The Financial Stability Oversight Council has designated eight financial market utilities (FMUs) as systemically important under Title VIII of the US Dodd-Frank Act.
Dodd-Frank enables the council to designate FMUs due to their role in clearing and settling transactions between financial institutions. The aim of the designations is to constrain risk and prevent future financial crises.
Clearing House Payments Company, CLS Bank International, Chicago Mercantile Exchange, the Depository Trust Company, Fixed Income Clearing Corporation, ICE Clear Credit, National Securities Clearing Corporation and OCC are the first to be designated as FMUs.
Dodd-Frank outlines four factors that the council must consider when determining whether an FMU is, or is likely to become, systemically important.
The four factors are: the aggregate monetary value of transactions processed by the FMU; the aggregate exposure of the FMU to its counterparties; the relationship, interdependencies or other interactions of the FMU with other FMUs or payment, clearing, or settlement activities; and the effect that the failure of or a disruption to the FMU would have on critical markets, financial institutions or the broader financial system.
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