Release Number 8138-20

March 24, 2020

ICYMI: Chairman Tarbert in WSJ: Volatility Ain’t What It Used to Be

“[F]ar from amplifying risk throughout the financial system, the derivatives markets have so far acted as shock absorbers. Unlike during the 2008 financial crisis, derivatives have internalized the impact of market swings. And while no one can predict the future, derivatives markets have been resilient in part because the Commodity Futures Trading Commission has deployed tools to help prevent financial contagion.

“One important remedy in the CFTC’s medicine cabinet is a post-2008 requirement that derivatives traders post margin for their swap positions … The CFTC’s swap margin rules are important because they remove the guesswork about who is solvent, marking a critical distinction from 2008 … That is a very good thing for financial health and stability, as derivatives markets are much larger now than they were in 2008. Approximately 60 million futures contracts were traded during the past two weeks, compared with fewer than 15 million during the financial crisis.

“The CFTC’s margin rules are aided by real-time monitoring and risk-based trading limits. These requirements, coupled with modern technology, make it easier for market participants to raise collateral quickly to satisfy margin calls before defaults happen. The data bear this out: Between February 24 and March 14, a record $54 billion in margin was posted to derivatives clearinghouses, and the financial system handled these payments without incident.

“And the CFTC is looking to establish even more financial safeguards. Recently proposed amendments to swap data reporting rules would for the first time require the reporting of margin and collateral data for uncleared swaps. If adopted, this proposal will significantly strengthen the CFTC’s ability to monitor for systemic risk in uncleared swaps markets.

“Volatility can be challenging for markets and the Americans who rely upon them. But this isn’t 2008: The CFTC has a robust tool kit to help market participants manage risk and prevent financial contagion.”

Read full op-ed here.