CFTC Alert! CFTC today approved: Final Rule: Governance Requirements for Derivatives Clearing Organizations (DCO), DCO Recovery and Orderly Wind-down Plans, amendments to Large Trader Reporting Requirements, and to solicit public comment on European
The Commodity Futures Trading Commission at its open meeting today approved the following:
Final Rule: Governance Requirements for Derivatives Clearing Organizations:
- CFTC unanimously approved a final rule that adopts amendments to its rules to require derivatives clearing organizations (DCOs) to establish and consult with one or more risk management committees (RMCs) comprised of clearing members and customers of clearing members on matters that could materially affect the risk profile of the DCO.
- In addition, CFTC is adopting minimum requirements for RMC composition and rotation, and requiring DCOs to establish and enforce fitness standards for RMC members.
- CFTC is also adopting requirements for DCOs to maintain written policies and procedures governing the RMC consultation process and the role of RMC members.
- Finally, CFTC is adopting requirements for DCOs to establish one or more market participant risk advisory working groups (RWGs) that must convene at least twice per year, and adopt written policies and procedures related to the formation and role of the RWG.
The final rule is effective with publication in the Federal Register. DCOs must comply with the final rule one year after the effective date.
Proposed Rule: Derivatives Clearing Organizations Recovery and Orderly Wind-down Plans:
- CFTC approved the proposed rule concerning recovery and orderly wind-down plans for systemically important derivatives clearing organizations and DCOs that elect to be subject to the provisions in Subpart C of part 39 of CFTCโs regulations.
- It would, among other things, address certain risk management obligations, modify definitions, and codify existing staff guidance.
- The proposal would also require DCOs that are not designated as systemically important, and which have not elected to be covered by Subpart C of part 39, to submit orderly wind-down plans.
- In addition, the proposal would make conforming amendments to certain provisions, revise the Subpart C Election Form and Form DCO, and remove stale provisions.
This proposed rule has a 60-day comment period after publication in the Federal Register.
Proposed Rule: Amendments to Part 17 Large Trader Reporting Requirements:
- CTFC unanimously approved the proposed rule to revise the regulations for large trader position reporting for futures and options.
- These regulations require futures commission merchants, clearing members, foreign brokers, and certain reporting markets (reporting firms) to report to CFTC position information for the largest futures and options traders.
- Fact Sheet: Proposed Rule Regarding Large Trader Position Reporting for Futures and Options
Guidebook for Part 17.00
This proposed rule has a 60-day comment period after publication in the Federal Register.
- CFTC unanimously approved the proposed comparability determination to solicit public comment on an application submitted by the Institute of International Bankers, International Swaps and Derivatives Association, and Securities Industry and Financial Markets Association requesting that the Commission determine that the capital and financial reporting laws and regulations of the European Union applicable to CFTC-registered swap dealers organized and domiciled in the French Republic and Federal Republic of Germany provide sufficient bases for an affirmative finding of comparability with respect to the Commissionโs swap dealer capital and financial reporting requirements adopted under the Commodity Exchange Act.
- CFTC is also soliciting public comment on a proposed order providing for the conditional availability of substituted compliance in connection with the application.
This proposed comparability determination and order have a 60-day comment period after publication in the Federal Register.
Statements:
Opening Statement of Chairman Rostin Behnam
Opening Statement of Commissioner Kristin N. Johnson
Opening Statement of Commissioner Christy Goldsmith Romero
Opening Statement of Commissioner Summer Mersinger
17 CFR Part 39 Governance Requirements for Derivatives Clearing Organizations:
Statement of Commissioner Goldsmith Romero
17 CFR Part 39 Derivatives Clearing Organizations Recovery and Orderly Wind-down Plans; Information for Resolution Planning:
Statement of Commissioner Christy Goldsmith Romero
17 CFR Part 17 Large Trader Reporting Requirements:
Statement of Commissioner Kristin N. Johnson
Statement of Commissioner Christy Goldsmith Romero
Statement of Commissioner Caroline D. Pham
17 CFR Chapter I Notice of Proposed Order and Request for Comment on an Application for a Capital Comparability Determination Submitted on behalf of Nonbank Swap Dealers domiciled in the French Republic and Federal Republic of Germany and subject to Capital and Financial Reporting Requirements of the European Union:
Statement of Commissioner Kristin N. Johnson
Statement of Commissioner Christy Goldsmith Romero
Statement of Commissioner Caroline D. Pham
TLDRS:
The Commodity Futures Trading Commission (CFTC) has passed new rules mandating that Derivatives Clearing Organizations (DCOs) establish Risk Management Committees (RMCs) consisting of clearing members and their customers, to consult on issues potentially impacting the DCOs' risk profile.
- Guidelines for RMC composition, rotation, and fitness standards for members have been set.
- Furthermore, DCOs must maintain written policies and procedures on the RMC consultation process and member roles.
- The CFTC approved a rule for recovery and orderly wind-down plans for key DCOs.
- The CFTC has approved a proposed rule to update large trader position reporting regulations for futures and options, affecting futures commission merchants, clearing members, foreign brokers, and certain reporting markets.
- CFTC has invited public comments on a proposal by a trio of banking and financial associations requesting that EU capital and financial reporting regulations for CFTC-registered swap dealers in France and Germany are comparable to CFTC's own requirements. CFTC is also asking for public opinions on an order allowing conditional substituted compliance relating to the application.
How does this relate to GameStop?
- Strengthening risk management: By requiring Derivatives Clearing Organizations (DCOs) to establish and consult with Risk Management Committees (RMCs) and Market Participant Risk Advisory Working Groups (RWGs), the CFTC is creating a structure where risks associated with derivative transactions, such as swaps, can be assessed and mitigated. This could reduce the risk of manipulative activities like naked shorting via swaps.
- Increasing transparency: The new rules concerning large trader position reporting for futures and options could increase market transparency. By requiring more detailed reporting of large positions in these derivatives, the CFTC might make it harder for parties to engage in manipulative practices unnoticed. If a company was being heavily shorted via swaps, these new reporting rules could help bring that to light.
- Improved regulatory oversight: The approval of recovery and orderly wind-down plans, as well as the adoption of written policies and procedures governing the functioning of RMCs and RWGs, suggests an overall enhancement of regulatory oversight. This might dissuade nefarious activities, including the misuse of swaps for naked shorting.
- Promoting international regulatory harmonization: By seeking public comments on the comparability of the EUโs capital and financial reporting regulations with its own, the CFTC is working towards harmonizing international regulations. This could close loopholes that could otherwise be exploited in cross-border derivatives transactions.
