Opening Statement of Commissioner Sharon Y. Bowen, Market Risk Advisory Committee

November 2, 2015

Are our CCPs prepared for what would happen if a significant clearing member defaulted? That was one of the questions we asked at our inaugural, April 2nd meeting of the Market Risk Advisory Committee. At that meeting, three of our CCPs – CME, LCH and ICE – made presentations about how they are preparing for such a default. These presentations prompted a fruitful discussion and as usual, our MRAC members brought great ideas to the table.

Following that meeting, we established a CCP Risk Management Subcommittee, which was asked to delve further into several issues raised. The CCP Risk Management Subcommittee is composed of a diverse group of market participants, including clearinghouses, clearing members, buy-side, end-users, and academics. And it is ably led by Tom Kloet of Elmhurst College and Susan O’Flynn of Morgan Stanley.

The Subcommittee was tasked with answering two questions that came out of the April 2nd meeting:

  • Are there ways in which the CCPs’ efforts, as outlined in their presentations, could be more reflective of actual market conditions in the case of the default of a significant clearing member – an effort led by Susan O’Flynn; and
  • Are there ways in which CCPs can coordinate further in their efforts to prepare for the default of a significant clearing member – an effort led by Tom Kloet.

At our meeting today, we will hear the Subcommittee’s recommendations in response to the first question for the full Committee's consideration. The Subcommittee’s members continue to discuss the second question, and they are on track to provide those recommendations in response to it early next year.

I am very excited about today’s meeting. As I said at the first MRAC meeting, “Though I believe it is unlikely that a significant clearing member – one whose default would pose a systemic risk – would actually default, it behooves us to do everything in our power to best prepare for it, given the implications for our economy.”1 As Vice-Chair and Acting Chair of the Securities Investor Protection Corporation (SIPC), I saw firsthand how devastating the collapse of influential market participants can be. I also personally know individuals whose careers and lives have been permanently altered by the 2008 crisis. We regulators owe it to investors and consumers to do everything we can to prevent another crash, even more so while the global economy is still digging out from the damage of the 2008 crisis. As I noted in my inaugural speech, we cannot be complacent; just because we have made progress in “trying to fix the problems that caused the last crisis does not mean we are yet prepared to address future potential threats.”2 Thus, the importance of effective, robust risk management of our CCPs cannot be understated. I am therefore eager to hear the viewpoints of the CCP Risk Management Subcommittee, and the other MRAC members.

I thank and congratulate all of the Subcommittee members for that. I especially want to thank Susan O’Flynn for her leadership of this effort, and both Susan and Gerald Beeson for their tireless efforts in drafting. It is important to me that the MRAC not only be a forum to discuss important issues, but a Committee that gets things done. I am confident that these recommendations will be the first in a line of consequential work product from this Committee. Similarly, I would hope that interested members of the public who are watching this meeting would also submit their views.

I will now turn it over to Ms. Walker who will introduce our first moderator and panel.

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

April 2, 2015, at http://www.cftc.gov/PressRoom/SpeechesTestimony/bowenstatement040215.

2 Speech of Commissioner Sharon Bowen before the Futures Industry Association Expo 2014

November 5, 2014, at http://www.cftc.gov/PressRoom/SpeechesTestimony/opabowen-1.

Last Updated: November 3, 2015