WASHINGTON The Federal Reserve Board and the Securities and Exchange Commission, eyeing ways to lessen the vulnerabilities in the government securities settlement process that became apparent following the Sept. 11 attacks, are mulling the idea of an industry utility to conduct settlement.
In a joint white paper published Monday, the agencies noted that only two banking companies J.P. Morgan Chase & Co. and Bank of New York Co. provide the full range of settlement services required by major government market participants. Operational problems at either of these companies can impede the settlement of dealers trades and the reconciliation of their positions, the paper said.
The paper proposes three options for addressing government securities settlement vulnerabilities: improving the operational resiliency of clearing banks; setting up backup securities accounts; and instituting structural changes such as the creation of an industry utility to conduct settlement. The public has until Aug. 12 to comment on the paper.
