Release: #3999-97

For Release: March 6, 1997


Washington, D.C. -- On Friday, February 28, 1997, the CFTC and major US exchanges and their counterparts in the UK participated in the first cross-border industry-wide stress test of the mechanisms and emergency procedures in place among those regulators, exchanges and clearing organizations to address a financial or market disruption caused by a firm default. U.S. participants were the CFTC, the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), the Chicago Board of Trade (CBT) and the Board of Trade Clearing Corporation (BOTCC). U.K. participants were the Securities and Investments Board (SIB), the Securities and Futures Authority (SFA ), the London Clearing House (LCH) and the London International Financial Futures and Options Exchange (LIFFE). Other U.S. self-regulatory organizations were kept informed.

The test scenario -- the default of a hypothetical firm at a U.S. exchange which in turn precipitates a default at a U.K. exchange -- provided an opportunity for the participants to test their emergency procedures and cross-border risk management mechanisms that were developed or enhanced in response to the 1995 default of Barings Plc. The test helped to focus the participants' attention on their responsibilities in an emergency, the steps that needed to be followed to determine the extent of the problem, methods of containment, and areas for improvement.

Chairperson Brooksley Born stated the following:

I welcome this first cross-border testing of emergency procedures, as it demonstrates the high level of international cooperation that has evolved among market authorities. This international test reflects the many enhancements in international regulatory preparedness and cooperation implemented following the default of Barings in 1995 and the more recent events surrounding the Sumitomo Corporation. The test demonstrated the usefulness of the information sharing arrangements that were signed in 1996 -- the Declaration on Cooperation Between Market Authorities and the Exchange Memorandum of Understanding -- and the commitment to cooperation among U.S. and U.K. regulators and exchanges to minimize systemic risk and to enhance market integrity. The lessons learned during this emergency procedures test leave all of us in a better position to respond to market crisis.