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8.1 Designation of a Utility or Activity as Systemically Important

<< Title VIII Overview

8.1 Designation of a Utility or Activity as Systemically Important

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8.1        Designation of a Utility or Activity as Systemically Important.

8.1.1     Selection Procedure.  The Oversight Council will be responsible for designating (i) Utilities, or (ii) payment, clearing, or settlement activities ("Activity"), that the Council determines are, or are likely to become, systemically important.  A designation must be approved by a two-thirds vote and may be rescinded by a two-thirds vote. 

The Council will give notice to a Utility proposed for designation.  In the case of an Activity proposed for designation, the Council will publish notice of the proposed designation in the Federal Register.  A Utility proposed for designation, or a financial institution engaged in a proposed designated Activity, may request an opportunity for a hearing before the Council to demonstrate that the proposed designation or rescission of a designation is not supported by substantial evidence.   Before making any determination, the Council is required to consult with the relevant Supervisory Agency.  The relevant Supervisory Agency is the Federal agency that has primary jurisdiction over a designated Utility: the SEC in regard to a Utility that is a clearing agency registered with the SEC, the CFTC in regard to a Utility that is a DCO registered with the CFTC, the appropriate Federal banking agency with respect to a Utility that is an insured depository institution, or the Fed with respect to a Utility that is not subject to the jurisdiction of any of the foregoing agencies. [§ 804]

8.1.2     Selection Criteria.  In determining whether a Utility or an Activity is, or is likely to become, systemically important, the Council must take into consideration, among other things: (i) the total monetary value of transactions processed by the Utility or carried out through the Activity; (ii) the total exposure of the Utility or a financial institution engaged in payment, clearing, or settlement activities to its counterparties; (iii)  the relationships, interdependencies, or other interactions of the Utility or Activity with other Utilities or payment, clearing, or settlement activities; and (iv) the effect that the failure of or a disruption to the Utility or the Activity would have on critical markets, financial institutions, or the broader financial system.

8.1.2.1  Utilities.   The term "Utility" as defined in Section 8. above, does not include designated contract markets, registered futures associations, swap data repositories, and swap execution facilities registered under the Commodity Exchange Act.  It also does not include national securities exchanges, national securities associations, alternative trading systems, security-based swap data repositories, and SEFs registered under the Securities Exchange Act of 1934 ("Exchange Act").  These exclusions apply only to the activities that require the entity to be so registered.  The term Utility does not include any broker, dealer, transfer agent, or investment company, or any FCM, introducing broker, commodity trading advisory, or commodity pool operator solely as a result of functions performed in connection with the furnishing by the Utility of its services to its Participants or the use of the services of the Utility by its Participants, provided that the such entity do not constitute critical risk management or processing functions of the Utility. [§ 803]

8.1.2.2      Financial Activity.  A payment, clearing, or settlement activity is an activity carried out by 1 or more financial institutions to facilitate the completion of financial transactions.  A financial transaction includes: (i) funds transfers, (ii) securities contracts, (iii) repurchase agreements, (iv) derivatives contracts, and (v) FX contracts.  A financial transaction does not include any offer or sale of a security under the Securities Act or any quotation, order entry, negotiation, or other pre-trade activity or execution activity. [§ 803]

8.1.2.3.    Financial Institution. A financial institution includes a insured depository institution, a broker or dealer, an investment, an insurance company, an investment adviser.