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CFTC Open Commission Meeting on July 27, 2022

Commodity Futures Trading Commission

Open Commission Meeting

Wednesday, July 27, 2022

Topline

  • Commissioners approved governance requirements for Derivatives Clearing Organizations (DCOs).
  • Commissioners approved an application for a Capital Comparability Determination submitted by the Financial Services Agency of Japan, concerning swap dealers.

Opening Statements

Chairman Rostin Behnam

In his opening statement, Behnam noted that unpredictable events, including the pandemic, supply chain disruptions, and crisis in Ukraine have only intensified the need for price discovery and risk management tools. Benham concluded that the two proposals under consideration both represented critical components of CFTC markets.

Commissioner Kristin N. Johnson

In her opening statement, Johnson acknowledged that the Dodd-Frank Act introduced groundbreaking reforms and entrusted derivatives clearing organizations (DCOs) with maintaining the integrity of derivatives. She added that market conditions have stress-tested DCOs and noted that central clearing had increased market stability in the derivatives market. She concluded by calling for prioritizing common goals.

Commissioner Christy Goldsmith Romero

In her opening statement, Goldsmith Romero said regulators should communicate to the American public how their interests are served by the actions that they take. She added that both proposals being considered would promote financial stability and reduce systemic risk.

Commissioner Summer K. Mersinger

In her opening statement, Mersinger noted the items the Commission was considering reflected some of the greatest attributes of the CFTC, including the willingness of market participants to share their expertise and provide recommendations and the CFTC’s coordination with and respect for regulatory counterparts in other jurisdictions.

Commissioner Caroline D. Pham

In her opening statement, Pham said the world has come together to find a global solution to the global challenge presented by the financial crisis. She called for international regulatory harmonization and noted the order under consideration for Japan would set the stage for capital adequacy and financial reporting determinations.

Agenda Items and Discussion

Proposed Rule: Governance Requirements for Derivatives Clearing Organizations

Clark Hutchison, the Director of the CFTC’s Division of Clearing and Risk, discussed the two primary aspects of the proposal. The first primary aspect requires DCOs to establish one or more risk management committees (RMCs). The second aspect would require each DCO to establish one or more risk advisory working groups (RWGs) to seek risk-based input. Hutchison noted these requirements would promote the ability of clearing members and customers to provide expertise and fresh perspectives on risk management matters.

All five members of the Commission expressed their support for the increased transparency and accountability the proposed rule would provide. Chairman Benham added that DCO’s risk management framework is critical because of the systemic nature of clearinghouses and the integral role that DCOs have in promoting financial stability.

Commissioner Johnson called for tailoring risk management oversight in a way that effectively addresses the complexities of business structures, and noted her door was open to discussing whether certain organizational structures might trigger enhanced governance requirements.

All five members of the Commission voted to adopt the motion, and the proposed rule was unanimously approved by the Commission. 

Notice of Proposed Order and Request for Comment on an Application for a Capital Comparability Determination submitted by the Financial Services Agency of Japan

Joshua Beale of the CFTC’s Market Participants Division discussed the notice of proposed order and Capital Comparability Determination (CCD). He reported that Japanese laws and regulations were determined to be comparable to the CFTC’s financial reporting requirements. He recommended the Commission approve the CCD for public comment.

All five members of the Commission expressed support for the CCD, while cautioning that since it was the first such order proposed, it was important to ensure it was a good model for future CCDs. Chairman Benham said the order recognizes the global nature of the swap markets with dually-registered swap dealers that operate in multiple jurisdictions.

Commissioner Goldsmith Romero noted the proposal would apply to the Japanese affiliates of some large banks, which she described as three systemically important institutions and three of the largest TARP recipients having collectively received $60 billion in TARP capital injections.

Commissioner Pham concurred with the motion. The other four members of the Commission voted to adopt the motion. The motion was carried, and the proposed order was approved.

 

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.