As part of its sweeping proposals to address systemic risk, the Obama Administration has drafted legislation to cover payment, settlement or clearing systems that are so significant they are dubbed “financial market utilities.”  Like other systemically-significant financial firms, these utilities would be regulated by the Federal Reserve, which would also get authority over payment activities within institutions deemed systemically significant (even if the firm itself did not trigger this designation).  The legislation is so broad that it could capture not only traditional clearing houses, exchanges and similar payment-and-settlement systems, but also many other activities – e.g., prime brokerage, transfer agents, custody, card processing and even certain hedging and risk-management services.  By triggering the FRB’s systemic-risk designation, these financial market utilities may be subject not only to prudential regulation, but also to utility-style rules governing issues such as pricing, service reliability and customer access. 


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