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Federal Register / Vol. 79, No. 11 / Thursday, January 16, 2014 / Notices

announcement, the award process, or
the determination of the award, which
will be decided at the sole discretion of
the Chairman, based upon the
recommendation of the MEC.
Additional information:
The award winner may not claim
FMC or MEC endorsement. This award
does not constitute an endorsement of a
specific product, program or practice by
the FMC, MEC, or the U.S. Federal
Government.
For more information about the FMC
and the Chairman’s Earth Day Award,
please contact Mary Hoang at 202–521–
5733 or visit: http://www.fmc.gov/news/
maritime_environmental_issues.aspx.

Liberty Street, New York, New York
10045–0001:
1. The Adirondack Trust Company
Employee Stock Ownership Trust,
Saratoga Springs, New York, to acquire
an additional 50 shares of 473 Broadway
Holding Corporation, and 2,000
additional voting shares of The
Adirondack Trust Company, both in
Saratoga Springs, New York.
Board of Governors of the Federal Reserve
System, January 13, 2014.
Michael J. Lewandowski,
Associate Secretary of the Board.
[FR Doc. 2014–00734 Filed 1–15–14; 8:45 am]
BILLING CODE 6210–01–P

Rachel Dickon,
Assistant Secretary.

FEDERAL RESERVE SYSTEM

[FR Doc. 2014–00703 Filed 1–15–14; 8:45 am]

[Docket No. OP–1478]

BILLING CODE 6730–01–P

Policy on Payment System Risk

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Formations of, Acquisitions by, and
Mergers of Bank Holding Companies
The companies listed in this notice
have applied to the Board for approval,
pursuant to the Bank Holding Company
Act of 1956 (12 U.S.C. 1841 et seq.)
(BHC Act), Regulation Y (12 CFR part
225), and all other applicable statutes
and regulations to become a bank
holding company and/or to acquire the
assets or the ownership of, control of, or
the power to vote shares of a bank or
bank holding company and all of the
banks and nonbanking companies
owned by the bank holding company,
including the companies listed below.
The applications listed below, as well
as other related filings required by the
Board, are available for immediate
inspection at the Federal Reserve Bank
indicated. The applications will also be
available for inspection at the offices of
the Board of Governors. Interested
persons may express their views in
writing on the standards enumerated in
the BHC Act (12 U.S.C. 1842(c)). If the
proposal also involves the acquisition of
a nonbanking company, the review also
includes whether the acquisition of the
nonbanking company complies with the
standards in section 4 of the BHC Act
(12 U.S.C. 1843). Unless otherwise
noted, nonbanking activities will be
conducted throughout the United States.
Unless otherwise noted, comments
regarding each of these applications
must be received at the Reserve Bank
indicated or the offices of the Board of
Governors not later than February 10,
2014.
A. Federal Reserve Bank of New York
(Ivan Hurwitz, Vice President) 33

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Board of Governors of the
Federal Reserve System.
ACTION: Policy statement; request for
comment.
AGENCY:

FEDERAL RESERVE SYSTEM

The Board of Governors of the
Federal Reserve System (Board) is
proposing to revise part I of its Federal
Reserve Policy on Payment System Risk
(PSR policy), which sets forth the
Board’s views, and related principles
and minimum standards, regarding the
management of risk in payment,
clearing, and settlement systems. These
revisions are proposed in light of the
Principles for Financial Market
Infrastructures (PFMI), the international
risk-management standards for financial
market infrastructures (FMIs) published
in 2012.1 These revisions are also
proposed in light of the enhanced
supervisory framework for designated
financial market utilities as set forth in
Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of
2010 (‘‘Dodd-Frank Act’’ or ‘‘Act’’). In
particular, certain revisions are
intended to clarify that designated
financial market utilities for which the
Board is the Supervisory Agency under
Title VIII of the Act are required to
comply with Regulation HH and not the
risk-management or transparency
expectations set out in the policy.
The Board is proposing to (1) revise
the Board’s existing minimum riskmanagement standards in the PSR
policy to reflect the PFMI, which now
represents the relevant set of
international standards; (2) include all
SUMMARY:

1 An FMI is a multilateral system among
participating institutions, including the operator of
the system, used for the purposes of clearing,
settling, or recording payments, securities,
derivatives, or other financial transactions.

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central securities depositories, securities
settlement systems, and central
counterparties in the scope of part I of
the PSR policy; (3) introduce trade
repositories to the scope of part I of the
PSR policy; (4) clarify the Board’s riskmanagement expectations for six
mutually exclusive categories of FMI;
(5) replace the existing self-assessment
framework with a broader disclosure
expectation; and (6) recognize
responsibility E from the PFMI, in
addition to other relevant international
guidance, as the basis for cooperation
with other authorities in regulating,
supervising, and overseeing FMIs. The
Board also proposes several conforming
and technical changes to the
introduction, the discussion of risks in
payment, clearing, and settlement
systems, and part I of the PSR policy.
DATES: Comments are due on or before
March 31, 2014.
ADDRESSES: You may submit comments,
identified by Docket No. OP–1478, by
any of the following methods:
• Agency Web site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: regs.comments@
federalreserve.gov. Include the docket
number in the subject line of message.
• Facsimile: (202) 452–3819 or (202)
452–3102.
• Mail: Robert deV. Frierson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue NW., Washington,
DC 20551.
All public comments are available
from the Board’s Web site at http://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons.
Accordingly, your comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper form in Room MP–500 of the
Board’s Martin Building (20th and C
Streets NW) between 9 a.m. and 5 p.m.
on weekdays.
FOR FURTHER INFORMATION CONTACT:
Jennifer A. Lucier, Deputy Associate
Director (202) 872–7581, Emily A.
Caron, Senior Financial Services
Analyst (202) 452–5261, or Kathy C.
Wang, Senior Financial Services
Analyst (202) 872–4991, Division of
Reserve Bank Operations and Payment
Systems; Christopher W. Clubb, Special
Counsel (202) 452–3904 or Kara L.
Handzlik, Counsel (202) 452–3852,

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Federal Register / Vol. 79, No. 11 / Thursday, January 16, 2014 / Notices
Legal Division; for users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
SUPPLEMENTARY INFORMATION:

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I. Background
In adopting the PSR policy, the
Board’s objectives have been to foster
the safety and efficiency of payment,
clearing, and settlement systems. Part I
of the current policy sets forth the
Board’s views, and related principles
and minimum standards, regarding the
management of risks in payment,
clearing, and settlement systems,
including those operated by the Federal
Reserve Banks (Reserve Banks).2 In
setting out its views, the Board seeks to
encourage these systems and their
primary regulators to take the standards
in this policy into consideration in the
design, operation, monitoring, and
assessment of these systems. The Board
is guided by part I when exercising its
supervisory and regulatory authority
over entities under its jurisdiction,
providing accounts and services,
participating in cooperative oversight
and similar arrangements, and
providing Federal Reserve intraday
credit to eligible account holders. Part I
is not intended to exert or create
supervisory or regulatory authority over
any particular class of institutions or
arrangements where the Board does not
have such authority.
Since the early 1980s, the Board has
published and periodically revised a
series of policies encouraging the
reduction and management of risks in
payment and securities settlement
systems.3 In 1992, the Board issued its
first ‘‘Policy Statement on Payments
System Risk,’’ which provided a
comprehensive statement of its
previously adopted policies regarding
payment system risk reduction,
including risk management in private
large-dollar funds transfer networks,
private delivery-against-payment
securities settlement systems, offshore
dollar clearing and netting systems, and
private small-dollar clearing and
settlement systems.4 Over time, the
Board has updated the PSR policy to
reflect the evolution of payment,
clearing, and settlement systems that
participate in the financial system;
incorporate relevant international riskmanagement standards developed by
central banks and market regulators as
2 Part II governs the provision of intraday credit
in accounts at the Reserve Banks and sets out the
general methods used by the Reserve Banks to
control their intraday credit exposures.
3 See 50 FR 21120, (May 22, 1985); 52 FR 29255
(Aug. 6, 1987); 54 FR 26104 and 26092 (June 21,
1989); and 54 FR 26092 (June 21, 1989).
4 57 FR 40455 (Sept. 3, 1992).

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the baseline for its expectations; and
improve transparency in the systems
that are subject to its authority.5
Specifically, in 2004, the Board
incorporated two key sets of standards
into the PSR policy: the Committee on
Payment and Settlement Systems
(CPSS) report on the Core Principles for
Systemically Important Payment
Systems (CPSIPS), which extended and
replaced the Lamfalussy Minimum
Standards, and the CPSS and Technical
Committee of the International
Organization of Securities Commissions
(IOSCO) report on Recommendations
for Securities Settlement Systems
(RSSS), which provided riskmanagement standards for securities
settlement systems.6 The CPSS and
IOSCO built upon the RSSS and
developed the Recommendations for
Central Counterparties (RCCP) in 2004,
which provided specific standards for
central counterparties; the Board
incorporated these standards in its PSR
policy in 2007.7
In the 2007 revisions, the Board
established an expectation for certain
payment, clearing, and settlement
systems to disclose publicly selfassessments against the standards
incorporated in the policy, as
appropriate. The Board expected these
self-assessments to contain sufficient
information to allow users and other
stakeholders to identify, understand,
and evaluate the risks of using the
system’s services. In addition to
disclosing this information, systems
were asked to assign themselves a rating
with respect to observance of the
5 In 1994, the Board incorporated the Lamfalussy
Minimum Standards that were set out in the Report
of the Committee on Interbank Netting Schemes of
the Central Banks of the Group of Ten Countries,
published by the Bank for International Settlements
in November 1990. 59 FR 67534 (Dec. 29, 1994). See
the report at http://www.bis.org/publ/cpss04.pdf.
6 69 FR 69926 (Dec. 1, 2004). The CPSIPS and
RSSS are available at http://www.bis.org/publ/
cpss43.htm and http://www.bis.org/publ/
cpss46.htm, respectively. The Federal Reserve
participated in the development of the CPSIPS, and
the Federal Reserve, the U.S. Securities and
Exchange Commission (SEC), and the U.S.
Commodity Futures Trading Commission (CFTC)
participated in the development of the RSSS. The
CPSIPS and RSSS were adopted as part of the
Financial Stability Board’s (FSB’s) Key Standards
for Sound Financial Systems, which are widely
recognized and endorsed by U.S. authorities as
integral to strengthening global financial stability.
The FSB is an international forum that was
established to develop and promote the
implementation of effective regulatory, supervisory
and other financial sector policies. The FSB
includes the U.S. Department of the Treasury, the
Board, and the SEC.
7 72 FR 2518 (Jan. 19, 2007). The RCCP is
available at http://www.bis.org/publ/cpss64.htm. In
addition to the Federal Reserve, the SEC and the
CFTC participated in the development of the RCCP.
The report was adopted as part of the FSB’s Key
Standards for Sound Financial Systems.

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standards. Systems were expected to
review and update their selfassessments at least once every two
years.
Title VIII of the Dodd-Frank Act. Title
VIII of the Dodd-Frank Act established
an enhanced supervisory framework for
payment, clearing, and settlement
systems, defined as financial market
utilities under the Act, that are
designated by the Financial Stability
Oversight Council (Council) as
systemically important.8 Among other
things, Title VIII directs the Board to
prescribe, by rule or order, riskmanagement standards for certain
designated financial market utilities,
including those for which the Board is
the Supervisory Agency, taking into
consideration relevant international
standards and existing prudential
requirements.9 In July 2012, the Board
adopted by regulation (Regulation HH)
risk-management standards based on the
CPSIPS, RSSS, and RCCP.10
CPSS–IOSCO PFMI. In April 2012,
CPSS and IOSCO published the PFMI,
which updated, harmonized,
strengthened, and replaced the existing
standards in the CPSIPS, RSSS, and
RCCP.11 The PFMI sets forth 24 riskmanagement and related principles for
payment systems that are systemically
8 The term ‘‘financial market utility’’ is defined in
Title VIII as ‘‘any person that manages or operates
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 person’’
(12 U.S.C. 5462(6)). Financial market utilities are a
subset of FMIs. For example, trade repositories are
excluded from the definition of a financial market
utility.
9 The term ‘‘Supervisory Agency’’ is defined in
Title VIII as the ‘‘Federal agency that has primary
jurisdiction over a designated financial market
utility under Federal banking, securities, or
commodity futures laws’’ (12 U.S.C. 5462(8)).
Currently, the Board is the Supervisory Agency for
two financial market utilities that have been
designated by the Council—The Clearing House
Payments Company, L.L.C., on the basis of its role
as operator of the Clearing House Interbank
Payments System, and CLS Bank International;
these designated financial market utilities are
subject to the risk-management standards
promulgated by the Board under section
805(a)(1)(A). These standards also apply to any
designated financial market utility for which
another Federal banking agency is the appropriate
Title VIII Supervisory Agency. At this time, there
are no designated financial market utilities in this
category.
10 77 FR 45907 (Aug. 2, 2012).
11 The PFMI is available at http://www.bis.org/
publ/cpss101a.pdf. In the final rule for Regulation
HH, the Board stated that it anticipated reviewing
the PFMI, consulting with other appropriate
agencies and the Council, and seeking public
comment on the adoption of revised standards for
designated financial market utilities based on the
new international standards. See 77 FR 45907,
45908–09 (Aug. 2, 2012). Concurrent with this
proposal, the Board is issuing proposed revisions to
Regulation HH that take into consideration the
PFMI.

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important, central securities
depositories, securities settlement
systems, central counterparties, and
trade repositories. The report addresses
areas such as legal risk, governance,
credit and liquidity risks, operational
risk, general business risk, and other
types of risk. The report also addresses
the interdependencies between and
among the individual risks, recognizing
that attempts to mitigate one type of risk
might give rise to another. In some
cases, a principle will build upon others
or multiple principles will reference a
common theme. Therefore, the 24
principles are designed to be applied as
a set, and not on a stand-alone basis,
because of the significant interaction
among the principles.
The 24 principles are organized such
that each principle comprises (1) a
headline standard, (2) a list of key
considerations that further elaborate on
the headline standard, and (3)
accompanying explanatory notes that
discuss the objective and rationale of
the principle and provide additional
guidance on how the principle may be
implemented. Some headline standards
and key considerations set out a specific
minimum requirement to ensure that a
minimum level of risk management is
achieved across FMI types and across
jurisdictions. The principles, however,
do not typically prescribe a specific tool
or arrangement to achieve their
requirements in recognition that the
means to satisfy a given requirement
may vary by the type of entity or the
market it serves.
The PFMI contains new and
heightened requirements and moreextensive guidance for FMIs than did
the previous set of international
standards, such as providing moreextensive guidance on governance of an
FMI and placing greater emphasis on
transparency. It also requires that
certain FMIs maintain a higher level of
financial resources to address credit risk
than in the past; it provides a separate
set of requirements with respect to
liquidity risk; and it contains higher
requirements with respect to the type
and frequency of testing to assess the
sufficiency of financial resources to
address both credit and liquidity risks.
Additionally, the PFMI sets forth new
requirements for FMIs to plan for
recovery and orderly wind-down, to
manage general business risk, to manage
the risks associated with tiered
participation, and for central
counterparties to have rules and
procedures that enable segregation and
portability.
In addition to the 24 principles, the
PFMI sets out five responsibilities for
authorities responsible for effective

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regulation, supervision, and oversight of
FMIs, including central banks. The five
responsibilities call for (A) FMIs to be
subject to appropriate and effective
regulation, supervision, and oversight,
(B) FMI authorities to have the powers
and resources necessary to carry out
effectively their responsibilities with
respect to FMIs, (C) FMI authorities to
clearly define and disclose their policies
with respect to FMIs, (D) FMI
authorities to adopt the PFMI and apply
it consistently, and (E) FMI authorities
to cooperate with each other, as
appropriate, in promoting the safety and
efficiency of FMIs.
Overall, the PFMI reflects more than
a decade of experience with
international standards for FMIs,
important lessons from recent financial
crises, and other relevant policy work
by the international standard-setting
bodies. The Federal Reserve, along with
the U.S. Securities and Exchange
Commission (SEC) and the U.S.
Commodity Futures Trading
Commission (CFTC), had a significant
role in the development of this
document. The report also reflects broad
market input, including from U.S. FMIs
and market participants.12
CPSS–IOSCO Disclosure Framework
for FMIs. In December 2012, the CPSS
and IOSCO followed up on the
publication of the PFMI by publishing
their report on the Principles for
Financial Market Infrastructures:
Disclosure Framework and Assessment
Methodology (‘‘disclosure framework’’
and ‘‘assessment methodology’’).13 The
disclosure framework prescribes the
form and content of the disclosures
expected of FMIs in principle 23 of the
PFMI. The assessment methodology
provides guidance to assessors for
evaluating observance of the 24
principles and five responsibilities set
forth in the PFMI. The Federal Reserve,
along with the SEC and the CFTC, had
a significant role in the development of
this document.
II. Discussion of Proposed Policy
Changes
The Board is proposing to revise part
I of its PSR policy in light of the
international risk-management
standards in the PFMI. The Board is also
revising part I in light of the enhanced
supervisory framework for designated
12 The CPSS and IOSCO published a consultative
version of the PFMI in March 2011 and received
120 comment letters on that version. All designated
financial market utilities, as well as many of their
major participants, provided comment on the
consultative version.
13 The disclosure framework and assessment
methodology are available at http://www.bis.org/
publ/cpss106.pdf.

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financial market utilities set forth in
Title VIII of the Dodd-Frank Act. In
particular, certain revisions are
intended to clarify that designated
financial market utilities that are
required to comply with Regulation HH
are not also subject to the riskmanagement or transparency
expectations set out in the policy.
The Board requests comments on its
proposal to (1) revise the Board’s
existing minimum risk-management
standards in the PSR policy to reflect
the PFMI, (2) include all central
securities depositories, securities
settlement systems, and central
counterparties in the scope of part I of
the PSR policy, (3) introduce trade
repositories to the scope of part I of the
PSR policy, (4) clarify the Board’s riskmanagement expectations for six
mutually exclusive categories of FMI,
(5) replace the existing self-assessment
framework with a broader disclosure
expectation, and (6) recognize
responsibility E from the PFMI, in
addition to other relevant international
guidance, as the basis for cooperation
with other authorities in regulating,
supervising, and overseeing FMIs. The
Board also proposes several conforming
and technical changes to the
introduction, the discussion of risks in
payment, clearing, settlement systems,
and part I of the PSR policy.
The Board proposes that the revised
policy become effective when the final
version is published in the Federal
Register. The Board recognizes,
however, that several of the
expectations in the revised policy are
new or heightened and may require
additional time to implement, such as
up to six months after finalization of the
policy.14 These may include the revised
expectations in section I.B.2 on
transparency and the expectation to
manage risks arising in tiered
participation arrangements under
principle 19 in the appendix. They may
also include certain aspects of principle
3 on framework for the comprehensive
management of risks, principle 4 on
credit risk, principle 7 on liquidity risk,
and principle 15 on general business
risk in the appendix.
1. Revise the Board’s Existing Minimum
Risk-Management Standards in the PSR
Policy To Reflect the PFMI
The Board proposes to incorporate the
PFMI in part I of the PSR policy by
incorporating the headline standards
from the 24 principles with no
modification as the relevant risk14 The Board would monitor implementation with
respect to these expectations through the
supervisory process.

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management standards for all central
securities depositories, securities
settlement systems, central
counterparties, and trade repositories, as
well as certain payment systems. This
approach is consistent with the Board’s
past actions to incorporate appropriate
international standards for key payment,
clearing, and settlement systems into its
policy statement. The new headline
standards will replace the existing
standards from the CPSIPS, RSSS, and
RCCP previously set out in sections
I.C.1 and I.C.2 of the PSR policy. For
readability, the Board is proposing to
move the list of headline standards into
an appendix to the policy.
The Board believes these standards
should be incorporated into part I of the
PSR policy because the PFMI
establishes an important framework for
promoting sound risk management in
FMIs, both domestically and
internationally. The safety and
efficiency of FMIs affect the safety and
soundness of U.S. financial institutions
and, in many cases, are vital to the
financial stability of the United States.
The Board has recognized and endorsed
the PFMI as integral to strengthening the
stability of the broader financial system.
In addition, the Financial Stability
Board (FSB) has replaced the CPSIPS,
RSSS, and RCCP with the PFMI in its
Key Standards for Sound Financial
Systems.15 The Basel Committee on
Banking Supervision (BCBS) considers
the application of the PFMI to be an
important factor in determining capital
charges for bank exposures to central
counterparties related to over-thecounter derivatives, exchange-traded
derivatives, and securities financing
transactions.16 Central banks and
market regulators around the world are
now taking steps to incorporate the
PFMI into the legal and supervisory
frameworks applicable to FMIs.17
In a separate, related Federal Register
notice, the Board proposes to revise
concurrently Regulation HH in
consideration of the PFMI. The language
proposed for the risk-management
standards in the PSR policy is different
from the language proposed in the
revisions to Regulation HH. In the PSR
15 For the FSB’s Key Standards for Sound
Financial Systems, see http://
www.financialstabilityboard.org/cos/key_
standards.htm.
16 See BCBS, Capital Requirements for Bank
Exposures to Central Counterparties, July 2012,
(http://www.bis.org/publ/bcbs227.pdf) and BCBS,
Capital Treatment of Bank Exposures to Central
Counterparties, consultative document, June 2013
(http://www.bis.org/publ/bcbs253.pdf).
17 Progress on implementation as of April 5, 2013,
is reflected in CPSS–IOSCO, Implementation
Monitoring of PFMIs—Level 1 Assessment Report,
August 2013 (http://www.bis.org/publ/cpss111.pdf).

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policy, the Board proposes to maintain
its long-standing approach of
incorporating the headlines of the
international standards with no
modification. In implementing the PSR
policy, the Board anticipates that it will
be guided by the key considerations and
explanatory notes of the PFMI. As an
enforceable federal regulation, however,
the text of Regulation HH requires a
greater degree of clarity, so more detail
was included in the regulatory text,
including concepts from the key
considerations and explanatory text of
the PFMI.
2. Include all Central Securities
Depositories, Securities Settlement
Systems, and Central Counterparties in
the Scope of Part I of the PSR Policy
Consistent with the scope of the
PFMI, the Board proposes to expand the
scope of part I of the PSR policy to
include all central securities
depositories, securities settlement
systems, and central counterparties,
irrespective of the value or nature of
transactions processed by the system.
The scope of the current part I of the
PSR policy includes only those central
securities depositories, securities
settlement systems, and central
counterparties that expect to settle a
daily aggregate gross value of U.S.
dollar-denominated transactions
exceeding $5 billion on any day during
the next 12 months. The Board believes
all of these types of FMIs should be
within the scope of the policy because
they perform activities that are critical
to the functioning of the financial
markets or support the transparency of
the market they serve. As discussed
further below, part I is not intended to
exert supervisory or regulatory authority
over any particular class of institutions
or arrangements where the Board does
not have such authority.
The Board also proposes to revise part
I of the PSR policy to reflect the
functional definitions of ‘‘securities
settlement system’’ and ‘‘central
securities depository’’ in the PFMI. The
current PSR policy is based on the
definitions for these terms provided in
the RSSS, which defines a securities
settlement system as ‘‘the full set of
institutional arrangements for
confirmation, clearance, and settlement
of securities trades and safekeeping of
securities’’ and a central securities
depository as ‘‘an institution for holding
securities that enables securities
transactions to be processed by means of
book entries.’’ For consistency with the
PFMI, the Board proposes to revise the
policy to define securities settlement
system more narrowly as an entity that
‘‘enables securities to be transferred and

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2841

settled by book entry and allows
transfers of securities free of or against
payment’’ and to define a central
securities depository as an entity that
‘‘provides securities accounts and
central safekeeping services.’’
3. Introduce Trade Repositories Into the
Scope of Part I of the PSR Policy
Consistent with the scope of the
PFMI, the Board proposes to expand the
scope of part I of the PSR policy to
include trade repositories. (The Board
notes that it does not have any direct
supervisory authority over a trade
repository at this time.) Trade
repositories are entities that maintain a
centralized electronic record of
transaction data and have emerged as an
important type of FMI, especially in the
over-the-counter derivatives market.
This type of FMI improves market
transparency by providing data to
relevant authorities and the public in
line with their respective information
needs. Timely and reliable access to
data stored in a trade repository can
improve the ability of relevant
authorities and the public to identify
and evaluate potential risks to the
broader financial system. Trade
repositories should be expected to
manage their risks in a manner
consistent with the PFMI to help ensure
that these public interest objectives are
met.
4. Clarify the Board’s Risk-Management
Expectations for Six Mutually Exclusive
Categories of FMI
The Board proposes revisions to the
PSR policy that define six mutually
exclusive categories of FMI and set forth
separately the Board’s risk-management
expectations for each category. Five of
the proposed categories are set out in
section I.B.1 of the revised policy; these
are (1) the Fedwire Funds Service and
the Fedwire Securities Service
(collectively, Fedwire Services); (2)
designated financial market utilities for
which the Board is the Supervisory
Agency under Title VIII of the DoddFrank Act; (3) other FMIs that are
subject to the Board’s supervisory
authority under the Federal Reserve Act;
(4) all other central securities
depositories, securities settlement
systems, central counterparties, and
trade repositories; and (5) other
systemically important offshore and
cross-border payment systems. An
additional category for other payment
systems within the scope of the policy
is set out in section I.C of the revised
policy. The Board believes the
categories are necessary to avoid
confusion about how the policy
addresses each category of FMI in light

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of the changes to the scope of the policy
and the passage of the Dodd-Frank Act.
The Board recognizes that other
authorities may regulate FMIs within
the scope of this policy, and the Board
encourages these authorities to adopt
policies consistent with the PFMI.
Fedwire Services. The Board proposes
a category in the PSR policy for the
Fedwire Services. The Board expects
that the Fedwire Services meet or
exceed the standards set forth in the
proposed appendix to the policy. The
Board anticipates that it will be guided
by the key considerations and
explanatory notes in the PFMI,
including the guidance on central bankoperated systems, in supervising the
Fedwire Services. This expectation is
consistent with past practice; the Board
has historically recognized the critical
role that the Fedwire Services play in
the financial system and has required
them to meet or exceed the applicable
international standards incorporated
into the PSR policy.
Consistent with the previous
international standards, the PFMI
recognizes that flexibility in
implementation is warranted for central
bank-operated systems to meet the
objectives of the standards because of
central banks’ roles as monetary
authorities and liquidity providers. The
Board believes that these principles may
include principle 2 on governance,
principle 3 on the framework for the
comprehensive management of risks,
principle 4 on credit risk, principle 5 on
collateral, principle 7 on liquidity risk,
principle 13 on participant-default rules
and procedures, principle 15 on general
business risk, and principle 18 on
access and participation requirements.18
One example of a principle where the
Board proposes to allow flexibility in
application for the Fedwire Services is
principle 15 on general business risk. A
key consideration in principle 15
requires FMIs to maintain viable
recovery or orderly wind-down plans
that consider general business risk and
to hold sufficient liquidity and capital
reserves to implement the plans. The
Fedwire Services do not face the risk
that a business shock would cause the
service to wind down in a disorderly
manner and disrupt the stability of the
financial system. The Federal Reserve,
as the central bank, would support a
recovery or orderly wind-down of the
service, as appropriate to meet public
policy objectives. Therefore, the Board
proposes not to require the Fedwire
Services to develop recovery or orderly
18 Relevant references from the explanatory notes
of the PFMI include paragraphs 1.23 and 3.2.7 and
footnotes 45, 134, and 144.

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wind-down plans.19 In order to foster
competition with private-sector FMIs,
however, the Board proposes to require
the Federal Reserve priced services to
hold six months of the Fedwire Funds
Service’s current operating expenses as
liquid financial assets and equity on the
pro forma balance sheet.20 21 This
balance sheet is used for imputing costs
in the private-sector adjustment factor
and, as a result, establishing Fedwire
Funds Service fees.22 If it is necessary
to impute additional assets and equity,
the incremental cost would be
incorporated into the pricing of Fedwire
Funds Service fees. The Board may
reexamine the six-month requirement in
light of the final rule for Regulation HH
and issues of competitive equity
between private-sector systems and the
Fedwire Funds Service.23
Designated financial market utilities
for which the Board is the Supervisory
Agency under Title VIII of the DoddFrank Act. The Board proposes to
19 The Board also proposes not to require the
Fedwire Services to develop recovery or orderly
wind-down plans as required under principle 3 on
framework for the comprehensive management of
risks.
20 As required by the Monetary Control Act of
1980, Board policy has historically required and
will continue to require that the Fedwire Services
be operated and priced in a manner that fosters
competition, improves the efficiency of the
payment mechanism, and lowers costs of these
services to society. The Board established a set of
pricing principles that governs the schedule of fees
for the Federal Reserve priced services, including
the Fedwire Services, that is consistent with these
objectives. (12 U.S.C. 248a(c)(3); http://
www.federalreserve.gov/paymentsystems/pfs_
principles.htm).
21 Consistent with the PFMI, the calculation of
these current operating expenses would exclude
depreciation and amortization expenses.
22 Federal Reserve priced services fees are set to
recover, over the long run, all direct and indirect
costs and imputed costs, including financing costs,
taxes, and certain other expenses, as well as the
return on equity (profit) that would have been
earned if a private business provided the services.
The imputed costs and imputed profit are
collectively referred to as the private-sector
adjustment factor. The Board’s current method for
calculating the private-sector adjustment factor
involves developing an estimated Federal Reserve
priced services pro forma balance sheet using actual
priced services assets and liabilities. The remaining
components on the balance sheet, such as equity,
are imputed as if these services were provided by
a publicly traded firm. The capital structure of
imputed equity is derived from the market for
publicly traded firms, subject to minimum equity
constraints consistent with those required by the
Federal Deposit Insurance Corporation for a wellcapitalized institution.
23 The Board does not plan to impose this
requirement on the Fedwire Securities Service.
There are no competitors to the Fedwire Securities
Service that would face such a requirement.
Therefore, imposing such a requirement when
pricing securities services would artificially
increase the cost of these services, inconsistent with
the intent of the Monetary Control Act of 1980 that
services be provided at the lowest cost to society
(see http://www.federalreserve.gov/
paymentsystems/pfs_principles.htm).

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include a category in the PSR policy for
designated financial market utilities for
which the Board is the Supervisory
Agency under Title VIII of the DoddFrank Act. The proposed part I of the
PSR policy states explicitly that these
FMIs are expected to comply with the
risk-management requirements in
Regulation HH only. The discussion of
this category in the policy is intended
to clarify that designated financial
market utilities subject to Regulation
HH are not within the scope of the riskmanagement expectations set out in part
I of the PSR policy.
Other financial market infrastructures
subject to the Board’s supervisory
authority under the Federal Reserve Act.
The Board proposes to include a
category for other private-sector FMIs
that are subject to the Board’s authority.
This category would include FMIs that
are chartered as state member banks,
trust companies, and Edge or agreement
corporations, other than those that are
designated financial market utilities
subject to Regulation HH. The Board
expects these FMIs to meet or exceed
the standards proposed in the appendix.
All other central securities
depositories, securities settlement
systems, central counterparties, and
trade repositories. The Board proposes
to include a category for all other central
securities depositories, securities
settlement systems, central
counterparties, and trade repositories,
whether they are located within or
outside of the United States, and
encourages these FMIs to meet or
exceed the standards proposed in the
appendix. Consistent with the scope of
the PFMI, the Board supports the
application of the standards in the
appendix to these FMIs, regardless of
size, because they perform activities that
are critical to market functioning or
support the transparency of the market
they serve. Where the Board does not
have authority over a central securities
depository, securities settlement system,
central counterparty, or trade repository,
the Board will be guided by this policy
in its cooperative efforts with other FMI
authorities.
Other systemically important offshore
and cross-border payment systems. The
Board proposes a category for
systemically important offshore and
cross-border payment systems that are
not included in any of the categories
above. These systems may be used by
U.S. financial institutions, clear or settle
U.S. dollars, or have an impact on
financial stability, more broadly. The
Board encourages these payment
systems to meet or exceed the standards
proposed in the appendix. The Board
will be guided by this policy in its

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cooperative efforts with other payment
system authorities.
Other payment systems within the
scope of the policy. The Board proposes
a category in the revised policy for other
payment systems that exceed the
existing $5 billion daily transaction
threshold (or equivalent) but that are not
captured in the categories outlined
above and in proposed section I.B.1 on
risk management. The Board encourages
these payment systems to comply with
the general policy expectations
previously set forth in section I.B. of the
policy (section I.C. in the proposed
revised policy).
The current part I of the PSR policy
follows an organizational approach that
establishes general policy expectations
for all payment, clearing, and settlement
systems within the scope of the policy
and then adds heightened expectations
for systemically important systems. In
light of the PFMI and Regulation HH,
the Board is proposing to modify this
approach to clarify its expectations.
Under the proposed revisions, the
general expectations would now be
confined to ‘‘other payment systems
within the scope of the policy’’ for
purposes of simplicity and clarity.
There would be no need to apply
separately the general expectations to
the other categories of FMIs. The general
expectations themselves are consistent
in substance with principles 1 through
3 of the PFMI and would remain
unchanged.
5. Replace the Existing Self-Assessment
Framework With a Broader Disclosure
Expectation
The Board proposes to replace the
existing self-assessment framework for
systemically important systems, as
previously set out in section I.C.3, with
a broader expectation of public
disclosure set out in proposed section
I.B.2 on transparency. The Board would
expect the FMIs addressed in section
I.B.1 that are subject to its authority,
except designated financial market
utilities that are subject to Regulation
HH, to complete the disclosure
framework and to disclose their
responses to the public.24 The Board
also encourages FMIs that are not
subject to its authority to disclose their
responses to the disclosure framework
and will work with the appropriate
authorities to promote such disclosures.
The Board believes that
comprehensive public disclosures by
FMIs will promote increased
understanding among participants,
24 The

Board’s proposed revised Regulation HH
imposes an equivalent public disclosure
requirement.

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authorities, and the broader public of
the activities of an FMI, its risk profile,
and its risk-management practices and
will thus support sound decisionmaking
by FMIs and their stakeholders.
Comprehensive disclosures will also
facilitate the implementation and
ongoing monitoring of observance of the
risk-management standards in the
appendix. Consequently,
comprehensive disclosures are a means
to achieve greater stability in the
financial system.
The Board believes that the disclosure
framework is an appropriate template
for these disclosures because it provides
an international baseline that will
promote consistent disclosures by FMIs
around the world. The disclosure
framework includes background
information on the FMI’s function and
the market it serves, basic performance
statistics for the FMI, and a description
of the FMI’s organization, legal and
regulatory framework, system design,
and operations as well as a narrative for
each principle that summarizes the
FMI’s approach to observing the
principle. The accompanying
assessment methodology provides
guiding questions that an FMI may use
to guide the content and level of detail
of its narrative. Unlike the existing selfassessment framework, however, the
Board does not expect the FMI to assign
itself a rating of observance for each
standard.
Many of the expectations in the
existing self-assessment framework with
respect to frequency of updates, review
and approval, and publication of the
disclosure will remain the same. The
Board will continue to expect an FMI to
update the relevant parts of its
disclosure following changes to the FMI
or the environment in which it operates
that would significantly change the
accuracy of its public disclosure. At a
minimum, an FMI would be expected to
review and update as warranted its
disclosure every two years. The Board
will continue to expect an FMI’s senior
management and board of directors to
review and approve the FMI’s
disclosure. Lastly, the Board continues
to expect the FMI to make its disclosure
readily available to the public, such as
by posting it on the FMI’s public Web
site.
6. Recognize Responsibility E From the
PFMI, in Addition to Other Relevant
International Guidance, as the Basis for
Cooperation With Other Authorities
The Board proposes to incorporate
responsibility E from the PFMI in the
PSR policy, in addition to existing
international guidance, as the basis for
its cooperation with other authorities in

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the regulation, supervision, and
oversight of FMIs. The Board has a longstanding history of cooperation with
other authorities. The Board believes
that cooperative arrangements among
authorities are an effective and practical
means to promote effective risk
management and transparency by FMIs.
As stated in the proposed revisions,
where the Board does not have statutory
or exclusive authority over an FMI
covered by the policy, the Board will be
guided in its interactions with other
domestic and foreign authorities by
international principles on cooperative
arrangements for the regulation,
supervision, and oversight of FMIs,
including responsibility E in the PFMI
and part B of the CPSS Central Bank
Oversight of Payment and Settlement
Systems report.25 Accordingly, the
Board proposes to create a new section
I.D in the PSR policy to highlight and
expand the existing discussion in the
current policy of cooperation among
authorities in regulating, supervising,
and overseeing FMIs.
III. Request For Comment
The Board requests comment on the
proposed revisions to its PSR policy.
Where possible, commenters should
provide both quantitative data and
detailed analysis in their comments,
particularly with respect to suggested
alternatives to the proposed revisions.
Commenters should also explain the
rationale for their suggestions. In
particular, the Board requests comment
on whether the revisions are sufficiently
clear and achieve the Board’s intended
objectives. The Board also requests
comment on the following specific
questions:
1. Should the Board incorporate only
the headline standards from the PFMI in
the PSR policy or should the Board also
incorporate key considerations?
2. Has the Board clearly articulated
the applicability of the risk-management
expectations in the PSR policy to each
category and type of FMI?
3. Are there other risk-management
expectations that the Board should
include in the PSR policy?
4. Should the Board provide specific
standards for the Fedwire Services in an
appendix to the PSR policy to clarify
how the PFMI will be applied to these
central bank-operated systems?
5. Is the proposed application of
principle 15 in the appendix to the
Fedwire Funds Service appropriate?
The Board considered the alternative of
25 See CPSS, Central Bank Oversight of Payment
and Settlement Systems, Part B on ‘‘Principles for
international cooperative oversight,’’ May 2005,
available at http://www.bis.org/publ/cpss68.htm.

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requiring the Fedwire Funds Service to
impute holdings of liquid financial
assets and equity that are specific to
Fedwire Funds Service itself to meet the
requirement, but believes that it would
likely be difficult to implement in
practice. For the case in which an FMI
is part of a larger legal entity, are there
any reasonable methodologies for
determining which of the liquid
financial assets and equity held at the
legal entity level belong to a particular
service line?
6. Are the proposed triggers for
reviewing and updating a disclosure
appropriate? If not, what other triggers
would ensure published disclosures
remain accurate?
7. As discussed above, the Board
recognizes that certain expectations in
the policy may require additional time
to implement. Besides those
expectations listed above, are there
other expectations that may require
additional time to implement? Is six
months sufficient to implement changes
to meet these expectations?

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IV. Administrative Law Matters
1. Competitive Impact Analysis
The Board has established procedures
for assessing the competitive impact of
rule or policy changes that have a
substantial impact on payment system
participants.26 Under these procedures,
the Board will assess whether a change
would have a direct and material
adverse effect on the ability of other
service providers to compete effectively
with the Federal Reserve in providing
similar services due to differing legal
powers or constraints, or due to a
dominant market position of the Federal
Reserve deriving from such differences.
If no reasonable modifications would
mitigate the adverse competitive effects,
the Board will determine whether the
anticipated benefits are significant
enough to proceed with the change
despite the adverse effects.
The proposed policy revisions
provide that Reserve Bank systems will
be treated similarly to private-sector
systems and thus will have no material
adverse effect on the ability of other
service providers to compete effectively
with the Reserve Banks in providing
payment and securities settlement
services. As stated above, there are
several risk-management standards in
the appendix for which flexibility in
implementation will be necessary for
the Fedwire Services given the Federal
Reserve’s legal framework and structure
26 These procedures are described in the Board’s
policy statement ‘‘The Federal Reserve in the
Payments System,’’ as revised in March 1990 (55 FR
11648 (Mar. 29, 1990)).

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and its roles as monetary authority and
liquidity provider. The Board
recognizes, however, the critical role
that the Fedwire Services play in the
financial system and will require them
to meet or exceed the applicable
international standards incorporated
into the PSR policy. Where appropriate
to foster competition with private-sector
systems, the Board proposes to
incorporate the cost of certain
requirements into the pricing of Fedwire
Services. Furthermore, if the Board
determines that its approach to applying
the standards in the appendix to the
Fedwire Services creates a competitive
imbalance between the Fedwire
Services and any private-sector
competitors that provide similar
services, the Board may reexamine the
requirements for the Fedwire Services.
Therefore, the Board believes the
proposed policy will have no material
adverse effect on the ability of other
service providers to compete effectively
with the Reserve Banks in providing
payment and securities settlement
services.
2. Paperwork Reduction Act Analysis
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR part 1320, Appendix A.1), the
Board reviewed the proposed policy
under the authority delegated to the
Board by the Office of Management and
Budget. For purposes of calculating
burden under the Paperwork Reduction
Act, a ‘‘collection of information’’
involves 10 or more respondents. Any
collection of information addressed to
all or a substantial majority of an
industry is presumed to involve 10 or
more respondents (5 CFR 1320.3(c),
1320.3(c)(4)(ii)). The Board estimates
there are fewer than 10 respondents,
and these respondents do not represent
all or a substantial majority of payment,
clearing, and settlement systems.
Therefore, no collections of information
pursuant to the Paperwork Reduction
Act are contained in the proposed
policy.
V. Federal Reserve Policy On Payment
System Risk
Introduction
Risks In Payment, Clearing, Settlement,
and Recording Systems
PART I. RISK MANAGEMENT FOR
FINANCIAL MARKET
INFRASTRUCTURES
A. Scope
B. Policy expectations for certain
financial market infrastructures
1. Risk management
a. Fedwire Services
b. Designated financial market

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utilities for which the Board is the
Supervisory Agency under Title
VIII of the Dodd-Frank Act
c. Other financial market
infrastructures that are subject to
the Board’s supervisory authority
under the Federal Reserve Act
d. All other central securities
depositories, securities settlement
systems, central counterparties, and
trade repositories
e. Other systemically important
offshore and cross-border payment
systems
2. Transparency
C. General policy expectations for other
payment systems within the scope of
the policy
1. Establishment of a risk-management
framework
a. Identify risks clearly and set sound
risk-management objectives
b. Establish sound governance
arrangements to oversee the riskmanagement framework
c. Establish clear and appropriate
rules and procedures to carry out
the risk-management objectives
d. Employ the resources necessary to
achieve the system’s riskmanagement objectives and
implement effectively its rules and
procedures
2. Other considerations for a riskmanagement framework
D. Cooperation with other authorities in
regulating, supervising, and
overseeing financial market
infrastructures
PART II. FEDERAL RESERVE
INTRADAY CREDIT POLICIES
APPENDIX—CPSS–IOSCO Principles
for Financial Market Infrastructures
Introduction
Financial market infrastructures (FMIs) are
critical components of the nation’s financial
system. FMIs are multilateral systems among
participating financial institutions, including
the system operator, used for the purposes of
clearing, settling, or recording payments,
securities, derivatives, or other financial
transactions.27 28 FMIs include payment
27 This definition is based on the definition
provided in the Committee on Payment and
Settlement Systems (CPSS) and Technical
Committee of the International Organization of
Securities Commissions (IOSCO) report on
Principles for Financial Market Infrastructures
(PFMI), April 2012, available at http://www.bis.org/
publ/cpss101.htm. Further, an FMI generally
embodies one or more of the following
characteristics: (1) A multilateral arrangement with
three or more participants; (2) a set of rules and
procedures, common to all participants, that govern
the clearing (comparison and/or netting),
settlement, or recording of payments, securities,
derivatives, or other financial transactions; (3) a
common technical infrastructure for conducting the
clearing, settlement, or recording process; and (4) a
risk-management or capital structure that takes into

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systems, central securities depositories,
securities settlement systems, central
counterparties, and trade repositories. The
safety and efficiency of these systems may
affect the safety and soundness of U.S.
financial institutions and, in many cases, are
vital to the financial stability of the United
States. Given the importance of FMIs, the
Board of Governors of the Federal Reserve
System (Board) has developed this policy to
set out the Board’s views, and related
standards, regarding the management of risks
that FMIs present to the financial system and
to the Federal Reserve Banks (Reserve
Banks). In adopting this policy, the Board’s
objective is to foster the safety and efficiency
of payment, clearing, settlement, and
recording systems and to promote financial
stability, more broadly.
Part I of this policy sets out the Board’s
views, and related standards, regarding the
management of risks in FMIs, including those
operated by the Reserve Banks. In setting out
its views, the Board seeks to encourage FMIs
and their primary regulators to take the
standards in this policy into consideration in
the design, operation, monitoring, and
assessment of these systems. The Board will
be guided by this part, in conjunction with
relevant laws, regulations, and other Federal
Reserve policies, when exercising its
supervisory and regulatory authority over
FMIs or their participants, providing
accounts and services to FMIs, participating
in cooperative oversight and similar
arrangements for FMIs with other authorities,
or providing intraday credit to eligible
Federal Reserve account holders. Designated
financial market utilities subject to
Regulation HH are not subject to the riskmanagement or transparency expectations set
out in this policy.29
Part II of this policy governs the provision
of intraday credit or ‘‘daylight overdrafts’’ in
accounts at the Reserve Banks and sets out
the general methods used by the Reserve
Banks to control their intraday credit
exposures.30 Under this part, the Board
account the multilateral dependencies inherent in
the system.
28 The term ‘‘financial institution,’’ as used in this
policy, refers to a broad array of organizations that
engage in financial activity, including depository
institutions, securities dealers, and futures
commission merchants.
29 The term ‘‘financial market utility’’ is defined
in Title VIII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act) as
‘‘any person that manages or operates 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 person.’’
Trade repositories, which the Dodd-Frank Act
defines as providing ‘‘facilities for comparison of
data respecting the terms of settlement of securities
or futures transactions,’’ are not included in the
term ‘‘financial market utility’’ (12 U.S.C. 5462).
Financial market utilities are, therefore, a subset of
the broader set of entities defined as FMIs. Under
Title VIII, financial market utilities are designated
as systemically important by the Financial Stability
Oversight Council. The Board’s Regulation HH is
discussed in section I.B.1.b below.
30 To assist depository institutions in
implementing part II of this policy, the Board has
prepared two documents, the Overview of the
Federal Reserve’s Payment System Risk Policy

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recognizes that the Federal Reserve has an
important role in providing intraday balances
and credit to foster the smooth operation of
the payment system. The Reserve Banks
provide intraday balances by way of
supplying temporary, intraday credit to
healthy depository institutions,
predominantly through collateralized
intraday overdrafts.31 The Board believes that
such a strategy enhances intraday liquidity
while controlling risk to the Reserve Banks.
Over time, the Board aims to reduce the
reliance of the banking industry on
uncollateralized intraday credit by providing
incentives to collateralize daylight overdrafts.
The Board also aims to limit the burden of
the policy on healthy depository institutions
that use small amounts of intraday credit.
Through this policy, the Board expects
financial system participants, including
private-sector FMIs and the Reserve Banks, to
reduce and control settlement and other
systemic risks arising in FMIs, consistent
with the smooth operation of the financial
system. This policy is also designed to
govern the provision of intraday balances and
credit while controlling the Reserve Banks’
risk by (1) making financial system
participants and FMIs aware of the types of
basic risk that may arise in the payment,
clearing, settlement, or recording process; (2)
setting explicit risk-management
expectations; (3) promoting appropriate
transparency by FMIs to help inform
participants and the public; and (4)
establishing the policy conditions governing
the provision of Federal Reserve intraday
credit to eligible account holders. The
Board’s adoption of this policy in no way
diminishes the primary responsibilities of
financial system participants to address the
risks that may arise through their operation
of or participation in FMIs.
RISKS IN PAYMENT, CLEARING,
SETTLEMENT, AND RECORDING
SYSTEMS
The basic risks in payment, clearing,
settlement, and recording systems may
include credit risk, liquidity risk, operational
risk, and legal risk. In the context of this
policy, these risks are defined as follows: 32
• Credit risk: the risk that a counterparty,
whether a participant or other entity, will be
(Overview) and the Guide to the Federal Reserve’s
Payment System Risk Policy (Guide), which are
available at http://www.federalreserve.gov/
paymentsystems/psr_relpolicies.htm. The Overview
summarizes the Board’s policy on the provision of
intraday credit, including net debit caps and
daylight overdraft fees, and is intended for use by
institutions that incur only small amounts of
daylight overdrafts. The Guide explains in detail
how these policies apply to different institutions
and includes procedures for completing a selfassessment and filing a cap resolution, as well as
information on other aspects of the policy.
31 The term ‘‘depository institution,’’ as used in
this policy, refers not only to institutions defined
as depository institutions in 12 U.S.C. 461(b)(1)(A),
but also to U.S. branches and agencies of foreign
banking organizations, Edge and agreement
corporations, trust companies, and bankers’ banks,
unless the context indicates a different reading.
32 The definitions of credit risk, liquidity risk,
operational risk, and legal risk are consistent with
those presented in the PFMI.

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unable to meet fully its financial obligations
when due, or at any time in the future.
• Liquidity risk: the risk that a
counterparty, whether a participant or other
entity, will be unable to meet fully its
financial obligations when due, although it
may be able to do so in the future. An FMI,
through its design or operation, may bear or
generate liquidity risk in one or more
currencies in its payment or settlement
process. In this context, liquidity risk may
arise between or among the system operator
and the participants in the FMI, the system
operator and other entities (such as
settlement banks, nostro agents, or liquidity
providers), the participants in the FMI and
other entities, or two or more participants in
the FMI.
• Operational risk: the risk that
deficiencies in information systems or
internal processes, human errors,
management failures, or disruptions from
external events will result in the reduction,
deterioration, or breakdown of services
provided by the FMI.33
• Legal risk: the risk of loss from the
unexpected or uncertain application of a law
or regulation.
These risks also arise between financial
institutions as they clear, settle, and record
payments and other financial transactions
and must be managed by institutions, both
individually and collectively.34
Further, FMIs may increase, shift,
concentrate, or otherwise transform risks in
unanticipated ways. FMIs, for example, may
pose systemic risk to the financial system
because the inability of one or more of its
participants to perform as expected may
cause other participants to be unable to meet
their obligations when due. The failure of
one or more of an FMI’s participants to settle
their payments or other financial transactions
as expected, in turn, could create credit or
liquidity problems for participants and their
customers, the system operator, other
financial institutions, and the financial
market the FMI serves. Thus, such a failure
might lead ultimately to a disruption in the
financial markets more broadly and
undermine public confidence in the nation’s
financial system.
Mitigating the risks that arise in FMIs is
especially important because of the
interdependencies such systems inherently
create among financial institutions. In many
cases, interdependencies are a normal part of
an FMI’s structure or operations. Although
they can facilitate the safety and efficiency of
33 Operational risk also includes physical threats,
such as natural disasters and terrorist attacks, and
information security threats, such as cyber attacks.
Further, deficiencies in information systems or
internal processes include errors or delays in
processing, system outages, insufficient capacity,
fraud, data loss, and leakage.
34 Several existing regulatory and bank
supervision guidelines and policies also are
directed at financial institutions’ management of
the risks posed by interbank payment and
settlement activity. For example, the Board’s
Regulation F (12 CFR Part 206) directs insured
depository institutions to establish policies and
procedures to avoid excessive exposures to any
other depository institution, including exposures
that may be generated through the clearing and
settlement of payments.

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the FMI’s payment, clearing, settlement, or
recording processes, interdependencies can
also present an important source or
transmission channel of systemic risk.
Disruptions can originate from any of the
interdependent entities, including the system
operator, the participants in the FMI, and
other systems, and can spread quickly and
widely across markets if the risks that arise
among these parties are not adequately
measured, monitored, and managed. For
example, interdependencies often create
complex and time-sensitive transaction and
payment flows that, in combination with an
FMI’s design, can lead to significant demands
for intraday credit or liquidity, on either a
regular or an extraordinary basis.
The Board recognizes that the Reserve
Banks, as settlement institutions, have an
important role in providing intraday balances
and credit to foster the smooth operation and
timely completion of money settlement
processes among financial institutions and
between financial institutions and FMIs. To
the extent that the Reserve Banks are the
source of intraday credit, they may face a risk
of loss if such intraday credit is not repaid
as planned. In addition, measures taken by
Reserve Banks to limit their intraday credit
exposures may shift some or all of the
associated risks to financial institutions and
FMIs.
In addition, mitigating the risks that arise
in certain FMIs is critical to the areas of
monetary policy and banking supervision.
The effective implementation of monetary
policy, for example, depends on both the
orderly settlement of open market operations
and the efficient movement of funds
throughout the financial system via the
financial markets and the FMIs that support
those markets. Likewise, supervisory
objectives regarding the safety and soundness
of financial institutions must take into
account the risks FMIs, both in the United
States and abroad, pose to financial
institutions that participate directly or
indirectly in, or provide settlement, custody,
or credit services to, such systems.
PART I. RISK MANAGEMENT FOR
FINANCIAL MARKET INFRASTRUCTURES
This part sets out the Board’s views, and
related standards, regarding the management
of risks in FMIs, including those operated by
the Reserve Banks. The Board will be guided
by this part, in conjunction with relevant
laws, regulations, and other Federal Reserve
policies, when exercising its authority in (1)
supervising the Reserve Banks under the
Federal Reserve Act; (2) supervising state
member banks, Edge and agreement
corporations, and bank holding companies,
including the exercise of authority under the
Bank Service Company Act, where
applicable; (3) carrying out certain of its
responsibilities under Title VIII of the DoddFrank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act); (4) setting
or reviewing the terms and conditions for the
use of Reserve Bank accounts and services;
and (5) developing and applying policies for
the provision of intraday liquidity to eligible
Reserve Bank account holders.35 This part
35 12

U.S.C. 248(j), 12 U.S.C. 5461 et seq.

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will also guide the Board, as appropriate, in
its interactions and cooperative efforts with
other domestic and foreign authorities that
have responsibilities for regulating,
supervising, or overseeing FMIs within the
scope of this part. The Board’s adoption of
this policy is not intended to exert or create
supervisory or regulatory authority over any
particular class of institutions or
arrangements where the Board does not have
such authority.
A. Scope
FMIs within the scope of part I include
public- and private-sector payment systems
that expect to settle a daily aggregate gross
value of U.S. dollar-denominated
transactions exceeding $5 billion on any day
during the next 12 months.36 37 FMIs within
the scope of this part also include all central
securities depositories, securities settlement
systems, central counterparties, and trade
repositories irrespective of the value or
nature of the transactions processed by the
system.38 These FMIs may be organized,
located, or operated within the United States
(domestic systems), outside the United States
(offshore systems), or both (cross-border
systems) and may involve currencies other
than the U.S. dollar (non-U.S. dollar systems
and multi-currency systems).39 The scope of
the policy also includes any payment system
based or operated in the United States that
engages in the settlement of non-U.S. dollar
transactions if that payment system would be
otherwise subject to the policy.40
Part I does not apply to market
infrastructures such as trading exchanges,
trade-execution facilities, or multilateral
trade-compression systems. This part is also
not intended to apply to bilateral payment,
clearing, or settlement relationships, where
36 A ‘‘payment system’’ is a set of instruments,
procedures, and rules for the transfer of funds
between or among participants. Payment systems
include, but are not limited to, large-value funds
transfer systems, automated clearinghouse systems,
check clearinghouses, and credit and debit card
settlement systems. The scope of this policy also
includes payment-versus-payment settlement
systems for foreign exchange transactions.
37 In determining whether it is included in the
scope of this policy, a payment system should look
at its projected ‘‘next’’ twelve-month period.
‘‘Aggregate gross value of U.S. dollar-denominated
transactions’’ refers to the total dollar value of
individual U.S. dollar transactions settled in the
payment system, which also represents the sum of
total U.S. dollar debits (or credits) to all participants
before or in absence of any netting of transactions.
38 A ‘‘central securities depository’’ is an entity
that provides securities accounts and central
safekeeping services. A ‘‘securities settlement
system’’ is an entity that enables securities to be
transferred and settled by book entry and allows
transfers of securities free of or against payment. A
‘‘central counterparty’’ is an entity that interposes
itself between counterparties to contracts traded in
one or more financial markets, becoming the buyer
to every seller and the seller to every buyer. A
‘‘trade repository’’ is an entity that maintains a
centralized electronic record of transaction data.
These definitions are based on those in the PFMI.
39 Non-U.S. dollar systems may be of interest to
the Board if they are used by U.S. financial
institutions or may have the ability to affect
financial stability, more broadly.
40 The daily gross value threshold will be
calculated on a U.S. dollar equivalent basis.

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an FMI is not involved, between financial
institutions and their customers, such as
traditional correspondent banking and
government securities clearing services. The
Board believes that these market
infrastructures and relationships do not
constitute FMIs for purposes of this policy
and that risk-management issues associated
with these market infrastructures and
relationships are more appropriately
addressed through other relevant supervisory
and regulatory processes.
B. Policy Expectations for Certain Financial
Market Infrastructures
This section sets out the Board’s views,
and related standards, with respect to riskmanagement and transparency for the
Reserve Banks’ Fedwire Funds Service and
Fedwire Securities Service (collectively,
Fedwire Services), designated financial
market utilities that are subject to Regulation
HH, other FMIs that are subject to the Board’s
supervisory authority under the Federal
Reserve Act, all other central securities
depositories, securities settlement systems,
central counterparties, and trade repositories,
as well as other systemically important
offshore and cross-border payment systems.
Because these FMIs have the potential to be
a source of risk or channel for the
transmission of financial shocks across the
financial system, or are critical to market
transparency in the case of trade repositories,
the Board believes these FMIs should have
comprehensive risk management as well as a
high degree of transparency.
1. Risk Management
Authorities, including central banks, have
promoted sound risk-management practices
by developing internationally accepted
minimum standards that promote the safety
and efficiency of FMIs. Specifically, the
Committee on Payment and Settlement
Systems (CPSS) and Technical Committee of
the International Organization of Securities
Commissions (IOSCO) report on Principles
for Financial Market Infrastructures (PFMI)
establishes minimum standards for payment
systems that are systemically important,
central securities depositories, securities
settlement systems, central counterparties,
and trade repositories in addressing areas
such as legal risk, governance, credit and
liquidity risks, general business risk,
operational risk, and other types of risk.41
The PFMI reflects broad market input and
has been widely recognized, supported, and
endorsed by U.S. authorities, including the
Federal Reserve, U.S. Securities and
Exchange Commission (SEC), and U.S.
Commodity Futures Trading Commission
(CFTC). These standards are also part of the
Financial Stability Board’s (FSB’s) Key
Standards for Sound Financial Systems.42
41 In addition to these risk-management
standards, the PFMI sets out responsibilities for
authorities for FMIs, including central banks, in
order to provide for effective regulation,
supervision, and oversight of FMIs.
42 The FSB’s Key Standards for Sound Financial
Systems are available at http://
www.financialstabilityboard.org/cos/key_
standards.htm. The FSB is an international forum
that was established to develop and promote the

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The Board believes that the
implementation of the PFMI by the FMIs
within the scope of this section will help
promote their safety and efficiency in the
financial system and foster greater financial
stability in the domestic and global economy.
Accordingly, the Board has incorporated into
the PSR policy principles 1 through 24 from
the PFMI, as set forth in the appendix. In
addition, the Board’s Regulation HH contains
risk-management standards that are based on
the PFMI for certain designated financial
market utilities.43 In applying part I of this
policy, the Board will be guided by the key
considerations and explanatory notes from
the PFMI.44
a. Fedwire Services
The Board recognizes the critical role the
Reserve Banks’ Fedwire Services play in the
financial system and requires them to meet
or exceed the standards set forth in the
appendix to this policy, consistent with the
guidance on central bank-operated systems
provided in the PFMI and with the
requirements in the Monetary Control
Act.45 46
b. Designated Financial Market Utilities for
Which the Board Is the Supervisory Agency
Under Title VIII of the Dodd-Frank Act
The Board’s Regulation HH imposes riskmanagement standards applicable to a
designated financial market utility for which
the Board is the Supervisory Agency.47 48 The
implementation of effective regulatory, supervisory
and other financial sector policies. The FSB
includes the U.S. Department of the Treasury, the
Board, and the SEC.
43 Regulation HH (12 C.F.R. Part 234) is available
at http://www.federalreserve.gov/bankinforeg/
reglisting.htm#HH.
44 The Board will also look to the CPSS–IOSCO
Principles for Financial Market Infrastructures:
Disclosure Framework and Assessment
Methodology, which is available at http://
www.bis.org/publ/cpss106.htm, and other related
documents.
45 Certain standards may require flexibility in the
way they are applied to central bank-operated
systems because of central banks’ unique role in the
financial markets and their public responsibilities.
These principles include principle 2 on governance,
principle 3 on the framework for the comprehensive
management of risks, principle 4 on credit risk,
principle 5 on collateral, principle 7 on liquidity
risk, principle 13 on participant-default rules and
procedures, and principle 15 on general business
risk, and principle 18 on access and participation
requirements. For instance, the Reserve Banks
should refer to part II of this policy for managing
their credit risk arising from the provision of
intraday credit to users of the Fedwire Services.
46 The Monetary Control Act requires that fees be
set for Reserve Bank services according to a set of
pricing principles established by the Board. In
preparing the pricing principles and fee schedules,
the Board takes into account the objectives of
fostering competition, improving the efficiency of
the payment mechanism, and lowering costs of
these services to society at large. At the same time,
the Board is cognizant of, and concerned with, the
continuing Federal Reserve responsibility and
necessity for maintaining the integrity and
reliability of the payment mechanism and providing
an adequate level of service nationwide. (12 U.S.C.
248a(c)(3); http://www.federalreserve.gov/
paymentsystems/pfs_principles.htm).
47 The term ‘‘Supervisory Agency’’ is defined in
Title VIII as the ‘‘Federal agency that has primary

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risk-management standards in Regulation HH
are based on the PFMI. As required under
Title VIII of the Dodd-Frank Act, the riskmanagement standards seek to promote
robust risk management, promote safety and
soundness, reduce systemic risks, and
support the stability of the broader financial
system. Designated financial market utilities
for which the Board is the Supervisory
Agency are required to comply with the riskmanagement standards in Regulation HH and
are not subject to the standards in the
appendix.
c. Other Financial Market Infrastructures
That Are Subject to the Board’s Supervisory
Authority Under the Federal Reserve Act
The Board expects all other FMIs that are
subject to its supervisory authority under the
Federal Reserve Act, including FMIs that are
members of the Federal Reserve System, to
meet or exceed the risk-management
standards in the appendix.
d. All Other Central Securities Depositories,
Securities Settlement Systems, Central
Counterparties, and Trade Repositories
The Board encourages all other central
securities depositories, securities settlement
systems, central counterparties, and trade
repositories, whether located within or
outside the United States, to meet or exceed
the risk-management standards in the
appendix to this policy. Where the Board
does not have authority over a central
securities depository, securities settlement
system, central counterparty, or trade
repository, the Board will be guided by this
policy in its cooperative efforts with other
FMI authorities.
e. Other Systemically Important Offshore and
Cross-Border Payment Systems
The Board encourages systemically
important offshore and cross-border payment
systems that are not included in any of the
categories above to meet or exceed the riskmanagement standards in the appendix to
this policy.49 The Board will be guided by
this policy in its cooperative efforts with
other payment system authorities.
2. Transparency
Transparency helps ensure that relevant
information is provided to an FMI’s
participants, authorities, and the public to
inform sound decisionmaking, improve risk
management, enable market discipline, and
foster confidence in markets more broadly. In
particular, public disclosures play a critical
role in allowing current and prospective
participants, as well as other stakeholders, to
understand an FMI’s operations and the risks
jurisdiction over a designated financial market
utility under Federal banking, securities, or
commodity futures laws’’ (12 U.S.C. 5462(8)).
Under Title VIII, the Board must prescribe riskmanagement standards for designated financial
market utilities for which the Board or another
Federal banking agency is the appropriate
Supervisory Agency (12 U.S.C. 5464(a)).
48 The Regulation HH risk-management standards
also apply to any designated financial market utility
for which another Federal banking agency is the
appropriate Title VIII Supervisory Agency.
49 These systems may be used by U.S. financial
institutions, clear or settle U.S. dollars, or have the
ability to affect financial stability, more broadly.

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associated with using its services and to
manage more effectively their risks with
respect to the FMI. The Board believes that
FMIs are well-positioned to provide the
information necessary to support greater
market transparency and to maintain
financial stability.
The Board expects an FMI that is subject
to its supervisory authority but not subject to
Regulation HH, to disclose to its participants
information about the risks and costs that
they incur by participating in the FMI,
consistent with the requirements in principle
23 in the appendix.50 At a minimum, the FMI
should disclose to its participants overviews
of the FMI’s system design and operations,
rules and key procedures, key highlights of
business continuity arrangements, fees and
other material costs, aggregate transaction
volumes and values, levels of financial
resources that can be used to cover
participant defaults, and other information
that would facilitate its participants’
understanding of the FMI and its operations
and their evaluation of the risks associated
with using that FMI.
In addition, the Board expects such an FMI
to complete the disclosure framework set
forth in the CPSS–IOSCO Principles for
Financial Market Infrastructures: Disclosure
Framework and Assessment Methodology
(‘‘disclosure framework’’ and ‘‘assessment
methodology’’).51 The disclosure framework
establishes the international baseline set of
information that all FMIs are expected to
disclose publicly and review regularly.52 An
FMI is encouraged to use the guiding
questions in the accompanying assessment
methodology to guide the content and level
of detail in their disclosures. The Board
expects each FMI to make its disclosure
readily available to the public, such as by
posting it on the FMI’s public Web site to
achieve maximum transparency.
To ensure each FMI’s accountability for the
accuracy and completeness of its disclosure,
the Board expects the FMI’s senior
management and board of directors to review
and approve each disclosure upon
completion. Further, in order for an FMI’s
disclosure to reflect its current rules,
procedures, and operations, the Board
expects the FMI to update the relevant parts
of its disclosure following changes to the FMI
or the environment in which it operates,
which would significantly change the
accuracy of the statements in its disclosure.
At a minimum, the FMI is expected to review
and update as warranted its disclosure every
two years.
As part of its ongoing oversight of FMIs,
the Board will review public disclosures by
FMIs subject to its authority to ensure that
the Board’s policy objectives and
50 The Board’s Regulation HH imposes an
equivalent public disclosure requirement.
51 See CPSS–IOSCO, Principles for Financial
Market Infrastructures: Disclosure Framework and
Assessment Methodology, December 2012, available
at http://www.bis.org/publ/cpss106.htm.
52 Although the Board expects disclosures to be
robust, it does not necessarily expect FMIs to
disclose to the public sensitive information that
could expose system vulnerabilities or otherwise
put the FMI at risk (for example, specific business
continuity plans).

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expectations are being met.53 Where
necessary, the Board will provide feedback to
the FMIs regarding the content of these
disclosures and their effectiveness in
achieving the policy objectives discussed
above.54 The Board acknowledges that FMIs
vary in terms of the scope of instruments
they settle and markets they serve. It also
recognizes that FMIs may operate under
different legal and regulatory constraints,
charters, and corporate structures. The Board
will consider these factors when reviewing
the disclosures and in evaluating how an FMI
addresses a particular standard. Where the
Board does not have statutory or exclusive
authority over an FMI, it will be guided by
this policy in cooperative efforts with other
domestic or foreign authorities to promote
comprehensive disclosures by FMIs as a
means to achieve greater safety and efficiency
in the financial system.

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C. General Policy Expectations for Other
Payment Systems Within the Scope of the
Policy
The Board encourages payment systems
within the scope of this policy, but that are
not included in any of the categories in
section B above, to implement a general riskmanagement framework appropriate for the
risks the payment system poses to the system
operator, system participants, and other
relevant parties as well as the financial
system more broadly.
1. Establishment of a Risk-Management
Framework
A risk-management framework is the set of
objectives, policies, arrangements,
procedures, and resources that a system
employs to limit and manage risk. Although
there are a number of ways to structure a
sound risk-management framework, all
frameworks should
a. identify risks clearly and set sound riskmanagement objectives;
b. establish sound governance
arrangements to oversee the risk-management
framework;
c. establish clear and appropriate rules and
procedures to carry out the risk-management
objectives; and
d. employ the resources necessary to
achieve the system’s risk-management
objectives and implement effectively its rules
and procedures.
a. Identify Risks Clearly and Set Sound RiskManagement Objectives
The first element of a sound riskmanagement framework is the clear
identification of all risks that have the
potential to arise in or result from the
system’s settlement process and the
53 Any review of a disclosure by the Board should
not be viewed as an approval or guarantee of the
accuracy of an FMI’s disclosure. Without the
express approval of the Board, an FMI may not state
publically that its disclosure has been reviewed,
endorsed, approved, or otherwise not objected to by
the Board.
54 If the Board materially disagrees with the
content of an FMI’s disclosure, it will communicate
its concerns to the FMI’s senior management and
possibly to its board of directors, as appropriate.
The Board may also discuss its concerns with other
relevant authorities, as appropriate.

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development of clear and transparent
objectives regarding the system’s tolerance
for and management of such risks. System
operators should identify the forms of risk
present in their system’s settlement process
as well as the parties posing and bearing each
risk. In particular, system operators should
identify the risks posed to and borne by
them, the system participants, and other key
parties such as a system’s settlement banks,
custody banks, and third-party service
providers. System operators should also
analyze whether risks might be imposed on
other external parties and the financial
system more broadly.
In addition, system operators should
analyze how risk is transformed or
concentrated by the settlement process.
System operators should also consider the
possibility that attempts to limit one type of
risk could lead to an increase in another type
of risk. Moreover, system operators should be
aware of risks that might be unique to certain
instruments, participants, or market
practices. Where payment systems have
inter-relationships with or dependencies on
other FMIs, system operators should also
analyze whether and to what extent any
cross-system risks exist and who bears them.
Using their clear identification of risks,
system operators should establish the risk
tolerance of the system, including the levels
of risk exposure that are acceptable to the
system operator, system participants, and
other relevant parties. System operators
should then set risk-management objectives
that clearly allocate acceptable risks among
the relevant parties and set out strategies to
manage this risk. Risk-management
objectives should be consistent with the
objectives of this policy, the system’s
business purposes, and the type of payment
instruments and markets for which the
system clears and settles. Risk-management
objectives should also be communicated to
and understood by both the system operator’s
staff and system participants.
System operators should reevaluate their
risks in conjunction with any major changes
in the settlement process or operations, the
transactions settled, a system’s rules or
procedures, or the relevant legal and market
environments. System operators should
review the risk-management objectives
regularly to ensure that they are appropriate
for the risks posed by the system, continue
to be aligned with the system’s purposes,
remain consistent with this policy, and are
being effectively adhered to by the system
operator and participants.
b. Establish Sound Governance Arrangements
To Oversee the Risk-Management Framework
Systems should have sound governance
arrangements to implement and oversee their
risk-management frameworks. The
responsibility for sound governance rests
with a system operator’s board of directors or
similar body and with the system operator’s
senior management. Governance structures
and processes should be transparent; enable
the establishment of clear risk-management
objectives; set and enforce clear lines of
responsibility and accountability for
achieving these objectives; ensure that there
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use of information reported by the system
operator’s management, internal auditors,
and external auditors to monitor the
performance of the risk-management
process.55 Individuals responsible for
governance should be qualified for their
positions, understand their responsibilities,
and understand their system’s riskmanagement framework. Governance
arrangements should also ensure that riskmanagement information is shared in forms,
and at times, that allow individuals
responsible for governance to fulfill their
duties effectively.
c. Establish Clear and Appropriate Rules and
Procedures to Carry Out the RiskManagement Objectives
Systems should have rules and procedures
that are appropriate and sufficient to carry
out the system’s risk-management objectives
and that are consistent with its legal
framework. Such rules and procedures
should specify the respective responsibilities
of the system operator, system participants,
and other relevant parties. Rules and
procedures should establish the key features
of a system’s settlement and riskmanagement design and specify clear and
transparent crisis management procedures
and settlement failure procedures, if
applicable.56
d. Employ the Resources Necessary To
Achieve the System’s Risk-Management
Objectives and Implement Effectively Its
Rules and Procedures
System operators should ensure that the
appropriate resources and processes are in
place to allow the system to achieve its riskmanagement objectives and effectively
implement its rules and procedures. In
particular, the system operator’s staff should
have the appropriate skills, information, and
tools to apply the system’s rules and
procedures and achieve the system’s riskmanagement objectives. System operators
should also ensure that their facilities and
contingency arrangements, including any
information system resources, are sufficient
to meet their risk-management objectives.
2. Other Considerations for a RiskManagement Framework
Payment systems differ widely in form,
function, scale, and scope of activities, and
these characteristics result in differing
combinations and levels of risks. Thus, the
exact features of a system’s risk-management
framework should be tailored to the risks of
that system. The specific features of a riskmanagement framework may entail tradeoffs
between efficiency and risk reduction, and
payment systems will need to consider these
tradeoffs when designing appropriate rules
55 The risk-management and internal audit
functions should also be independent of those
responsible for day-to-day functions.
56 Examples of key features that might be
specified in a system’s rules and procedures are
controls to limit participant-based risks, such as
membership criteria based on participants’ financial
and operational health; limits on credit exposures;
and the procedures and resources to liquidate
collateral. Other examples of key features might be
business continuity requirements and lossallocation procedures.

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and procedures. In considering such
tradeoffs, however, it is critically important
that system operators take into account the
costs and risks that may be imposed on all
relevant parties, including parties with no
direct role in the system. Furthermore, in
light of rapidly evolving technologies and
risk-management practices, the Board
encourages all system operators to consider
making risk-management improvements
when cost-effective.
To determine whether a system’s current or
proposed risk-management framework is
consistent with this policy, the Board will
seek to understand how a system achieves
the four elements of a sound riskmanagement framework set out above. In this
context, the Board may seek to obtain
information from system operators regarding
their risk-management framework, riskmanagement objectives, rules and
procedures, significant legal analyses, general
risk analyses, analyses of the credit and
liquidity effects of settlement disruptions,
business continuity plans, crisis management
procedures, and other relevant
documentation.57 The Board also may seek to
obtain data or statistics on system activity on
an ad hoc or ongoing basis. All information
provided to the Federal Reserve for the
purposes of this policy will be handled in
accordance with all applicable Federal
Reserve policies on information security,
confidentiality, and conflicts of interest.
D. Cooperation With Other Authorities in
Regulating, Supervising, and Overseeing
Financial Market Infrastructures

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When the Board does not have statutory or
exclusive authority over an FMI covered by
this policy, this section will guide the Board,
as appropriate, in its interactions with other
domestic and foreign authorities to promote
effective risk management in and
transparency by FMIs. For example, the
Federal Reserve may have an interest in the
safety and efficiency of FMIs outside the
United States that are subject to regulation,
supervision, or oversight by another
authority but that provide services to
financial institutions supervised by the Board
or conduct activity that involves the U.S.
dollar.58 In its interactions with other
domestic and foreign authorities, the Board
will encourage these authorities to adopt and
to apply the internationally accepted
principles set forth in the appendix when
evaluating the risks posed by and to FMIs
57 To facilitate analysis of settlement disruptions,
systems may need to develop the capability to
simulate credit and liquidity effects on participants
and on the system resulting from one or more
participant defaults, or other possible sources of
settlement disruption. Such simulations may need
to include, if appropriate, the effects of changes in
market prices, volatilities, or other factors.
58 An FMI may be subject to supervision or
oversight by the Board and other authorities, as a
result of its legal framework, operating structure (for
example, multi-currency or cross-border systems),
or participant base. In such cases, the Board will be
sensitive to the potential for duplicative or
conflicting requirements, oversight gaps, or
unnecessary costs and burdens imposed on the
FMI.

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and individual system participants that these
authorities regulate, supervise, or oversee.
In working with other authorities, the
Board will seek to establish arrangements for
effective and practical cooperation that
promote sound risk-management outcomes.
The Board believes that cooperative
arrangements among relevant authorities can
be an effective mechanism for, among other
things, (1) sharing relevant information
concerning the policies, procedures, and
operations of an FMI; (2) sharing supervisory
views regarding an FMI; (3) discussing and
promoting the application of robust riskmanagement standards; and (4) serving as a
forum for effective communication,
coordination, and consultation during
normal circumstances, as well as periods of
market stress.
When establishing such cooperative
arrangements, the Board will be guided, as
appropriate, by international principles on
cooperative arrangements for the regulation,
supervision, and oversight of FMIs. In
particular, responsibility E in the PFMI
addresses domestic and international
cooperation among central banks, market
regulators, and other relevant authorities and
provides guidance to these entities for
supporting each other in fulfilling their
respective mandates with respect to FMIs.
The CPSS report on Central Bank Oversight
of Payment and Settlement Systems also
provides important guidance on international
cooperation among central banks.59 The
Board believes this international guidance
provides important frameworks for
cooperating and coordinating with other
authorities to address risks in domestic,
cross-border, multi-currency, and, where
appropriate, offshore FMIs.

PART II. FEDERAL RESERVE
INTRADAY CREDIT POLICIES
[No change to existing part II of the
policy.]
APPENDIX—CPSS–IOSCO Principles
for Financial Market Infrastructures
Principle 1: Legal Basis
An FMI should have a well-founded, clear,
transparent, and enforceable legal basis for
each material aspect of its activities in all
relevant jurisdictions.
Principle 2: Governance
An FMI should have governance
arrangements that are clear and transparent,
promote the safety and efficiency of the FMI,
and support the stability of the broader
financial system, other relevant public
interest considerations, and the objectives of
relevant stakeholders.
Principle 3: Framework for the
Comprehensive Management of Risks
An FMI should have a sound riskmanagement framework for comprehensively
managing legal, credit, liquidity, operational,
and other risks.
59 See Central Bank Oversight of Payment and
Settlement Systems (Oversight Report), part B on
‘‘Principles for international cooperative oversight,’’
May 2005, available at http://www.bis.org/publ/
cpss68.htm.

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Principle 4: Credit Risk
An FMI should effectively measure,
monitor, and manage its credit exposures to
participants and those arising from its
payment, clearing, and settlement processes.
An FMI should maintain sufficient financial
resources to cover its credit exposure to each
participant fully with a high degree of
confidence. In addition, a central
counterparty that is involved in activities
with a more-complex risk profile or that is
systemically important in multiple
jurisdictions should maintain additional
financial resources sufficient to cover a wide
range of potential stress scenarios that should
include, but not be limited to, the default of
the two participants and their affiliates that
would potentially cause the largest aggregate
credit exposure to the central counterparty in
extreme but plausible market conditions. All
other central counterparties should maintain
additional financial resources sufficient to
cover a wide range of potential stress
scenarios that should include, but not be
limited to, the default of the participant and
its affiliates that would potentially cause the
largest aggregate credit exposure to the
central counterparty in extreme but plausible
market conditions.
Principle 5: Collateral
An FMI that requires collateral to manage
its or its participants’ credit exposure should
accept collateral with low credit, liquidity,
and market risks. An FMI should also set and
enforce appropriately conservative haircuts
and concentration limits.
Principle 6: Margin
A central counterparty should cover its
credit exposures to its participants for all
products through an effective margin system
that is risk-based and regularly reviewed.
Principle 7: Liquidity Risk
An FMI should effectively measure,
monitor, and manage its liquidity risk. An
FMI should maintain sufficient liquid
resources in all relevant currencies to effect
same-day and, where appropriate, intraday
and multiday settlement of payment
obligations with a high degree of confidence
under a wide range of potential stress
scenarios that should include, but not be
limited to, the default of the participant and
its affiliates that would generate the largest
aggregate liquidity obligation for the FMI in
extreme but plausible market conditions.
Principle 8: Settlement Finality
An FMI should provide clear and certain
final settlement, at a minimum by the end of
the value date. Where necessary or
preferable, an FMI should provide final
settlement intraday or in real time.
Principle 9: Money Settlements
An FMI should conduct its money
settlements in central bank money where
practical and available. If central bank money
is not used, an FMI should minimise and
strictly control the credit and liquidity risk
arising from the use of commercial bank
money.

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Federal Register / Vol. 79, No. 11 / Thursday, January 16, 2014 / Notices

Principle 10: Physical Deliveries
An FMI should clearly state its obligations
with respect to the delivery of physical
instruments or commodities and should
identify, monitor, and manage the risks
associated with such physical deliveries.
Principle 11: Central Securities Depositories
A central securities depository should have
appropriate rules and procedures to help
ensure the integrity of securities issues and
minimise and manage the risks associated
with the safekeeping and transfer of
securities. A central securities depository
should maintain securities in an immobilised
or dematerialised form for their transfer by
book entry.
Principle 12: Exchange-of-Value Settlement
Systems
If an FMI settles transactions that involve
the settlement of two linked obligations (for
example, securities or foreign exchange
transactions), it should eliminate principal
risk by conditioning the final settlement of
one obligation upon the final settlement of
the other.
Principle 13: Participant-Default Rules and
Procedures
An FMI should have effective and clearly
defined rules and procedures to manage a
participant default. These rules and
procedures should be designed to ensure that
the FMI can take timely action to contain
losses and liquidity pressures and continue
to meet its obligations.
Principle 14: Segregation and Portability
A central counterparty should have rules
and procedures that enable the segregation
and portability of positions of a participant’s
customers and the collateral provided to the
central counterparty with respect to those
positions.
Principle 15: General Business Risk
An FMI should identify, monitor, and
manage its general business risk and hold
sufficient liquid net assets funded by equity
to cover potential general business losses so
that it can continue operations and services
as a going concern if those losses materialise.
Further, liquid net assets should at all times
be sufficient to ensure a recovery or orderly
wind-down of critical operations and
services.

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Principle 16: Custody and Investment Risks
An FMI should safeguard its own and its
participants’ assets and minimise the risk of
loss on and delay in access to these assets.
An FMI’s investments should be in
instruments with minimal credit, market, and
liquidity risks.
Principle 17: Operational Risk
An FMI should identify the plausible
sources of operational risk, both internal and
external, and mitigate their impact through
the use of appropriate systems, policies,
procedures, and controls. Systems should be
designed to ensure a high degree of security
and operational reliability and should have
adequate, scalable capacity. Business
continuity management should aim for
timely recovery of operations and fulfilment

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of the FMI’s obligations, including in the
event of a wide-scale or major disruption.
Principle 18: Access and Participation
Requirements
An FMI should have objective, risk-based,
and publicly disclosed criteria for
participation, which permit fair and open
access.
Principle 19: Tiered Participation
Arrangements
An FMI should identify, monitor, and
manage the material risks to the FMI arising
from tiered participation arrangements.
Principle 20: FMI Links
An FMI that establishes a link with one or
more FMIs should identify, monitor, and
manage link-related risks.
Principle 21: Efficiency and Effectiveness
An FMI should be efficient and effective in
meeting the requirements of its participants
and the markets it serves.
Principle 22: Communication Procedures
and Standards
An FMI should use, or at a minimum
accommodate, relevant internationally
accepted communication procedures and
standards in order to facilitate efficient
payment, clearing, settlement, and recording.
Principle 23: Disclosure of Rules, Key
Procedures, and Market Data
An FMI should have clear and
comprehensive rules and procedures and
should provide sufficient information to
enable participants to have an accurate
understanding of the risks, fees, and other
material costs they incur by participating in
the FMI. All relevant rules and key
procedures should be publicly disclosed.
Principle 24: Disclosure of Market Data by
Trade Repositories
A trade repository should provide timely
and accurate data to relevant authorities and
the public in line with their respective needs.
By order of the Board of Governors of the
Federal Reserve System, January 10, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014–00681 Filed 1–15–14; 8:45 am]
BILLING CODE P

GENERAL SERVICES
ADMINISTRATION
[Notice-PBS–2013–04; Docket 2013–0002;
Sequence 42]

Notice Pursuant to Executive Order
12600 of Posting Certain GSA Real
Property Lease Documents With
Private Sector Landlords on GSA’s
Public Online Portal
Public Buildings Service,
Office of Leasing, General Services
Administration (GSA).
ACTION: Notice.
AGENCY:

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This notice provides
submitters notice pursuant to Executive
Order 12600 that the GSA, Public
Buildings Service, Office of Leasing is
complying with the Office of
Management and Budget’s (OMB) Open
Government Directive issued December
8, 2009, as M–10–06, to implement the
principles of transparency and openness
in government by posting certain GSA
real property lease documents with
private sector landlords on GSA’s public
online portal.
DATES: Comments must be received on
or before February 18, 2014.
ADDRESSES: Submit comments
identified by ‘‘Notice–PBS–2013–04’’,
by any of the following methods:
• Regulations.gov: http://
www.regulations.gov. Submit comments
via the Federal eRulemaking portal by
searching for ‘‘Notice–PBS–2013–04’’.
Follow the instructions provided at the
‘‘Comment Now’’ screen. Please include
your name, company name (if any), and
‘‘Notice–PBS–2013–04’’ on your
attached document.
• Mail: General Services
Administration, Regulatory Secretariat
Division (MVCB), 1800 F Street NW.,
2nd Floor, Washington, DC 20405.
Notice–PBS–2013–04.
Instructions: Please submit comments
only and cite ‘‘Notice-PBS–2013–04’’, in
all correspondence related to this
notice. All comments received will be
posted without change to http://
www.regulations.gov, including any
personal and/or business confidential
information provided.
FOR FURTHER INFORMATION CONTACT: Mr.
John D. Thomas at 202–501–2454.
SUPPLEMENTARY INFORMATION: [OMB’s
Open Government Directive issued
December 8, 2009, as M–10–06,
instructs federal agencies, including
GSA, to take specific actions to
implement the principles of
transparency, participation, and
collaboration. More specifically, the
directive asks agencies to expand access
to information by making it available
online in open formats. To comply with
this initiative, certain GSA real property
lease documents with private sector
landlords will be posted on GSA’s
public online portal, with specific data
elements being redacted to protect
privacy, personal, and proprietary
information as outlined under the
Freedom of Information Act (FOIA) and
the Privacy Act. As such, this notice
describes typical data elements
contained in these lease documents and
their exemption status under the FOIA
statute.]
GSA, the nation’s largest public real
estate organization, provides workspace
SUMMARY:

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