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CFTC, SEC hold first-ever joint meeting to discuss margin-related harmonization 

Both agencies pledge broader focus on margin issues going forward 

22 October 2020

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The US Commodity Futures Trading Commission and the US Securities and Exchange Commission held their first-ever joint public meeting on 22 October. The meeting between two of the nation's top financial market regulators was held via teleconference, and featured a joint final rulemaking that aligned minimum margin requirements for security futures as well as a request for public comment on margining of swaps and security-based swaps that are not cleared.  

In his opening statement, CFTC Chairman Heath Tarbert noted that "some critics have maintained that the US financial regulatory system is fragmented, inefficient, and too often plagued with petty turf battles." However, he noted that distinctly different characteristics in the respective markets of the CFTC and the SEC creates "compelling logic" to support two different and distinct regulatory bodies, particularly given the scale of US capital markets.  

While conflicts have naturally arisen between the two agencies over the years given their different mandates, with the CFTC focused on risk management while the SEC focuses on capital formation, Tarbert stressed that cooperation has become increasingly important to both agencies in recent years to better serve market participants. 

SEC Chairman Jay Clayton expressed similar hopes of general collaboration between the US regulators, but also particular optimism that the joint rulemaking on minimum margin requirements "will mark the beginning of a close collaborative process to align better our approaches to the important regulatory objectives underlying our respective margining requirements." 

Joint Final Rule: Customer Margin Rules Relating to Security Futures 

The CFTC voted 5-0 in unanimous support of a measure to lower the minimum margin requirement on security futures from 20% to 15% of a position’s market value, aligned with other similar financial products. The SEC voted 3-2 to support the rule. 

CFTC Commissioner Brian Quintenz noted that after the closure of futures exchange OneChicago in September, there is currently no US exchange that offers a trading venue for security futures. However, Quintenz stressed that the lack of any such exchange to trade these products "underscores the determinative impact statutory provisions can have on the viability of both products and whole business lines," and stressed that this final rulemaking could help promote future innovation in the financial sector. 

SEC Commissioner Caroline Crenshaw, who along with SEC Commissioner Allison Herren Lee opposed the rule, countered that the agencies "have not explained why the existing margin is too high or otherwise identified a problem that would be solved" by the rulemaking, and questioned lowering margin on any highly leveraged product "in the absence of evidence." 

Request for Comment: Portfolio Margining of Uncleared Swaps and NonCleared Security-Based Swaps 

Both agencies voted unanimously to seek public comment on all aspects of the portfolio margining of uncleared swaps, non-cleared security-based swaps, and related positions.  

"Portfolio margining is of central importance to market participants who are dually-registered with the SEC and the CFTC and have customers who hold positions in separate accounts without the ability to cross-margin the positions," said Tarbert. 

"The objective is to gather information to help us carefully consider how portfolio margining might promote greater efficiencies, and also how to address any potential customer protection, financial stability and other regulatory impacts that might result from portfolio margining," Clayton added. 

CFTC's Quintenz, SEC's Peirce honored with awards 

Capping the meeting and highlighting the two agencies' cooperation on Title VII regulatory matters, Tarbert bestowed the Chairman's Award for Regulatory Excellence to SEC Commissioner Hester Peirce on behalf of his agency. Clayton reciprocated the honor, with a similar Chairman's Award for Regulatory Excellence from his agency to honor CFTC Commissioner Brian Quintenz.  

Statements and additional documents 

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