Public Statements & Remarks

Opening Statement of Commissioner Kristin N. Johnson Regarding Open Meeting of the Commodity Futures Trading Commission

July 27, 2022

At the start of the first open meeting of this historic Commission, with a full complement of five Commissioners, I am pleased to offer this opening statement.  I am humbled by President Biden’s decision to nominate me and the U.S. Senate’s confirmation of my nomination.  It is a privilege to serve our nation during this transformational moment in the history and development of our financial markets.

Over these last three months, I have had the great pleasure of getting to know Chairman Behnam, Commissioners Goldsmith Romero, Mersinger, and Pham, and meeting with staff in each of the Commission’s Divisions, who demonstrate expertise, professionalism, and commitment, even as we navigate cutting-edge issues on the frontier of the future of finance. I am grateful to the staff for their service to the Commission and our nation and their invaluable contribution to the stability and integrity of the global economy.

For each of the two proposals before us, today’s actions mark this Commission’s commitment to clarify, carefully consider, and codify requirements.  Our efforts today will lead to clarity regarding the application of existing or newly implemented regulation. Upon conclusion of rigorous debate and comprehensive and dynamic dialogue among domestic and international regulators, regulated entities, other stakeholders, and citizens in our community, we will carefully consider—in light of this broad range of interests—how best to achieve the goals identified in our mandate.  Our efforts today aim to codify measures that enhance systemic risk management and mitigate the likelihood that risks such as counterparty default or a liquidity or solvency crisis again might threaten the safety and soundness of our financial markets.

Today, as we vote on proposals that grow out of this mission, this newly formed Commission receives the mantle and demonstrates two of the greatest strengths of our nation—the continuity of our government and the commitment of its public servants.  First, we continue the dialogue of our predecessors regarding the appropriate risk management framework for derivatives clearing organizations focusing on the potential strengths and limitations of governance reforms.  Second, we consider an application for a capital comparability determination from the Financial Services Agency of Japan (JFSA).

In September of 2008, the global economy experienced a shock that reverberated across communities, markets, and nations.  Regulators, market participants, and citizens witnessed the precipitating collapse of storied financial institutions that made ill-informed bets in an opaque, bespoke, bilateral market characterized by a lack of intermediation or central clearing.  As international authorities observed, global output and credit markets “contract[ed] at [a] pace not seen since the 1930s;” trade plummeted; jobs disappeared; housing markets trembled and “people worried that the world was on the edge of a depression.”[1]

A year later, G-20 leaders gathered at a summit in Pittsburgh to address these concerns.  Having identified catalysts that triggered the economic crisis, and with absolute resolve, they articulated a prescription targeting an under-supervised sector of our markets—“all standardized [over-the-counter] derivative contracts” would be “traded on exchanges” or “cleared through central counterparties” by 2012.[2]  Observing that the period leading to the summit was marked by “a critical transition from crisis to recovery,” global leaders declared the need “to turn the page on an era of irresponsibility and to adopt a set of policies, regulations and reforms to meet the needs of the 21st century global economy.”[3]

Twelve years ago, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)[4] into law, translating this global imperative into a critical and demanding local mission.  The mandate outlined in Title VII of the Dodd-Frank Act deploys specific, well-tailored solutions to implement the spirit of international collaboration and cooperation that characterized the Pittsburgh summit and continued with subsequent meetings, including the CPMI-IOSCO deliberations that developed the Principles for Financial Market Infrastructures (PFMIs).[5]  Title VII of the Dodd-Frank Act articulates two longstanding principles echoed across commodities and derivatives markets regulation—commitments to customer protection and to ensuring the safety and soundness of our financial system.

The Dodd-Frank Act introduced groundbreaking reforms.  Firmly nestled among other key provisions in the Dodd-Frank Act, the statute entrusted derivatives clearing organizations (DCOs) with maintaining the integrity of the derivatives markets through comprehensive and prudent risk mitigation practices.  DCO Core Principle O recognizes the critical importance of DCOs as pillars of the broader financial system in requiring governance arrangements that “fulfill public interest requirements.”[6]

I support issuing the proposed governance rulemaking for comment, continuing a broader governance deliberation that dates back to proposals issued over the last decade.  It addresses new recommendations that the Commission received from the Market Risk Advisory Committee (MRAC).  These recommendations are based on a report prepared by MRAC’s Subcommittee on Central Counterparty (CCP) Risk and Governance (Subcommittee).[7]  The Subcommittee Report, and today’s proposed governance rulemaking, stem from meaningful and constructive discourse between DCOs, clearing members, and end users, and focus on establishing DCO governance arrangements that can effectively internalize input from clearing members and end users with respect to matters that materially impact a DCO’s risk profile.  DCO risk management practices may profoundly impact individual firms and, in some instances, the broader financial economy.  I look forward to receiving substantive commentary necessary for developing final rules from all stakeholders on matters implicated by the proposal.  Such commentary will enable us to tailor governance rules that further enhance a DCO’s ability to prudently manage risk.

Moving beyond the financial crisis, beginning in February and March of 2020, markets faced deeply concerning shocks.  The onset of the COVID-19 global pandemic, destabilizing geopolitical events, and macroeconomic conditions marked by persistent inflation and periods of sustained volatility demonstrate that risk management remains a vital and increasingly important imperative.  In every sense of the term, market conditions stress tested DCOs and the effectiveness of the reforms codified under the Dodd-Frank Act.  Undeniably, DCOs demonstrated notable resilience in response to this real-world, real-time unanticipated stress test.  Clients, clearing members, and policymakers generally agree that central clearing has strengthened resilience in the derivatives markets.

It would be a mistake, however, to rest on our laurels.  While clearing mandates have contributed to the development of fair and orderly markets, noteworthy concerns persist. DCOs play a critical role as central risk managers in markets.  Increasing clearing mandates and market shifts have amplified dependence on DCOs, concentrating credit and liquidity risks.  Some even argue that such concentration creates single points of failure with the potential to undermine the progress that we have achieved.

The capital comparability determination application from the JFSA raises different but equally critical questions. In July 2013, when the Commission first published interpretive guidance and a policy statement regarding cross-border application of certain swap provisions of the Commodity Exchange Act, few jurisdictions had made significant progress implementing the global swaps reforms leaders referenced in the G-20 Pittsburgh summit.  Today, many jurisdictions have made great strides to adopt effective regulatory regimes, mitigating the systemic risks that pervaded markets at the onset of the Global Financial Crisis.

Swap dealers, counterparties, and market participants are geographically dispersed and remarkably diverse.  These characteristics underscore the necessity of collaboration by international regulators.  I support the Commission’s issuance of the Notice of Proposed Order on the capital comparability determination from the JFSA for comment.  The Commission’s capital and financial reporting requirements are critical to ensuring the safety and soundness of our regulated swap dealers. When the Commission adopted regulation 23.106 in 2020 as part of the final swap dealer capital rules, we acknowledged undercapitalization as a core issue that precipitated the Global Financial Crisis.  Maintaining adequate capital standards requires transparency and accountability.  We must continuously assess and evaluate the levels of capital and ensure accurate and timely reporting of financial conditions to preserve market stability, promote resiliency, and mitigate shocks that threaten to disrupt our financial markets ecosystem.

Although more than a decade separates the day Congress adopted the Dodd-Frank Act from the moment where we find ourselves today, we must continue to be resolute in our focus and unwavering in our commitment to promote the adoption and enforcement of capital adequacy rules that mitigate systemic risk.  We dare not rest on the resilience of reforms from the last crisis; it is imperative that we remain vigilant.  We must be prepared to introduce appropriate risk management and capital adequacy rules with respect to novel financial products; innovative uses of data; predictive, learning algorithms; and emerging market participants and platforms.  Simply stated, we must consistently prioritize our common goals and commit to identifying effective regulatory solutions.

Two values codified as principles of the Commission will always be top of mind for me as we approach any issue: first, customer protection is among my highest priorities and second, the integrity of financial markets.  I am always thoughtful about those who may not be market participants subject to our regulatory oversight, but may nevertheless be deeply impacted by the decisions of this Commission and other financial market regulators.  While these individuals may be less familiar with the causes and characteristics of complex issues that we contemplate daily, such as market volatility, they are all too familiar with the consequences—the pain they feel at the pump when buying gas or the difficulties of stretching an already challenging budget at the local grocery store.  We must work together to ensure that our markets remain resilient and continue to serve the public’s interest.


[1] G-20, Leaders’ Statement, The Pittsburgh Summit, (September 24–25, 2009).

[2] Id.

[3] Id.

[4] Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111–203, tit. VII (July 21, 2010) (codified in relevant part at 7 U.S.C. § 7a-1).

[5] CPMI-IOSCO, Principles for Financial Market Infrastructures (April 2012).

[6] 7 U.S.C. § 7a-1(c)(2)(O).

[7] Report of the Central Counterparty (CCP) Risk and Governance Subcommittee, Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission (February 23, 2021).