	Introduction

On July 21, 2010, Title VIII of the Dodd-Frank Act, the Payment, Clearing, and Settlement Supervision Act of 2010 , became effective upon enactment. Title VIII authorizes the Federal Reserve, in coordination with other federal agencies, to supervise and regulate the infrastructure that enables financial intermediaries to process and complete financial transactions. PCS systems serve a critical role in the financial services sector and the broader economy. Title VIII introduces the term "financial market utility" (FMU or utility) for those multilateral systems that transfer, clear, or settle payments, securities, or other financial transactions among financial institutions (FI) or between a FMU and a financial institution. Financial transactions processed daily in the U.S. economy include payment transfers ranging from small-dollar retail purchase transactions to large-value purchases of securities; clearing transactions for derivatives trading; and securities settlement. Title VIII regulatory powers apply specifically to those financial market utilities and PCS activities (of financial institutions) that are designated as systemically important by the Financial Stability Oversight Council (FSOC), also created by the Dodd-Frank Act. S. 3497 , introduced on August 2, 2012, seeks to repeal Title VIII, stripping FSOC of its authority to designate FMUs as systemically important. Listed below are some of the major systems currently operating in the United States. FMUs Designated by the FSOC

On July 18, 2012, FSOC voted unanimously to designate eight FMUs as systemically important. The Fedwire services enable depository institutions, the U.S. Treasury and other government agencies to transfer funds and book-entry securities nationwide. The Appendix to this report provides additional information regarding these systems. Basics of Payment, Clearing, and Settlement

The existing infrastructure in the United States for those activities consists of systems operated by the Federal Reserve through the Federal Reserve Banks, and by the private sector. A settlement system is used to facilitate the settlement of transfers of funds or financial instruments. In those proposals for heightened supervision by the Federal Reserve, the U.S. Department of the Treasury noted concerns about the ability of payment and settlement systems to contribute to financial crises, rather than reduce them, potentially threatening the stability of U.S. and foreign financial markets. The goal of the Interagency Paper was to ensure the smooth operation of the financial system in the event of a wide-scale disruption. Title VIII of the Dodd-Frank Act

Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act , P.L. The Dodd-Frank Act also affects PCS systems and activities through Title VII, the Wall Street Transparency and Accountability Act of 2010 , which establishes a comprehensive regulatory framework in regard to the over-the-counter (OTC) derivatives market and swap transactions. Title VII establishes requirements for the clearing of certain bilateral swap transactions through derivatives clearinghouses. The following provisions illustrate examples of required regulatory coordination under Title VIII:
the Council must consult with the Fed and Supervisory Agencies in making systemic importance determinations under Section 804; the Fed or the Council must coordinate with a utility's Supervisory Agency or a financial institution's supervisor to request material information from or impose reporting or recordkeeping requirements on the entity under Section 809; the Fed, Council, Supervisory Agency, and appropriate financial regulator are authorized to promptly notify each other of material concerns about a designated utility or financial institution engaged in designated activities and share appropriate reports, information, or data relating to such concerns under Section 809(e); and coordination of examination and enforcement authority under Sections 807 and 808 is required, except to the extent that the Fed may exercise back-up or independent authority in limited circumstances. It comprises much of the same material that was included in the proposed rules.
The U.S. financial system processes millions of transactions each day representing daily transfers of trillions of dollars, securities, and other assets to facilitate purchases and payments. Concerns had been raised, even prior to the recent financial crisis, about the vulnerability of the U.S. financial system to infrastructure failure. These concerns about the "plumbing" of the financial system were heightened following the market disruptions of the recent crisis.
The financial market infrastructure consists of the various systems, networks, and technological processes that are necessary for conducting and completing financial transactions. Title VIII of the Dodd-Frank Act, P.L. 111-203, the Payment, Clearing, and Settlement Supervision Act of 2010, introduces the term "financial market utility" (FMU or utility) for those multilateral systems that transfer, clear, or settle payments, securities, or other financial transactions among financial institutions (FI) or between an FMU and a financial institution. Utilities and FIs transfer funds and settle accounts with other financial institutions to facilitate normal day-to-day transactions occurring in the U.S. economy. Those transfers include payroll and mortgage payments, foreign currency exchanges, purchases of U.S. treasury bonds and corporate securities, and derivatives trades. Further, financial institutions engage in commercial paper and securities repurchase agreements (repo) markets that contribute to liquidity in the U.S. economy. In the United States, some of the key payment, clearing, and settlement (PCS) systems are operated by the Federal Reserve, and other systems are operated by private sector organizations.
With Title VIII of the Dodd-Frank Act, which was enacted on July 21, 2010, Congress added a new regulatory framework for the FMUs and PCS activities (of FIs) designated by the Financial Stability Oversight Council as systemically important. On July 18, 2012, the Council voted unanimously to designate eight FMUs as systemically important. Title VIII expands the Federal Reserve's role, in coordination with those of other prudential regulators, in the supervision, examination, and rule enforcement with respect to those FMUs and PCS activities of financial institutions. Additionally, FMUs may borrow from the discount window of the Federal Reserve in certain unusual and exigent circumstances.
Although Title VIII primarily affects the scope of regulatory powers, certain provisions directly affect a utility's business operations. For example, Title VIII allows FMUs to maintain accounts at a Federal Reserve Bank and provides access to the Fed's discount window in unusual and exigent circumstances. Related to PCS, Title VII of the Dodd-Frank Act imposes requirements that will significantly affect the business of clearinghouses in the over-the-counter (OTC) derivatives (swaps) market. By requiring clearing of certain swap transactions through central counterparties (CCPs or clearinghouses), Title VII is expected to increase the volume of transactions processed by clearing systems subject to Title VIII.
Critics contend that Title VIII grants too much discretionary authority to the Fed in an area that they argue was not a source of systemic risk during the recent financial crisis. S. 3497 seeks to repeal Title VIII of the Dodd-Frank Act, stripping FSOC of it's authority to designate FMUs as systemically important.
This report outlines the changes to the supervision of key market infrastructure that are embodied in the Dodd-Frank Act. It is intended to be used as a reference for those interested in the financial system's "plumbing," and how the associated systems are currently overseen and regulated.