Public Statements & Remarks

Keynote Remarks of CFTC Commissioner Rostin Behnam at the Federal Reserve Bank of Chicago’s Fifth Annual Conference on CCP Risk Management, Chicago, Illinois 

A Decade After The Financial Crisis: Remaining Challenges and New Approaches for the Next Ten Years and Beyond

October 16, 2018


Thank you for the kind introduction President Evans; it is a pleasure to be here with all of you today, and an honor to kick off day two of this great conference.  I wish to thank the Federal Reserve Bank of Chicago, particularly Bob Cox and Robert Steigerwald, for the invitation to speak with you and for organizing this event.  Before I begin my remarks, please allow me to remind you that the views I express today are my own and do not represent the views of the Commodity Futures Trading Commission (the CFTC or Commission) or my fellow Commissioners.

Since the 2008 financial crisis, new language has entered the financial regulatory and governance lexicon, or at least taken on new importance.  One word that has taken on new significance, and is acutely important to both the CFTC and the Federal Reserve, is resiliency.  I always think of this conference, and more specifically this city as the perfect locale to talk about resilience – not only because of the expertise regarding central counterparties (CCPs) risk management represented in the room, but also because Chicagoans know a thing or two about resilience.  Cubs fans endured 108 years of losing between World Series titles.  Along the way, they saw a baseball go through Leon Durham’s legs, and another ball go into Steve Bartman’s glove.  Yet the team and its fans persevered, demonstrating steadfast resilience in their quest for what was then an elusive title. 

The theme for this year’s conference, Examining Regulatory Initiatives, is quite timely considering a decade has passed since the financial crisis and eight years since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)[1].  During the past ten years, domestic and international regulators have focused on identifying systemic risks in their financial markets, and designing and implementing policies to execute the G-20 financial regulatory reforms,[2] which address those risks.  The G-20 reforms have strengthened the resilience of large financial institutions, including CCPs, and substantial progress has been made in many jurisdictions toward mitigating systemic risk.

Here in the United States we have achieved substantial implementation of the core reforms agreed upon by the G-20.  As a result, many regulators and market participants are now turning to post-implementation evaluation of the effects of the G-20 reforms.[3]  Therefore, this is an opportune time to engage in a constructive dialogue regarding whether the Dodd-Frank Act reforms are achieving their intended outcomes, and to identify any material unintended consequences.  Returning to the Cubs for a moment, like the team’s President, Theo Epstein, and Manager, Joe Maddon, this is a perfect time to think about new approaches to solving old problems. 

Listening Tour and CFTC Market Risk Advisory Committee

I recently completed my first year as a Commissioner.  Slightly less than one year ago, and shortly after I started my term, I announced a listening tour, focused on visiting the full scope of CFTC market participants and stakeholders in order to get a better sense of what was working and what was not working with our regulations.[4]  Like CFTC registrants and market participants, the listening tour has been vast in geographic scope, but most importantly provided me with an opportunity to fully digest and analyze the full spectrum of issues, concerns, and comments of CFTC stakeholders, including CCPs, futures commission merchants (FCMs), end users, and service providers.

In addition to the listening tour, I heard the concerns of market participants through the nominations process for CFTC’s Market Risk Advisory Committee (MRAC), which I sponsor.[5]  In the federal register release seeking nominations for membership on the MRAC, I requested suggestions for topics for the MRAC’s consideration and over 75 topics were submitted; 17 of which focused on clearing and clearinghouse risk issues.[6]  With that said, I would like to share with you today some of the topics that were mentioned during the listening tour and included in the MRAC submissions as challenges for CCPs and swaps market participants since the G-20 reforms and the passage of the Dodd-Frank Act: (i) FCM concentration and access to clearing services; (ii) cross-border issues; (iii) CCP governance and risk; and finally (iv) some parting words regarding developments in financial technology.

FCM Concentration and Access to Clearing Services

Throughout the year, a number of market participants have expressed concerns to me regarding FCM concentration and its effects on access to clearing.  This important issue is certainly not new, but the years long trend continues to head in the wrong direction because of a number of factors.[7]  The statistics paint a very concerning picture.  For futures, the number of FCMs has declined from 100 CFTC-registered entities in 2002 to 54 as of August 2018, with the top five and ten FCMs holding 54% and 73% of total client margin, respectively.[8]  For swaps, the client clearing landscape is concentrated further to less than 20 FCMs.  Only 17 FCMs are holding client margin for swaps clearing with the top five and ten FCMs holding 77% and 98%, respectively.[9]  Further, the Consultation Report prepared by the Financial Stability Board’s Derivatives Assessment Team (DAT) on incentives to centrally clear OTC derivatives appears to be consistent with these findings.  The DAT Consultation Report, which seeks to assess whether reforms to capital, margin, and clearing adequately incentivize central clearing of OTC derivatives, highlights that the provision of client clearing services is concentrated in a small number of banks.  Specifically, “five firms, all bank-affiliated, account for over 80% of total client margin for cleared OTC derivatives in the United States, the United Kingdom and Japan.”[10]

Many large bank-owned FCMs have exited the swaps clearing business citing as one reason the global introduction of the Basel Committee on Bank Supervision’s Basel III leverage ratio and the Supplementary Leverage Ratio (SLR) in the United States.[11]  The SLR, a bank-based capital charge designed, in part, to reduce risk posed by on-balance-sheet lending activities, has been applied to centrally cleared derivatives.  The adoption of swaps clearing moved segregated client initial margin off the balance sheets of clearing member FCMs and into CCPs.  However, the SLR treats customer margin as an on balance sheet asset. 

The global implementation of the central clearing mandate has produced a significant demand for clearing services and a substantial increase in overall clearing volumes in the swaps market, and yet there have been FCM consolidations and market exits, which have resulted in a substantial reduction in clearing capacity.  Given that central clearing is a key component of the G-20’s effort to improve derivatives markets, policymakers, both bank and market regulators, must take the necessary steps to ensure that client clearing remains a commercially viable business.  However, according to the DAT Consultation Report, 89% of client clearing service providers surveyed said that the leverage ratio, in particular, was negatively impacting their ability to provide client clearing services.[12]

Given the G20 reform mandate, I have concerns about the systemic risk implications of the current FCM concentration levels, the effect of the SLR on bank-owned FCMs, as well as the portability of a failing clearing member’s book of business to other clearing members in times of stress.  During stressed market conditions, when firms are more conservative with capital allocations, there may not be clearing members willing to acquire a failed clearing member’s book of business in a default.  The inability of clearing members to accept the porting of this book may ultimately result in liquidations of client positions.[13]  Mass liquidations would negatively impact the clients being liquidated and exacerbate volatility at a vulnerable moment.  As a few market participants, including end-users suggest, increased volatility “…could lead to additional client defaults perpetuating the cycle of stress and reducing market participants’ ability to withstand such stressful events.  The negative impact to systemic financial stability of such a situation would be significant.”[14] Clients both large and small are likely evaluating the costs and risks associated with establishing and maintaining business relationships with FCMs. 

This is the moment in my prepared remarks where I would like to pause, and emphasize that I support strong bank capital requirements, including the SLR.  The regulatory and market participant community must never forget the extraordinary actions taken in September, 2008, and shortly thereafter, which included massive capital injections into the world’s largest banking institutions because of a liquidity crisis.  Capital is not merely a cost or set aside, lying dormant; it is a critical source of funding, provided by a bank’s owners, which supports many traditional banking activities.  I believe it is a commonly shared view that the strong capital position of U.S. banks, on the heels of strong reform initiatives passed in 2010, has led to the leading position of these banks relative to their global counterparts.  However, as I have stated this morning, within the context of centrally cleared derivatives, the SLR is contributing to higher FCM concentration levels and reduced access to clearing.  This misalignment must be addressed to resolve the large systemic risk concern.[15]

Of note, the European Union has proposed to amend its capital rules to exclude cash collateral on centrally cleared derivatives transactions held at CCPs from the leverage ratio.[16] Additionally, in the House of Representatives, the Financial Services Committee reported out bipartisan legislation this past August that would amend relevant U.S. law to exclude initial client margin from leverage exposure calculations.[17]  Finally, in April 2016, the Basel Committee on Banking Supervision issued a consultative document in which comments were requested on the impact of the Basel III leverage ratio on clearing member business models, including the impact on the cost of clearing members’ provision of clearing services to clients.[18]  Despite most solutions being focused on balance sheet treatment of initial margin, I welcome a broader conversation to discuss any regulatory or market based solutions that may address this concentration and access issue, while preserving key reforms.[19]

Additionally, in the event of a default, as I noted earlier, porting defaulting clearing member positions, specifically within the context of absorbing both the positions and related capital charges, remains a concern that could have systemic implications.  During stressed market conditions, clearing members are likely to be constrained by capital requirements, and therefore may be unwilling or unable to acquire the portfolio absent temporary relief from the SLR.[20] 

Now is the time to devise solutions to these critically important challenges.  As we move into the next decade past the crisis, a study of the health of the FCM model for client clearing is vital to ensure continued compliance with post-crisis reforms, reduction of systemic risk, and that current regulations do not have unintended consequences that may undermine the same reforms meant to address old problems.

European Commission Proposal regarding Supervision of Third-Country CCPs

Now I would like to turn to a few important cross-border issues.  The European Commission’s proposed legislation to amend the European Market Infrastructure Regulation (EMIR) and create a new European Framework for the regulation and supervision of CCPs[21] has been a source of concern for the CFTC and for our U.S. CCPs that do business in the EU.  The regulation would, in effect, make EU authorities primary supervisors of U.S. CCPs classified as systemically risky by the EU, and would apply EU law to all aspects of their business (U.S. business included).  U.S. CCPs recognized by the EU would be subject to overlapping regulation and duplicative supervision without due deference to existing CFTC regulation and supervision of those U.S. CCPs – due deference that was agreed upon in the 2016 CFTC and European Commission equivalence agreement (the Equivalence Agreement).[22]

Deference is the cornerstone of the CFTC’s cross-border approach, and an essential regulatory tool that not only alleviates practical domestic budgetary constraints; but, also respects the strength of deserving foreign counterparts, and encourages the fundamentals of working together towards a cohesive cross-border regulatory framework that supports strong, robust, and transparent regulations.  If a home country authority implements a comprehensive regulatory and supervisory framework that is comparable to our regulations and laws, then that home country authority should maintain primary oversight over its domestic entities to which other foreign regulators should defer.  A solid, outcomes-based comparability assessment of the consistency of the home regulator’s relevant regulations and supervisory programs is the foundation of such deference.

The Equivalence Agreement is a testament to the successful cross-border regulation of CCPs, and a milestone agreement that represents the strong, bilateral relationship between the U.S. and European Union.  Our global markets are more efficient because of this agreement; there are less regulatory and supervisory burdens for our clearinghouses and less market fragmentation.  

I would like to highlight one challenge the current proposal before the European Council presents to cross-border harmony.  Under the CFTC’s swaps framework, customer collateral provided for swaps is required to be segregated from a FCM’s own property pursuant to the legally segregated and operationally commingled segregation model (known as LSOC).  This is in contrast to EMIR, which requires that individual segregation be offered to clients for swaps.  U.S. CCPs recognized by the EU would not be able to offer individual segregation to their U.S. clients because individual segregation is inconsistent with the U.S. Bankruptcy Code.  Consequently, this nuanced difference in regulation has direct and detrimental effects, among other things, on a recognized U.S. CCP’s ability to comply with U.S. law.

I do not have a crystal ball to predict outcomes, and fully recognize the overwhelming challenge of resolving the multitude of issues the European Union and the United Kingdom are faced with today; but, I maintain that the European Commission should honor its commitment to the Equivalence Agreement and treat U.S. CCPs in accordance with it.

Cross-Border Rethink

I would like to spend a few minutes to share my general thoughts on Chairman Giancarlo’s latest white paper, “Cross-Border Swaps Regulation Version 2.0: A Risk-Based Approach with Deference to Comparable Non-U.S. Regulation”.[23]  As you know, the Chairman’s white paper expresses the views and ambitions of the Chairman only and neither binds any other Commissioner nor the Commission on the path forward.  I agree that the Commission should address any problems resulting from its current approach to the oversight of cross-border swaps activities, and that it should do so both internally as a Commission in accordance with statutory procedures, and externally with appropriate consideration of and deference towards our fellow global regulators.  Moreover, I support the Chairman’s stated objectives of (1) recognizing the distinction between swaps reforms intended to mitigate systemic risk and reforms designed to address particular market and trading practices; (2) increasing CFTC cooperation with global regulators to reduce duplicative regulation and redundant supervision; (3) reducing the operational burdens and complexity of overlapping regulations where appropriate; and (4) reducing market fragmentation and fostering deeper liquidity pools.[24]  

As the Chairman himself acknowledges, the white paper is not quite a concept release and its proposals have not yet been presented to the full Commission for input, consideration, or consensus.[25]  It remains unclear as to how the Commission will approach the rulemaking process within our existing set of regulations.  Certain aspects of the proposal represent departures from existing policy with respect to swaps clearing and may even conflict with our governing statute or prior Commission interpretations. 

One popular proposal that raises policy questions is the extension of the derivatives clearing organization (DCO) exemption to U.S. customer clearing because it would not afford U.S. persons transacting overseas certain protections under the U.S. Bankruptcy Code.  U.S. persons clearing swaps at an exempt DCO through non-U.S. clearing members that are not registered with the CFTC would not be customers under the U.S. Bankruptcy Code, and conversely, the local jurisdiction’s bankruptcy laws would apply.  This is particularly concerning since the CFTC’s regulatory framework is based, in part, on customer protection and these U.S. persons would lose that protection.  This is but one example that I look forward to engaging with the Chairman and my fellow commissioners on, and more importantly hearing your thoughts on in the weeks and months ahead.

CCP Governance and Risk Management

CCP governance is a topic of increasing emphasis among domestic and international regulators, particularly the potential conflict of interest between shareholders and clearing members arising from the CCP’s mutualization of risk.  Conflicts between CCPs and clearing members have focused on risk management or risk-related issues generally.  Many clearing members have expressed concerns that their interests may not be adequately represented in governance structures that focus on shareholders, considering the clearing members, through mutualized default funds, are the bearers of a vast majority of the CCP’s tail risk.  As you know, there is an ongoing debate about the appropriate amount of CCP capital in the default waterfall.

Separately, there is a discussion percolating about the interests being served by the “hat” worn by clearing member employees who sit on the risk management committee.  Specifically, how do clearing member employees manage conflicts between their incentives and duties regarding (1) prioritizing the safety and soundness of the clearinghouse, (2) any duty owed to the shareholders of the clearinghouse, and (3) advancing the interests of their firm?  There is considerable potential for value from including clearing member employees as expert members of risk management committees.  However, in order for this value to be realized, any conflict or tension must be addressed and resolved.

Mostly through my sponsorship of the MRAC, I have heard that further review and discussion of CCP governance structures, particularly with respect to the risk committee, is necessary.  Therefore, I will be convening the MRAC for a meeting on December 4th to discuss these issues.  I believe the recent clearing default at NASDAQ is further evidence that governance and risk management issues must be continually discussed, debated, and refined as necessary.  There is no shortage of hypotheticals.  There is no shortage of unique market factors.  There is no shortage of unexpected events that will drive markets into scenarios not foreseen and potentially plausible.  We all must remain diligent, patient, and open to continuous discussions to prevent defaults and market crises in the future.  Clearing will not eliminate losses.  But, the collective regulatory and market participant community must do everything to reduce them.

Use of Fintech by the Clearing Industry

I would like to close by spending a few minutes discussing the potential use cases for blockchain technology or distributed ledger technology (“DLT”) for clearing and settlement, and share some thoughts on how I have been thinking about new technologies being applied to the financial services sector.  During the listening tour, I met with technologists of both established and newer applications.  I also met with think tanks, academics, and practitioners.  The goal of these meetings was to get an understanding of these technologies and the associated risks.  The utilization of DLT for post-trade clearing and settlement has the potential to bring powerful efficiencies and increased resiliency, as well as disruptor even transform our industry.  Specifically, DLT can be used for position keeping, global collateral management,[26] settlement, and reporting.  However, the use of DLT by the clearing industry is still in its infancy.[27]  As a regulator, I know that this will not be for long.  Although the FSB has concluded that there are currently no compelling financial stability risks from emerging fintech innovations,[28] I think about how regulation should respond to the challenges brought by DLT for clearing and settlement, or just fintech generally.

Regulators must approach fintech with an open mind, despite there being great regulatory uncertainty regarding how fintech fits into existing rules and regulations.  However, CFTC registrants planning to use DLT or other technologies should be prepared to analyze how existing rules and regulations could apply.  As a regulator, I will be looking closely to ensure that our core principles are observed and that the vital interests we protect are safeguarded.


I hope I have given you more insight into my views on the challenges facing the clearing industry and regulation of the derivatives markets and how I view some of the hurdles we are all facing. We are all on course to solve the issues before us, and we should not be deterred from moving forward.  Most significantly I would like to end by thanking the Federal Reserve.  Although the CFTC and the Fed have worked closely for many decades, the relationship has taken on a new dynamic since the passage of the Dodd-Frank Act.  In the one short year I have been a Commissioner, I have seen the relationship grow stronger, and I hope that relationship will continue to grow stronger in the years ahead.  I firmly believe a strong relationship will benefit regulators, the market, and the American public through safe and transparent markets.   Thank you for having me today.

[1] The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 § 712(d), 124 Stat. 1376, 1644 (2010).

[2] In response to the Financial Crisis, the G-20 Leaders at the Pittsburgh Summit in 2009 commenced a comprehensive reform of over-the-counter (“OTC”) derivatives markets with the goals of mitigating systemic risk, improving transparency in the derivatives markets, and protecting against market abuse.  The G-20 Leaders made five commitments to reform OTC derivatives markets.  Specifically,

  • standardized OTC derivatives should be centrally cleared;
  • non-centrally cleared derivatives should be subject to higher capital requirements;
  • non-centrally cleared derivatives should be subject to minimum standards for margin requirements;
  • OTC derivatives should be reported to trade repositories; and
  • standardized OTC derivatives should be traded on exchanges or electronic trading platforms, where appropriate.

Financial Stability Board, Review of OTC derivatives market reforms:  Effectiveness and Broader Effects of the Reforms, June 2017, available at ; see the Pittsburgh Summit Leaders’ statement, paragraph 13 of body,

[3] See Financial Stability Board, Evaluation of the Effects of the Financial Regulatory Reforms on Infrastructure Finance, July 2018, available at; Financial Stability Board, Incentives to Clear Over-The-Counter (OTC) Derivatives, August 2018, available at (hereinafter, “DAT Consultation Report”).

[4] Rostin Behnam, Remarks of CFTC Commissioner Rostin Behnam at the Georgetown Center for Financial Markets and Policy, Washington, D.C. (Nov. 14, 2017),




[8] See Financial Data for FCMs, Aug. 31, 2018, available at

[9] Id.

[10] DAT Consultation Report at 3.

[11] See Joe Rennison and Laura Noonan, Deutsche Bank walks away from US swaps clearing, Financial Times, Feb. 9, 2017, available at;  Joe Rennison, Nomura Exits Swaps Clearing for US and European Customers, Financial Times, May 12, 2015, available at;  Silla Brush, State Street Exiting Swaps Clearing Business, Citing New Rules, Bloomberg, Dec. 4, 2014, available at;  Philip Stafford, RBS to Wind Down Part of Swaps Clearing Unit, Financial Times, May 18, 2014, available at;  Rick Baert, BNY Mellon closes U.S. derivatives clearing business, Pension & Investments, Dec. 10, 2013, available at

[12] DAT Consultation Report at 63.

[13] Joanna Wright, US Clearing Banks Still Push for Leverage Ratio IM Offset,, Feb. 26, 2018, available at

[14] Letter from the Commodity Markets Council and Managed Funds Association to the Basel Committee on Banking Supervision, Nov. 2, 2015.

[15] Prior to Dodd-Frank, from 2002 through 2011, an average of 14 firms entered the FCM marketplace annually.  Since Dodd-Frank, the average has been four, with only one last year and none so far this year.

[16] Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements and amending Regulation (EU) No 648/2012, COM (2016) 850 final (Nov. 23, 2016); Wright, supra note 8.

[17] H.R. 4659, 115th Cong. (2017),

[18] Bank for International Settlements, Revisions to the Basel III Leverage Ratio Framework, April 2016, available at

[19] In April, 2018, the Federal Reserve Board and the Office of the Comptroller of the Currency proposed a rule to tailor leverage ratio requirements to the business activities and risk profiles of the largest domestic firms.  However, the proposal did not include amendments regarding off-sets for centrally cleared derivatives.

[20] Separately, temporary relief from Know Your Customer and Anti-Money Laundering requirements could facilitate smoother onboarding of a defaulting clearing member’s book.

[21] Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorization of CCPs and requirements for the recognition of third-country CCPs, COM (2017) 331 final (June 13, 2017); see also Commission proposes more robust supervision of central counterparties (CCPs) (June 13, 2017), available at

[22] Comparability Determination for the European Union:  Dually-Registered Derivatives Clearing Organizations and Central Counterparties, 81 F.R. 15260 (March 2016),

[23] J. Christopher Giancarlo, Commissioner, U.S. Commodity Futures Trading Commission, Cross-Border Swaps Regulation Version 2.0:  A Risk-Based Approach with Deference to Comparable Non-U.S. Regulation (2018),

[24] J. Christopher Giancarlo, Cross-Border Swaps Regulation Version 2.0; A Risk-Based Approach with Deference to Comparable Non-U.S. Regulation, Oct. 1, 2018, at ii-iii.

[25]See CFTC, Chairman Giancarlo Releases Cross-Border White Paper, Oct. 1, 2018,;  Robert Mackenzie Smith, Q & A: CFTC’s Giancarlo on the race to overhaul cross-border rules,, Oct. 4, 2018, available at  

[26] See, e.g., Mattia Calzetta, Blockchain, clearing & settlement:  Everything there is to know, Mogul News, Oct. 3, 2018, available at (noting that “CITI and CME Clearing have implemented a real-time distributed ledger platform, which allows banks to view the collateral in its ledgers in real-time, send cash or securities with one click to a Clearing House, and receive an immediate acknowledgment.”)

[27] David Mills et al, Distributed Ledger Technology in Payments, Clearing and Settlement, 6(2/3) J. of Fin. Mkt. Infrastructures, 207, 208 (2017).

[28] Financial Stability Board, Financial Stability Implications from Fintech, June 27, 2017, available at