FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
Opening Statement by Commissioner Mark Wetjen before the CFTC’s Global Markets Advisory Committee Meeting
May 14, 2015
Thank you everyone for participating today. I would like to welcome Chairman Massad, Commissioner Bowen, and Commissioner Giancarlo, and extend a special warm welcome to our expert panelists.
Our panelists join us from around the globe and include:
David Bailey from the Bank of England;
Fabrizio Planta from the European Securities and Markets Authority;
Shunsuke Shirakawa from Japan’s Financial Services Agency;
Jeffrey Marquardt from the Federal Reserve; and
Sean Campbell from the Federal Reserve.
Also joining us today are staff members from the CFTC:
Carlene Kim; and
And I want to extend my welcome to the GMAC members and thank you again for convening today to discuss the topics of central counterparty (CCP) risk management, and the CFTC’s cross-border application of its margin rule for uncleared swaps.
Before I turn to Chairman Massad and the other commissioners, I want to make a couple of brief remarks.
Importance of the Clearing Market Structure
Clearinghouses are at the heart of the new market structure for cleared swaps. As we all know, the G20 recommended that this structure be implemented around the globe, and I strongly supported this effort at the CFTC.
Importantly, in the aftermath of the G20 communique, market regulators around the globe, including the CFTC, have raised significantly the standards that CCPs must meet for authorization to do business. Considerable international coordination of this effort was facilitated through the work of CPMI-IOSCO.
Clearinghouses registered with the CFTC now have enhanced financial-resource and liquidity requirements, as well as other risk management standards, that reflect their heightened role in the marketplace.
I recognize, however, that as clearing volumes increase, we need to be cognizant of, and effectively address, the resulting increased concentration of risk in the cleared space. Many market participants and stakeholders have rather vocally expressed concerns about this.
To maintain consensus behind the cleared market structure, it is important for policy makers to provide a forum to discuss the aforementioned concerns, and review whether further enhancements should be considered. That is why today’s meeting has been convened.
Today’s meeting presents an opportunity to sharpen our thinking about whether and how to further improve the cleared market structure, and how to keep pace with marketplace and technological advancements, especially as they relate to CCPs. In particular, today’s agenda focuses on the framework for conducting CCP stress tests, and the appropriate scaling of CCP capital within a CCP’s default waterfall.
Global coordination on these issues is particularly crucial. That is why I am grateful to have David, Fabrizio, and Shunsuke here today to give us their perspectives. Your contributions to today’s debate, as well as any subsequent policy development in your home countries, are highly relevant, important, and appreciated.
I should also add that, even though there remains some uncertainty about how different jurisdictions will treat one another’s CCPs more generally on a going forward basis, it’s important to pursue an open dialogue like the one today, or the ones we experienced earlier this year at Commissioner Bowen’s Market Risk Advisory Committee meeting and the CFTC staff roundtable.
I see only benefits to having an open dialogue like the one today between regulators and market participants, which will enhance a mutual understanding in the official sector, and lead to better policy outcomes.
Margin for Uncleared Swaps
I also look forward to hearing the views of our panelists and GMAC members regarding the application of the CFTC’s margin rule to cross-border swaps, and swaps between affiliates.
Last fall the commission issued an advanced notice of proposed rulemaking that laid out three different cross-border approaches it could take. The comment file appears to heavily favor an approach that mirrors the one proposed by the prudential regulators, which relies on the availability of substituted compliance but also applies U.S. jurisdiction to more firms and transactions than the CFTC’s cross-border guidance. Today’s discussion will help the commission understand better the relative merits of these approaches and clarify which approach to pursue.
Again, thank you for being here today, and I look forward to our discussion.
Last Updated: May 14, 2015