Public Statements & Remarks

Opening Statement of Commissioner Sharon Bowen before the Market Risk Advisory Committee

June 27, 2016

Welcome to the June 27, 2016 meeting of the Market Risk Advisory Committee (MRAC). I am excited to be the sponsor of this Committee, which brings together a diverse group of market participants to discuss the important topics of systemic risk in, and the structural evolution of, the derivatives markets.

Before beginning our meeting today, I’d like to say a few words about the recent British referendum. In the next few months, and even years, we, as regulators, will need to make many decisions in light of this new reality. In the days and weeks to come, the industry and others who observe these markets, will have a much better sense of what are the temporary versus the long-lasting effects. This Committee, composed of industry, academicians, regulators and public policy groups, will be a key source of advice and analysis to the Commission.

Now, let us turn to our meeting today. First, I would like to thank Chairman Massad and Commissioner Giancarlo for being here today and their support for the work of this committee. Second I would also like to thank our Committee members, guest speakers, and the Commission staff for their work and participation in today’s panel discussions. And last, but not least, I would also like to thank the logistical staff, led ably by Margie and Altonio, who work tirelessly behind the scenes to set the stage for these meetings.

Today, I have the bittersweet task of saying goodbye to some of our valued members, while welcoming some new faces to our Committee. First, the members who have left the Committee:

  • Emily Portney, formerly of JP Morgan;
  • Sunil Cutinho of the CME Group;
  • Scott Flood of Citi;
  • Robert Anderson of the Committee of Chief Risk Officers;
  • Bill Hale of Cargill; and
  • Lee Olesky of Tradeweb.

To Emily, Sunil, Scott, Robert, Bill and Lee, thank you for your valuable contributions to the committee’s dialogue and perspectives on these important market risk and market structure issues. Your presence will be missed.

We are fortunate to add new members who also bring valuable expertise and a diversity of perspectives:

  • Thomas Coyle, Vice President and General Manager of Chicago and Illinois River Marketing – who brings the vital perspective of agricultural end-users;
  • Scott Zucker, Chief Administrative Officer of Tradeweb – who brings the perspective of swap execution facilities;
  • Kim Taylor, President of Global Operations, Technology & Risk at the CME Group – who has had a long and well-regarded career in clearing; and
  • Robert Steigerwald, Senior Policy Advisor of the Federal Reserve Bank of Chicago – who brings considerable expertise on a number of topics, including CCP recovery and resolution.

Tom, Scott, Kim and Robert, I welcome to you to the committee! And I greatly look forward to the unique perspectives that you will bring to our diverse Committee.

I would also like to take this opportunity to thank Tom Kloet for his leadership of the CCP Risk Management Subcommittee, which will be presenting today. The draft recommendations that we will be discussing today, are largely due to the dedicated efforts of Tom.

Tom, while staying on the Subcommittee, will be relinquishing his leadership role, and Susan O’Flynn, who has played a critical role in the Subcommittee’s efforts thus far, will be fully taking over the reins. Thank you, Tom and Susan.

Today, we will discuss three topics that are of critical importance to the market: (1) how our CCPs can better coordinate their efforts to prepare for the default of a shared clearing member; (2) how the FDIC, as the resolution authority, would address the resolution of a bank who is, or is an affiliate of, a clearing member; and (3) how the FDIC and our staff, under the Title 2 framework, would work together in the unlikely event of a CCP resolution.

Our first panel on CCP coordination is a continuation of a conversation that we started over a year ago. At our first MRAC meeting in April 2015, our CCP members presented their default plans, and the MRAC discussed the strengths and weaknesses of those plans. Out of that discussion – two questions arose: (1) How can the CCP’s plans better reflect the likely market conditions during a default; and (2) how can CCPs better coordinate their efforts to prevent, and manage, a participant default.

At our November 2015 meeting, our CCP Risk Management Subcommittee led a discussion on possible recommendations in response to the former question, and today, they will do the same in response to the latter question. I am very much looking forward to this discussion. Since it is highly likely that the default of a significant clearing member would occur in an environment where multiple CCPs and clearing members are affected, CCP coordination just makes sense. I believe there is no question that it would be in everyone’s best interest for CCPs to consider beforehand how processes for dealing with such an event would work. For instance, their auction processes, porting processes, and their practices to staff seconded traders could all be better aligned to bring maximum transparency and clarity to market participants during a potential default.

I am also very pleased to have guests from the Federal Deposit Insurance Corporation (FDIC), along with our staff, to discuss two very important issues for market stability: bank resolution and CCP resolution. In regard to bank resolution – in the case where the bank being considered for resolution, or its affiliate, is a clearing member, it is important that our two agencies work together to make sure that we do not duplicate or undermine our mutual efforts. Similarly, in preparation for a CCP resolution, the FDIC, which is the resolution authority for CCPs, and our agency, which is the primary regulator for CCPs, would clearly have to work together. So I am very eager to hear from the staffs of the two agencies about their communications so far about how to coordinate their efforts if either event occurred.

Thank you for joining us. And I will now turn it over to the MRAC’s Designated Federal Officer, Petal Walker, who will introduce our first facilitator and panel.

Last Updated: June 27, 2016