The US Commodity Futures Trading Commission held a meeting of the Market Risk Advisory Committee on 11 December to discuss several current policy issues affecting the derivatives industry.
The advisory committee, which is sponsored by CFTC Commissioner Kristin Johnson, has no rulemaking authority, but it provides a platform for market participants and policy experts to give the agency their views on current issues.
The meeting featured a broad agenda, including an overview of the current state of CCP risk and governance from an international perspective, featuring panellists from the City of London Corporation, the European Securities and Markets Authority, and the CFTC’s Division of Clearing and Risk.
The meeting also featured updates from the MRAC’s advisory committees including the CCP Risk and Governance Subcommittee, Market Structure Subcommittee, the Climate Related Market Risk Subcommittee, and the Future of Finance Subcommittee.
At the conclusion of the meeting, Johnson thanked Alicia Crighton of Goldman Sachs, MRAC’s chair, for her service and contributions to the committee’s work.
Clearing firm consolidation
Ashwini Panse, chief risk officer for the North American clearinghouses operated by Intercontinental Exchange, highlighted that the futures industry has experienced significant FCM consolidation over the past two decades. Panse highlighted significant barriers for entry for new FCMs and raised concerns about pending US bank capital proposals that may reduce the capacity of bank-affiliated FCMs to provide client clearing services and market access.
Representatives from clearing member firms – Alicia Crighton of Goldman Sachs, Andrew Nash of Morgan Stanley, and Marnie Rosenberg of JPMorgan – echoed the concerns related to the pending bank capital proposals. They warned that the increased capital requirement for client clearing may exacerbate concentration issues and discourage FCMs from providing clearing services.
Bob Wasserman, chief counsel of the CFTC’s clearing and risk division, echoed this concern. He warned that certain bank capital rules may harm the ability for FCMs to port customers in the event of a wind-down.
Operational Resilience
In her opening statement, Johnson noted that CFTC staff will propose updates to existing operational resilience rules for futures commission merchants and other intermediaries. Johnson said the updates, which are scheduled for consideration on Dec. 12, “seek to ensure that covered entities must identify, monitor, manage, and assess risks posed by their use of critical third parties” in such areas as margin processing, risk management, human resources, and information technology. Johnson said that while this proposal does not apply to clearinghouses, she wants members of the advisory committee to consider CCP third-party risk and suggest recommendations for rule-making, if needed.
Don Byron, head of global industry operations and execution at FIA, gave a briefing on FIA’s response to a ransomware attack earlier this year on a single third-party service provider. That attack significantly impacted the processing of trades executed on multiple exchanges and CCPs globally and highlighted the importance of operational resilience.
In March, FIA formed an industry taskforce to examine the incident, and in September, FIA released an After-Action Report with recommendations for improving the industry's ability to withstand future attacks. Byron noted that FIA is forming an “Industry Resilience Committee” that will serve as a trusted forum for key stakeholders to discuss cyber incident management and resilience planning and recommend best practices for the industry.
CCP Recovery and Resolution
The CFTC also heard an update from an MRAC working group focused on CCP recovery and resolution. The group, which plans to issue a report in the second quarter 2024, intends to address public comments on the CFTC’s proposed rule on DCO Recovery and Orderly Wind-Down Plans as well as international developments including the Financial Stability Board’s consultation report on Financial Resources and Tools for Central Counterparty Resolution.
The CFTC’s Wasserman said there is broad agreement that further quantitative analysis is necessary and added that the CFTC staff are focused on ensuring that its proposed rule does not have unintended consequences.
Additional documents
