Public Statements & Remarks

Opening Statement of Chairman Rostin Behnam for July 27, 2022 Open Meeting

July 27, 2022

Good morning and welcome.  In some respects, today’s open meeting is a historic event. It is the first open meeting to be held in person at the Commission in almost two and a half years, since the onset of the COVID-19 pandemic.  It is also the first open meeting to be held with all five Commissioners since December 2020.  Perhaps most notably, it is the first open meeting with our history-making CFTC Commissioners.

At a time when many across the country have dispensed with the formalities of office-life, these public meetings seem to be a sharp contrast to our current day-to-day operations.  However, these formalities should serve as a fresh reminder of the importance of the work we do as a full Commission and who we are here for: the American public.  On that note, I am honored to be here today as Chairman of the Commodity Futures Trading Commission, at this dais, working closely and collaboratively with my colleagues and providing the public a direct view into the critical work we do.

I want to express my great appreciation to our colleagues in the Division of Clearing and Risk and the Market Participants Division for their efforts on the two proposals before the Commission today.

My intention is to make today the first of many productive and insightful open meetings as our new Commission thoughtfully supports the growth, transparency, and vibrancy of the U.S. derivatives markets.  During the pandemic, CFTC staff has continued its diligent oversight of the derivatives markets through an everchanging range of market events, including historic demand destruction across all commodity classes in the spring of 2020, titanic shifts in global monetary policy, supply chain disruptions, and the more recent Ukraine crisis.  These unpredictable events have only intensified the need for price discovery and risk management tools.

We will be considering two proposals today, each representing critical components of CFTC markets: governance requirements for derivatives clearing organizations, and a proposed order and request for comment on the Application for Capital Comparability Determination Submitted by the Financial Services Agency of Japan.  I will share my remarks on the respective proposals in greater detail following staff presentations.

Thank you again to the division staff, Abigail Knauff and Alicia Lewis in my office, and to my fellow Commissioners and their staff for their support and work to get us here – on this historic day.

Proposed Rulemaking Governance Requirements for Derivatives Clearing Organizations

The last several years have tested the resilience of the derivatives markets and post-financial crisis reforms more generally in ways that few risk scenarios could have contemplated.  Despite a resoundingly strong response to the numerous market shocks, the global regulatory community, in concert with market participants, has appropriately debated the need for additional tools, resources, and rules to manage these and future risks.  As farmers, ranchers, corporates, pension funds, insurers, and other market participants continue to turn to the derivatives markets for risk management and price discovery, it is critical that derivatives clearing organizations (DCOs) clearing these products sufficiently calibrate their risk management tools and frameworks to meet the most extreme, but plausible, tail events.

DCOs with governance structures that embrace the diverse risk-based views of clearing members and their clearing members’ customers will be better situated to refine their risk management frameworks to withstand extreme but plausible market conditions while promoting financial stability.  With an ever-evolving risk landscape, including new clearing structures, new product innovation, and the emerging risk of climate change to name just a few, it is critical that DCOs’ governance arrangements and fitness standards evolve.

That is why I support today’s proposal to amend the governance requirements for DCOs in CFTC Regulation 39.24 to enhance the role of clearing members and customers of clearing members in the risk governance process for DCOs.  A DCO’s robust risk management framework is particularly critical because of the systemic nature of clearinghouses and the integral role that DCOs have in promoting financial stability.

Today’s DCO governance proposal is a direct outgrowth of the work of the Central Counterparty (CCP) Risk and Governance Subcommittee (Subcommittee) of the Commission’s Market Risk Advisory Committee (“MRAC”),[1] of which I was the immediate past Sponsor.  The Subcommittee’s February 2021 report to the MRAC provided several recommendations for improving DCO governance standards that the Commission is proposing today to amend CFTC Regulation 39.24.

First, the Commission proposes to require each DCO to establish one or more risk management committees (RMCs) to consult with clearing members and clearing member customers prior to making any decisions that could materially affect the risk profile of the DCO.  Under the proposal, the DCO would need to consult with the RMC for material changes to a DCO’s margin model, default procedures, participation requirements, risk monitoring practices, and clearing of new products.  The proposal would further require a DCO to have written policies and procedures related to the RMC’s consultation process, composition, and rotation of the membership on a regular basis.  As proposed, a DCO would be required to establish and enforce appropriate fitness standards for RMC members.  The Commission also proposes that a DCO maintain policies that are designed to enable RMC members to provide independent, expert opinions in the form of risk-based input on all matters presented to the RMC for its consideration.

Second, the Commission proposes to require each DCO to establish one or more risk advisory working groups (RWGs) as a forum to seek risk-based input (as opposed to commercially-driven input) from a broader array of market participants on matters that could materially affect the DCO’s risk profile.  The Commission proposes to require a DCO to maintain written policies and procedures related to the formation and role of each RWG, which would be required to convene at least quarterly.

Finally, the Commission is also requesting comment on the consultation process to add or amend a DCO rule, disclosure of opposing views in a rule submission, and whether DCOs should be required to maintain policies and procedures designed to enable an RMC member to share certain types of information in order to obtain additional expert opinions.

Today’s proposal is an extremely positive and critical step towards further enhancing the effectiveness of the CFTC’s governance standards.  Strengthening the clearing ecosystem and developing a DCO governance policy has been a priority since I joined the Commission in 2017.  As Chairman, this critical market infrastructure will remain a focus, and I look forward to taking a data-driven approach to support any possible enhancements to the agency’s oversight of DCOs, ensuring coordination and consistency with our domestic and international partners as we collectively pursue our shared goals of market resiliency and financial stability.  Today is a big step, and the Commission will continue to monitor the clearing ecosystem and engage market participants on DCO risk and governance issues in the future.

Proposed Order and Request for Comment on the Application for Capital Comparability Determination Submitted by the Financial Services Agency of Japan

Turning to another important matter, as CFTC provisionally-registered swap dealers (SDs) operate and manage risk globally, the Commission’s supervisory framework must acknowledge the realities of multi-jurisdictional operations.  I support the Commission’s proposed order and request for comment on its preliminary determination that nonbank[2] swap dealers (SDs) organized and domiciled in Japan are subject to, and comply with, capital and financial reporting requirements in Japan that are comparable to certain capital and financial reporting requirements under the Commodity Exchange Act and the Commission’s regulations (Capital Comparability Determination), subject to certain conditions.

Today’s preliminary Capital Comparability Determination is the first such order proposed by the Commission since adopting its regulatory substituted compliance framework for non-U.S. domiciled nonbank SDs in July 2020.[3]  The Commission is proposing this order in response to an application submitted by the Financial Services Agency of Japan (FSA), which has direct supervisory authority over the three Japanese nonbank SDs that are provisionally-registered with the Commission.

The Commission’s principles-based approach to the proposed determination focuses on whether the FSA’s capital and financial reporting requirements achieve comparable outcomes to the corresponding CFTC requirements.[4]  Specifically, the Commission has also considered the scope and objectives of FSA’s capital adequacy and financial reporting requirements; the ability of FSA to supervise and enforce compliance with its capital and financial reporting requirements; and other facts or circumstances the Commission has deemed relevant for this application.

Throughout its analysis, the Commission recognized that jurisdictions may adopt unique approaches to achieving comparable outcomes, and the Commission has focused on how the FSA’s capital and financial reporting requirements are comparable to its own in purpose and effect, rather than whether each are comparable in every particular aspect or contain identical elements.  In this regard, the approach was not a line-by-line assessment or comparison of FSA’s regulatory requirements with the Commission’s requirements.[5]

Consistent with the Commission’s authority to issue a Capital Comparability Determination with terms and conditions it deems appropriate, today’s proposed order contains 22 conditions.  These conditions aim to ensure that the proposed order, if finalized, would only apply to Japanese nonbank SDs that are eligible for substituted compliance and that these Japanese nonbank SDs comply with FSA’s capital and financial reporting requirements as well as certain additional capital, margin, position, financial reporting, required recordkeeping, and regulatory notice requirements.

If the Commission, upon consideration of the comments received, determines to issue a favorable comparability determination, an eligible Japanese nonbank SD would be required to file a notice of its intent to comply with FSA’s capital adequacy and financial reporting rules in lieu of the Commission’s requirements.[6]  The Commission (or the Market Participants Division through delegated authority) would then be obligated to confirm to the Japanese nonbank SD that it may comply with the foreign jurisdiction’s rules as well as any conditions that would be adopted as part of the final determination, and that, by doing so, it would be deemed to be in compliance with the Commission’s corresponding capital adequacy and financial reporting requirements.

I believe it is important to note that today’s proposed Capital Comparability Determination, if finalized, would not compromise the Commission’s capital and financial reporting requirements.  Instead, it recognizes the global nature of the swap markets with dually-registered SDs that operate in multiple jurisdictions that mandate prudent capital and financial reporting requirements.  A capital and financial reporting comparability determination order of this kind is not a compromise or deference to a foreign regulatory authority.  The Commission would retain its enforcement authority and examinations authority as well as obtain all financial and event specific reporting to maintain direct oversight of nonbank SDs located in Japan.

While the CFTC and the FSA have a pre-existing memorandum of understanding (MOU) in place, it is important to note that an MOU or a similar agreement is not necessary for the Commission and the National Futures Association to monitor these firms’ compliance with the conditions of a capital comparability determination.

I look forward to the public’s submission of comments and feedback on this proposed determination and order.

Looking beyond the proposed Japan Capital Comparability Determination on the Commission’s agenda today, the Commission will consider the proposed capital comparability determination for non-bank SDs domiciled in Mexico at a future date to allow for additional dialogue between CFTC staff and its international counterparts.

Separately, the Market Participants Division is actively considering whether to renew its no-action position in NAL 21-20, which currently expires on October 6, 2022.  MPD hopes to provide certainty to provisionally-registered nonbank SDs located in the four jurisdictions with a capital comparability determination that is under active Commission consideration as soon as practicable.

I wish to again thank the hardworking staff in the Division of Clearing and Risk and the Market Participants Division for all of their efforts towards bringing us here today.


[1] The MRAC is a discretionary advisory committee established by the authority of the Commission in accordance with the Federal Advisory Committee Act. 5 U.S.C. App. 2.  The MRAC advises the Commission on matters related to evolving market structures and movement of risk across clearinghouses, exchanges, intermediaries, market makers, and end-users.  See Market Risk Advisory Committee, available at

[2] The Commission has capital jurisdiction over registered SDs that are not subject to the regulation of a U.S. banking regulator (i.e., nonbank SDs).

[3] See 85 FR 57462, 57520 (Sept. 15, 2020). Regulation 23.106 also sets forth the Commission’s substituted compliance requirements for major swap participants; however, there are not any registered with the Commission.

[4] 17 CFR 23.106(a)(3)(ii).  See also 85 FR 57462 at 57521.

[5] See 85 FR 57521.

[6] See 17 CFR 23.106(a)(4).