No.
97516 (May 17, 2023), 88 FR 34708 (May 30, 2023) (“Rule 17Ad-26 Proposing Release”).

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management, and specifying the procedures for, as appropriate, amending the plans to address
the results of the testing; and (9) include procedures for review of the plans by the board of
directors at least every twelve months or following material changes to the system or
environment in which the covered clearing agency operates 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 as required in the prior section of the proposed rule.
The current RWPs of covered clearing agencies contain or address many of the elements
being proposed for inclusion, but the current plans do not contain all the elements that would be
required under the proposed rule. Therefore, the Commission believes that codifying these nine
elements will help ensure that RWPs continue to be effective at planning for and managing a
range of recovery and orderly wind-down scenarios that could risk transmitting systemic risk
through the U.S. securities markets and the broader financial system, by accomplishing three
objectives. First, the rule would bolster existing plans by requiring certain new elements be
included. Second, for the elements that are already contained in existing RWPs, the rule would
codify these elements and ensure that the plans are required to continue to include these elements
in their RWPs, and any future changes to the RWPs would be subject to Commission review for
consistency with these requirements. Finally, the rule would ensure that the RWPs of any new
covered clearing agencies would contain all of these elements.
There are collections of information contained in proposed Rule 17Ad-26. The
information collected in these provisions is necessary to carry out the mandates of the Exchange
Act, as amended by the Dodd-Frank Act.
The statutory basis for proposed Rule 17Ad-26 is as follows: Exchange Act Section 17A,
15 U.S.C. 78q-1; Exchange Act Section 23(a), 15 U.S.C. 78w(a); and Section 805 of the
Clearing Supervision Act, 12 U.S.C. 5464.
2. Purpose and Use of Information Collection
Proposed Rule 17Ad-26 would require that a covered clearing agency’s RWP include
nine elements. Based on the Commission’s review and understanding of the covered clearing
agencies’ existing RWPs, respondent covered clearing agencies generally have written rules,
policies, and procedures similar to the requirements that would be imposed under proposed Rule
17Ad-26. The burden imposed by would therefore be minimal and would likely be limited to the
review of current policies and procedures and updating existing policies and procedures where
appropriate to ensure compliance with the proposed rule.
The purpose of the collection of information under proposed Rule 17Ad-26 is to ensure
that covered clearing agencies include a set of particular items in their RWPs (covered clearing
agencies are currently required to have RWPs under Rule 17Ad-22(e)(3)(ii)).
3. Consideration Given to Information Technology
As a general matter, the collections of information contemplated by proposed Rule 17Ad26 depend on the use of technologies and systems that a covered clearing agency already
maintains to conduct its business, including its risk management and recordkeeping functions.
Improvements to these technologies and systems may, over time, reduce the burdens

5

contemplated under proposed Rule 17Ad-26. The Commission is not aware of any technical or
legal obstacles to reducing the burdens through the use of improved information technology.
4. Duplication
The collections of information contained in proposed Rule 17Ad-26 do not duplicate
information required to be collected by other Commission rules or regulations.
5. Effect on Small Entities
Proposed Rule 17Ad-26 would apply to all registered clearing agencies. For the purposes
of Commission rulemaking and as applicable to proposed Rule 17Ad-26, a small entity includes,
when used with reference to a clearing agency, a clearing agency that (i) compared, cleared, and
settled less than $500 million in securities transactions during the preceding fiscal year, (ii) had
less than $200 million of funds and securities in its custody or control at all times during the
preceding fiscal year (or at any time that it has been in business, if shorter), and (iii) is not
affiliated with any person (other than a natural person) that is not a small business or small
organization.20
Based on the Commission’s existing information about the clearing agencies currently
registered with the Commission, the Commission believes that all such registered clearing
agencies exceed the thresholds defining “small entities” set out above. While other clearing
agencies may emerge and seek to register as clearing agencies with the Commission, the
Commission does not believe that any such entities would be “small entities” as defined in
Exchange Act Rule 0-10.
6. Consequences of Not Conducting Collection
The Dodd-Frank Act enacted sweeping reforms in the financial system, including with
respect to FMUs such as clearing agencies. It also charged the Commission with significant
duties to carry out these reforms. The consequences of not conducting collections of information
or any less frequent collections of information pursuant to proposed Rule 17Ad-26 would
significantly impair the Commission’s ability to carry out its statutory obligations under the
Exchange Act, as amended by the Dodd-Frank Act.
7. Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)
There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8. Consultations Outside the Agency
The Commission issued the Rule 17Ad-26 Proposing Release to solicit comment on the
new collection of information requirements and associated paperwork burdens for proposed Rule

20

See 17 CFR 240.0-10(d).

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17Ad-26.21 Comments on Commission releases are generally received from registrants,
investors, and other market participants. In addition, the Commission and staff participate in
ongoing dialogue with representatives of various market participants and staff from other
financial regulators, including the Commodity Futures Trading Commission (“CFTC”) and the
Federal Reserve Board (“FRB”), through public conferences, meetings, and informal exchanges.
Any comments received on this proposed rulemaking will be posted on the Commission’s public
website and made available through http://www.sec.gov/rules/proposed.shtml. The Commission
will consider all comments received prior to publishing a final rule and will explain in any
adopting release how the final rule responds to such comments, in accordance with 5 C.F.R.
1320.11(f).
9. Payment or Gift
No payment or gift will be provided to any respondents.
10. Confidentiality
The collections of information in proposed Rule 17Ad-26 impose recordkeeping burdens
on all registered clearing agencies. The recordkeeping burdens under these collections of
information need not be submitted to the Commission. However, the Commission may request
that a respondent clearing agency provide records pursuant to these collections of information,
such as during an investigation or examination. When the Commission requests that records be
provided, a respondent clearing agency can request confidential treatment for the records
pursuant to Section 24(b) of the Exchange Act and Rule 24b-2 thereunder.22
11. Sensitive Questions
The information collection does not collect information about individuals and, therefore,
does not require a PIA, SORN, or PAS.
12. Information Collection Burden
Proposed Rule 17Ad-26 would create burdens and costs for covered clearing agencies.
Below is a summary of the burden estimates for the proposed rule.
i. Number of Respondents
The requirements in proposed Rule 17Ad-26 would apply to all covered clearing
agencies. Currently, there are seven clearing agencies registered with the Commission. The
Commission anticipates that one additional entity may seek to register as a covered clearing
agency in the next three years. Therefore, the Commission estimates that proposed Rule 17Ad-26
would have eight respondents.

21

See Rule 17Ad-26 Proposing Release, supra note 19.

22

See 17 CFR 240.24b-2.

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ii. Source of Estimates, Annual Hour Burden, and Explanation of Estimates
Based on the Commission’s review and understanding of the covered clearing agencies’
existing RWPs, respondent covered clearing agencies generally have written rules, policies, and
procedures similar to the requirements that would be imposed under proposed Rule 17Ad-26.
The burden imposed by the proposed rule would therefore be minimal and would likely be
limited to the review of current policies and procedures and updating existing policies and
procedures where appropriate to ensure compliance with the proposed rule. Accordingly, the
Commission preliminarily believes that a respondent covered clearing agency would incur a onetime burden of approximately 120 hours to review and update procedures,23 or 40 hours when
annualized over three years.24
In addition, proposed Rule 17Ad-26 would also impose ongoing burdens on a respondent
covered clearing agency. The proposed rule would require ongoing monitoring and compliance
activities with respect to the written policies and procedures created in response to the proposed
rule. The Commission preliminarily estimates that the ongoing activities required by proposed
Rule 17Ad-26 would impose an annual burden on a respondent covered clearing agency of 40
hours.25
Therefore, the total aggregate annual industry-wide hourly burden imposed by Rule
17Ad-26 for the eight is approximately 640 hours per year.26
The Commission preliminarily estimates that the respondent covered clearing agencies
would incur an aggregate internal one-time cost of approximately $377,520 to review current
policies and procedures and updating existing policies and procedures where appropriate.27 The
Commission preliminarily estimates that the ongoing monitoring and compliance activities with
respect to the proposed Rule 17Ad-26 would impose an aggregate ongoing cost on respondent
covered clearing agencies of approximately $147,760 per year.28

23

This figure was calculated as follows: Assistant General Counsel for 20 hours + Compliance Attorney for
50 hours + Business Risk Analyst for 35 hours + Senior Risk Management Specialist for 15 hours = 120 hours.
24

This figure was calculated as follows: 120 hours/3 years = 40 hours/year.

25

This figure was calculated as follows: Assistant General Counsel for 10 hours + Compliance Attorney for
30 hours = 40 hours.
26

This figure was calculated as follows: 40 hours of annualized initial burden + 40 hours of annual ongoing
burden = 80 hours of annual burden per respondent x 8 respondents = 640 hours/year industry-wide burden.
27

This figure was calculated as follows: (Assistant General Counsel for 20 hours at $551 per hour) +
(Compliance Attorney for 50 hours at $432 per hour) + (Business Risk Analyst for 35 hours at $ 235 per hour) +
(Senior Risk Management Specialist for 15 hours at $423 per hour) = $ 47,190 x 8 = $377,520. See also 2023
Proposing Release, supra note 19, 88 FR at 34735.
28

This figure was calculated as follows: (Assistant General Counsel for 10 hours at $551 per hour) +
(Compliance Attorney for 30 hours at $432 per hour) = $18,470 x 8 = $147,760. See also 2023 Proposing Release,
supra note 19, 88 FR at 34735.

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iii. Table Summary of Hourly Burdens
The table below summarizes the Commission’s estimates of the total hourly burdens for
all respondents under proposed Rule 17Ad-26. The table includes more than one row for the
information collection. The top row is intended to reflect the burden estimates for the
respondents that are currently registered with the Commission as covered clearing agencies, and
the next row is intended to reflect the estimates for the respondent that is not currently registered
as a covered clearing agency. A third row provides the subtotals from the two rows above.

Number of
Annual
Responses
Per Entity

Initial
Burden
Per
Entity
Per
Response

Annualized
Initial
Burden Per
Entity Per
Response

Ongoing
Burden
Per
Entity
Per
Response

Total
Annual
Burden
Per
Entity

Total
Annual
Industry
Burden

IC

Name of
Information
Collection

Type of
Burden

Number
of
Entities
Impacted

1

17Ad-26

Recordkeeping

7

1

120

40

40

80

560

1

1

120

40

40

80

80

2
Subtotal

8

640

13. Costs to Respondents
Not applicable. Respondents will not incur any capital or start-up costs or any ongoing
operation and maintenance costs.
14. Costs to Federal Government
Not applicable. No cost to the federal government is anticipated.
15. Changes in Burden
Not applicable. proposed Rule 17Ad-26 would create new burdens for covered clearing
agencies. This submission provides the Commission’s initial estimates for the new burdens.
,lInformation Collection Planned for Statistical Purposes
Not applicable. The information collection is not used for statistical purposes.
16. Approval to Omit OMB Expiration Date
The Commission is not seeking approval to omit the expiration date.
17. Exceptions to Certification for Paperwork Reduction Act Submissions
Not applicable. This collection complies with the requirements in 5 CFR 1320.9.

The PRA section of the proposing release included the

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B. COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

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