Commodity Futures Trading Commission Open Commission Meeting
Commodity Futures Trading Commission
Open Commission Meeting
Thursday, November 10, 2022
Topline
- The Commission unanimously approved the notice of proposed rulemaking on Derivatives Clearing Organizations (DCOs).
- On the application for a capital comparability determination, four commissioners voted yes and one concurred.
Opening Statements
Commissioner Kristin N. Johnson
Johnson explained that through these measures, the Commission will improve its transparency of oversight of markets. She said these proposals help with the recording of evolving changes from the Commission.
Commissioner Christy Goldsmith Romero
Goldsmith Romero said that cyberattacks are one of the most persistent issues facing businesses today, noting that there has been an increase in global cyber threats since the pandemic began. She emphasized that evolution is needed to meet these continuous cyber threats and expressed strong support for the international swap dealer proposals.
Commissioner Summer K. Mersinger
Mersinger noted that these proposals are exactly how the Commission should work and said she is anxious to see the comments for them. She also said that they need to prioritize other swap dealer proposals in the future, as they have done with Mexico and earlier with Japan.
Commissioner Caroline D. Pham
Pham explained that although making progress in global markets and foreign regulations is very time consuming, it is also important. She also pointed out that the Commission’s rules sometimes do not work as intended. Finally, she said that the first proposal is an example of identifying a problem with recording and determining how to be better overall as an organization.
Notice of Proposed Rulemaking: Reporting and Information Requirements for Derivatives Clearing Organizations (DCOs)
August Imholtz III, Division of Clearing and Risk Management
Imholtz said this proposal ensures that certain information is made public and noted that what is covered is important, even though it is not anything new. He explained that the proposal includes a key oversight model that is not currently in place. He highlighted the importance of timely and accurate information, especially given the events of this week, and pointed out that the proposal includes requirements that the Commission receive DTO information before making decisions. Finally, Imholtz explained the security measures regarding cyber threats included in the proposal and also noted several other items that are polishing current items.
Chairman Rostin Behnam
Behnam said he fully supports the rulemaking because it provides more clarity. He asked Imholtz if the proposal would limit the Commission as markets evolve. Imholtz responded that it would change the data fields but said that is the purpose of the proposal.
Commissioner Kristin N. Johnson
Johnson said she supports the rulemaking because it is responsive to issues raised by the Commission. She asked if the definition of automated system will be changed, and Imholtz said that they will be expanding it to include artificial intelligence (AI) terms.
Commissioner Christy Goldsmith Romero
Goldsmith Romero expressed similar concerns regarding the expansion of the term automated system. Imholtz said they are expanding the definition and their knowledge of cybersecurity threats. Goldsmith Romero then asked about the experience with clearing agencies reporting security malfunctions, and Imholtz responded by noting that they have better numbers than before.
Commissioner Summer K. Mersinger
Mersinger wanted to know about discussions around the new fields being added, but Imholtz said these discussions are internal. She then asked if they are certain that this data is not being reported elsewhere, and Imholtz was “fairly certain.”
Commissioner Caroline D. Pham
Pham asked if the staff plans to withdraw the letter if it is finalized. Imholtz said the new rule would allow for more clarity and transparency. Eileen Donovan, also from the Division of Clearing and Risk, explained that finalization of the rule would make the letter go away. Pham asked how long the safeguard rules have been in place for DCOs. Imholtza said since 2011 or 2013, and Donovan added that they were updated in 2016.
Vote
The proposal passed 5-1.
Notice of Proposed Order and Request for Comment on an Application for a Capital Comparability Determination Submitted on behalf of Nonbank Swap Dealers subject to Regulation by the Mexican Comision Nacional Bancaria y de Valores
Carmen Moncada-Terry, Market Participants Division
Moncada-Terry explained that this proposal will allow swap dealers from Mexico to apply directly to the Commission. She said the staff has looked over Mexican laws and redesigned the application for Mexican swap dealers. She also noted that the Mexican Commission has informed the Commission on their own process. There are certain conditions in the Mexican reporting rules that counteract with current Commission rules, and this proposal will align both Commissions’ rules for swap dealers. She concluded by saying that it is essential to change conditions to have transparency and more information.
Chairman Rostin Behnam
Behnam supported the proposal. He said it is important to note that it would not compromise the Commission’s financial reporting. He asked about reviewing the risk model provided by the Market Participants Division (MPD) and ensuring requirements are met in the US. Moncada-Terry said they have experience modeling, as they did earlier with Japan. She noted that if a swap dealer wants to use a model, the Commission will consider the Mexican framework to approve modeling for marketing risk. Rafael Martinez, also with the Market Participants Division, said they would have to work more with Mexican regulators to comply with risk models.
Commissioner Kristin N. Johnson
Johnson also supported the proposed order. She said the proposed updated financial reporting is essential to ensure the safety of swap dealers and capital. She asked about the strategy for getting cooperation with all organizations involved in this proposal. Moncada-Terry explained that they have had very productive conversations with counterparts in Mexico. Thomas Smith, another member of the Market Participants Division, said that the counterparts in Mexico provided English translations of all their laws. He said the English and Spanish versions were the same.
Commissioner Christy Goldsmith Romero
Goldsmith Romero asked about fundamental capital in Mexico. Moncada-Terry explained that in Mexico there is a more conservative definition than in the US. She said it only includes common equity instruments and retained earnings. Goldsmith Romero said she is very supportive of this proposal.
Commissioner Summer K. Mersinger
Mersinger asked who would tell the Commission if the regulations in Mexico were to change, and Smith said it is the responsibility of applicants.
Commissioner Caroline D. Pham
Pham concurred with the proposal. She said this is not a practical way to do oversight on international markets. She said there needs to be more than 24 hours to report any inconsistencies.
Vote
The proposal passed 4-1 with Commissioner Pham concurring.
For more information on this hearing, please click here.
For an archive of past SIFMA hearing coverage, please click here.