Release Number 8918-24

CFTC’s Global Markets Advisory Committee Advances Recommendations on Basel III Endgame and Variation Margin Processes

Commissioner Pham Highlights Influence & Value of GMAC Accomplishments

June 04, 2024

— The Commodity Futures Trading Commission’s Global Markets Advisory Committee (GMAC), sponsored by CFTC Commissioner Caroline D. Pham, advanced two recommendations to examine the impacts of proposed U.S. bank capital requirements and to improve collateral and liquidity management for non-centrally cleared derivatives.

“The GMAC continues to make great progress developing thoughtful recommendations and insightful work product to aid the CFTC, other policymakers, and participants in global markets,” Commissioner Pham said. “In less than a year, the GMAC has now adopted 13 recommendations on a broad array of issues to promote and bolster market integrity and resiliency. These recommendations continue to have a tangible impact, not only on rulemakings here at the CFTC, but also among our counterparts and international standard setters. As the GMAC’s sponsor, I’m honored to help provide a public venue for some of the preeminent industry experts to discuss and develop potential solutions to addressing the biggest challenges in global markets.”

The GMAC approved two recommendations without objection at its meeting on June 4 in New York.  The GMAC also received presentations on trading mandates and their impact on global market structure and liquidity on swap execution facilities, and trading activity in global commodity markets. The CFTC’s Office of International Affairs also provided an update on the agency’s international engagement.


Global Market Structure Subcommittee Recommendation – Report on the Impact of the US Bank Capital Proposals on End-Users that Rely on Cleared Derivatives Markets

The current U.S. Basel III endgame bank capital proposals represent a comprehensive rewrite of the regulatory capital standards for major U.S. banks. The proposal brings major implications for the clients these banks serve – particularly for end users who rely on derivatives markets to hedge risk. In its current form, the proposal would: reduce the capacity of U.S. banks to offer clients access to derivatives markets; reduce liquidity in derivatives markets; increase the costs of hedging for end-users and, as a result, increase costs for their customers; disproportionately harm smaller end-users and non-public companies; increase systemic risk; and create an unlevel playing field for market participants, including across jurisdictions.

The report includes various recommendations to further examine the impact of U.S. bank capital proposals on end users, central clearing, and derivatives markets.

Technical Issues Subcommittee Recommendation – Variation Margin Processes in Non-Centrally Cleared Markets

Following the global implementation of margin requirements for non-cleared derivatives, margin call and settlement volumes have grown exponentially, raising the necessity for efficient collateral and liquidity management practices, especially during times of market volatility. The importance of streamlining variation margin (VM) practices is recognized by market participants through the increased use of standards and solutions and by the global regulatory community which has recommended areas for improvement of VM processes.

Prompted by periods of market volatility including and following the global pandemic, the Basel Committee on Banking Supervision (BCBS), the BIS Committee on Payments and Market Infrastructures (CPMI), and the International Organization of Securities Commissions (IOSCO) engaged to review margining practices and foster market participants’ preparedness for high margin call and settlement volume during market volatility events. In January, BCBS and IOSCO issued recommendations for streamlining VM processes. They recommend firms consider the following: the legal and operational challenges that could inhibit seamless exchange of margin and collateral calls; granting greater flexibility in bilaterally agreed acceptable collateral; advantages of standardization and automation of their non-centrally cleared margin processes; and the potential benefits of third-party services to help improve non-centrally cleared VM processes.

The GMAC recommends that the CFTC support and facilitate industry implementation of the BCBS-IOSCO recommendations for streamlining of variation margin practices.

Additional Meeting Resources

About the GMAC and Advisory Committees

The GMAC was created to advise the Commission on issues that affect the integrity and competitiveness of U.S. markets and U.S. firms engaged in global business, including the regulatory challenges of a global marketplace that reflects the increasing interconnectedness of markets and the multinational nature of business. The GMAC also makes recommendations regarding international standards for regulating futures, swaps, options, and derivatives markets, as well as intermediaries.

In June 2023, Commissioner Pham announced the leadership and membership of the GMAC and its subcommittees—the largest-ever single advisory committee initiative sponsored by the CFTC. Members include financial market infrastructures, market participants, end-users, service providers, and regulators. Harry Jung is the GMAC Designated Federal Officer, and Nicholas Elliot is the GMAC Alternate Designated Federal Officer.

There are five active Advisory Committees overseen by the CFTC. They were created to provide advice and recommendations to the Commission on a variety of regulatory and market issues that affect the integrity and competitiveness of U.S. markets. These committees facilitate communication between the Commission and market participants, other regulators, and academics. The views, opinions, and information expressed by the Advisory Committees are solely those of the respective Advisory Committee and do not necessarily reflect the views of the Commission, its staff, or the U.S. government.