Goal Two—Protect the public and market participants by ensuring the financial integrity of derivatives transactions, mitigation of systemic risk, and the fitness and soundness of intermediaries and other registrants.
Goal Two Performance Summary
In fostering financially sound markets, the Commission's main priorities are to avoid disruptions to the system for clearing and settling contract obligations and to protect the funds that customers entrust to FCMs. Clearing organizations and FCMs are integral to the financial integrity of derivatives transactions—together, they protect against the financial difficulties of one trader becoming a systemic problem. Several aspects of the regulatory framework that contribute to the Commission achieving Goal Two are: 1) requiring that market participants post margin to secure their ability to fulfill financial obligations; 2) requiring participants on the losing side of trades to meet their obligations, in cash, through daily (sometimes intraday) margin calls; 3) requiring FCMs to maintain minimum levels of operating capital; and, 4) requiring FCMs to segregate customer funds from their own funds.
Accomplishments related to progress in achieving this goal include:
The Commission adopted regulations concerning the registration process for SDs and MSPs.
The Commission adopted final rules: 1) establishing reporting, record-keeping, and daily trading records requirements for SDs and MSPs; 2) establishing and governing the duties of SDs and MSPs; 3) establishing conflicts of interest requirements for SDs, MSPs, FCMs, and introducing brokers (IBs); 4) concerning the designation, qualifications, and duties of the chief compliance officers of FCMs, SDs, and MSPs; and 5) establishing requirements for swap trading relationship documentation, swap confirmation, portfolio reconciliation, and portfolio compression for SDs and MSPs.
The Commission adopted business conduct standards rules for SDs and MSPs governing their dealings with counterparties generally, and additional requirements when they deal with "Special Entities".
The Commission proposed new regulations, and amendments to existing regulations, to enhance protections for customers and to strengthen the safeguards surrounding the holding of money, securities, and other property deposited by customers with FCMs and DCOs. The proposals expand upon previous Commission actions to enhance customer protections, including rolling back certain exemptions from investment standards for customer funds under Regulation 1.25 and the adoption of the Legal Segregation with Operational Commingling (LSOC) model for cleared swap transactions.
The Commission finalized rules that implement the statutory core principles for DCOs, and are found in Part 39 of the Commission's regulations. Taken together, the statutory core principles and these rules are designed to be consistent with international standards for central counterparties as reflected in the "Principles for Financial Market infrastructures" issued by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements and IOSCO.
The Commission met its target to perform risk analysis and stress-testing on 550,000 large trader and clearing member positions to ascertain those with significant risk and confirm that such risks are being appropriately managed.
The Commission made progress in updating systems to support expanded financial and risk surveillance activity. Existing systems were updated to support increased financial reporting. At the same time, automated services were implemented for retrieving market data and reference data. This allows staff more time to focus their surveillance on high risk areas.
Goal Two performance measure results are depicted in the following table: