Public Statements & Remarks

Opening Statement of Commissioner Dan M. Berkovitz before the Market Risk Advisory Committee

December 4, 2018

Good morning everyone.  I want to briefly mention my interest in two topics to be discussed today:  clearinghouse risk management and the treatment of derivatives exposures and margin under prudential regulator rules.

First, on clearinghouse risk generally:  clearinghouse risk management is a critical issue for the CFTC.  After the adoption of the Dodd-Frank Act, substantially more activity—both in swaps and futures—is now centrally cleared.  I believe wholeheartedly that encouraging central clearing is good for our markets and market participants.  Central clearing mitigates systemic risk.

However, with the expansion of the volume of trades cleared, we need to be ever more vigilant at monitoring and overseeing clearinghouse risk management.  A big part of that effort is having opportunities like this meeting to discuss with market participants the clearing risk management and governance issues on today’s agenda.

Next, a few words about the capital treatment of derivatives exposure: During the Commission’s last public meeting, I expressed concern that market concentration in fewer entities can have negative effects on competition and systemic risk.  It is well known that FCM services are becoming more and more concentrated.  A large majority of futures and swaps are now cleared by a handful of FCMs affiliated with large banks.  

The document recently released by the FSB on Incentives to Centrally Clear OTC Derivatives states that “[a]cross the United States, the United Kingdom and Japan, the amount of cleared client trading activity which passes through the top five clearing members exceeds 80% for IRS, as measured by notional value.”[1]   The FSB also reports that the current treatment of margin posted by clients in the leverage ratio may be a significant disincentive for FCMs to offer or expand client clearing.[2]

I am very much aware of the concerns around bank leverage and support efforts to restrict excessive risk taking by banks.  However, a reduction in the availability of clearing services offered by fewer firms could itself become a risk issue.  This would not be a good outcome. 

In considering measures to reduce risk in one area, we must ensure that we are not creating or exacerbating risks in other areas.   Accordingly, I look forward to the discussion today of current proposals by prudential regulators to revise the calculation of derivatives exposures for bank capital rules.

I thank in advance all of the participants in today’s meeting for contributing to this discussion and Commissioner Behnam and Alicia Lewis for sponsoring this meeting.


[1] Financial Stability Board, Incentives to centrally clear over-the-counter (OTC) derivatives:  A post-implementation evaluation of the effects of the G20 financial regulatory reforms—final report, at 21 (Nov. 19, 2018),

[2] Id. at 64-65.