Oversight of Key Financial Market Infrastructures
The Federal Reserve oversees and/or is the prudential supervisor for a number of important payment, clearing, and settlement arrangements. The Federal Reserve also works cooperatively with other U.S. and foreign financial regulators to promote strong risk management in key financial market infrastructures. The following are some of the key infrastructures subject to prudential oversight by the Federal Reserve and/or other financial regulators:
Clearing House Interbank Payment System (CHIPS) is a privately operated, real-time, multilateral payment system typically used for large dollar payments. CHIPS processes a large proportion of US dollar cross-border payments and an increasing volume of US domestic payments.
CHIPS is subject to supervision and examination by the Federal Reserve and other Federal bank supervisory agencies, under the auspices of the Federal Financial Institutions Examination Council (FFIEC), as well as the New York State Banking Department. Examinations focus on information-technology operations in accordance with guidelines and procedures established by the FFIEC. In conjunction with these examinations, the Federal Reserve also conducts an examination of CHIPS against the Federal Reserve's Policy on Payment System Risk. CHIPS also must maintain a current self-assessment against the relevant principles. See "CHIPS Self-Assessment of Compliance with Core Principles for Systemically Important Payment Systems" (351 KB PDF) .
CLS Bank is a private-sector special purpose bank that settles simultaneously both payment obligations ("legs") that arise from a single foreign exchange (FX) transaction. The CLS payment-versus-payment (PVP) settlement model ensures that one payment leg of a FX transaction is settled if and only if the corresponding payment leg is also settled, eliminating the FX settlement risk that arises when each leg of a FX transaction is settled separately. CLS also settles the bilateral net payment obligations arising in multiple currencies from OTC credit derivatives contracts housed in Depository Trust and Clearing Corporation's Trade Information Warehouse.
CLS is chartered by the Federal Reserve as an Edge corporation under Section 25A of the Federal Reserve Act, as amended. As an Edge corporation, CLS Bank is supervised and regulated as a bank by the Federal Reserve. The Federal Reserve also acts as the lead overseer of CLS Bank in a cooperative oversight arrangement with the central banks whose currencies are settled by CLS Bank. This cooperative oversight arrangement is governed by a protocol between the participating central banks. See the Protocol for the Cooperative Oversight Arrangement of CLS.
The Federal Reserve and other relevant central banks oversee CLS's compliance with the Committee on Payment and Settlement Systems (CPSS) Core Principles for Systemically Important Payment Systems and, under the Federal Reserve's Policy on Payment System Risk, CLS must complete and maintain a current self-assessment against these principles. See "CLS Bank International Assessment of Compliance with the Core Principles for Systemically Important Payment Systems" (1,231 KB PDF) .
The Depository Trust and Clearing Corporation (DTCC) has three primary subsidiaries for the clearance and settlement of securities transactions--the Depository Trust Company (DTC), the National Securities Clearing Corporation (NSCC), and the Fixed Income Clearing Corporation (FICC).
DTC is a central securities depository and clearinghouse for the settlement of trades in eligible securities including equities, corporate bonds, municipal bonds, and money market instruments, such as commercial paper. It is chartered as a limited-purpose trust company under New York State banking law, is a member of the Federal Reserve System, and is a clearing agency registered with the Securities and Exchange Commission (SEC).
NSCC provides clearing and settlement services for corporate equities, corporate debt, municipal securities, mutual funds, annuities, and unit investment trusts. NSCC is a clearing agency registered with the SEC.
FICC, composed of the Government Securities Division (GSD) and the Mortgage-Backed Securities Division (MBSD), processes trades of U.S. Treasury securities, agency debt securities, and mortgage-backed securities. GSD is a central counterparty providing automated real-time trade comparison, netting, and settlement services for brokers, dealers, banks, and other financial institutions trading in the U.S. government securities market. MBSD provides automated post-trade comparison, position netting, risk management, and pool notification services to the mortgage-backed securities (MBS) market. MBSD, however, is not a central counterparty; therefore, it does not guarantee trades that it compares and nets. FICC is a clearing agency registered with the SEC.
As a state member trust company and registered clearing agency, DTC is supervised by the Federal Reserve, the New York State Banking Commission, and the SEC. NSCC and FICC, as registered clearing agencies, are supervised by the SEC. DTCC affiliates also produce regular self-assessments against the relevant international standards. See DTCC Assessments & Compliance .
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a member-owned cooperative headquartered in Belgium that is used by over 8,300 banking organizations, securities institutions and corporate customers in more than 200 countries. It allows users to exchange financial information securely and reliably.
The central banks of the Group of Ten countries (G-10) oversee SWIFT on a cooperative basis. The National Bank of Belgium (NBB) is lead overseer of SWIFT. As lead overseer, the NBB conducts the oversight of SWIFT in cooperation with the other G-10 central banks, including the Federal Reserve. The objectives of oversight of SWIFT center on the security, operational reliability, business continuity, and resilience of the SWIFT infrastructure.