Public Statements & Remarks

Statement of Commissioner Caroline D. Pham in Support of Final Rule on Governance Requirements for Derivatives Clearing Organizations

June 07, 2023

As I’ve said before, one of the many proud traditions at the Commodity Futures Trading Commission (Commission or CFTC) is that Commissioners get to sponsor advisory committees comprised of members of the public to provide expert advice and input.[1]  The Final Rule on Governance Requirements for Derivatives Clearing Organizations (DCOs) had its roots in recommendations made by the Central Counterparty (CCP) Risk and Governance Subcommittee (Subcommittee) of the Market Risk Advisory Committee (MRAC) when then-Commissioner Behnam chaired the MRAC in 2021.[2]  I commend Chairman Behnam for his leadership of the MRAC at that time, and providing an example of how the industry can come together to propose workable solutions to issues in our markets through the CFTC’s advisory committees. 

I support today’s Final Rule on Governance Requirements for DCOs.  I would like to sincerely thank the staff of the Division of Clearing and Risk (DCR) for their work over many years to address market participants’ efforts to enhance CCP risk and governance and codify standards, in particular Clark Hutchison, Eileen Donovan, Tad Polley, and Joe Opron.  I especially want to express my appreciation to DCR staff for working with me to address my concerns to provide regulatory clarity and not upend existing law or standards for corporations and corporate governance. 

In response to the volatility and dislocations in our markets in recent years, CFTC staff have spent countless hours monitoring our registrants, making themselves available for updates, questions, and requests for guidance and relief under stressful circumstances.  

At the same time, market participants have come together to identify issues that regulators and CCPs should consider to enhance financial stability.  Notably, one group recommended enhancing governance practices to obtain and address input from a broader array of market participants on relevant risk issues to improve CCP resilience.[3]   

Our markets—relied on for risk management and price discovery—have felt, yet ultimately withstood, the effects of the COVID-19 pandemic and the widespread disruptions it caused.  While markets continue to experience volatility, stresses, and dislocations,[4] I am pleased that stakeholders are undertaking studies and analyses of the recent years and using data and observations from market participants to produce lessons learned that will serve as important guides for policymakers. 

During all this, our DCOs have been a pillar of strength for the derivatives markets.  As U.S. Representative Glenn “GT” Thompson, Chairman of the House Committee on Agriculture put it:

[T]he strength of our derivatives markets should not be taken for granted.  Building deep, liquid, and safe derivatives markets is the result of informed trade-offs and negotiated compromises between the needs of different market participants.  It takes constant work to uncover, understand, and manage the risks that can develop.  Widespread clearing is one reason for the success of our derivatives markets, despite the recent turmoil.  Clearing provides access to essential risk management tools for hedgers and creates a safer financial system for all Americans.  Our cleared markets perform so well due to the public servants and professionals who work every day to understand and manage market risks, both at the [CFTC] and across the derivatives industry[.][5] 

I’d like to echo Chairman Thompson’s words and thank all the staff of the CFTC who ensure that our markets are safe and well-functioning, no matter what challenges we face.

Upholding a Principles-Based Framework for DCOs 

Today, we are taking a forward-looking approach and adopting rules to strengthen our DCOs.  I believe that one reason why our markets are resilient even during times of market stress is because our principles-based regulatory framework ensures that strong guardrails are in place, while giving our registered entities like DCOs flexibility to implement our Core Principles in a way that best fits their business and operating model. To put it another way—we are going to make sure that you build your house to code, but I’m not going to tell you what color to paint it. 

It is my hope that the Final Rule on Governance Requirements for DCOs is consistent with that approach by not being overly prescriptive.  The rule requires DCOs to establish and consult with one or more risk management committees (RMCs) that includes representatives of clearing members and customers of clearing members on matters that could materially affect the risk profile of the DCO.  In addition, the rule requires DCOs to establish minimum requirements for RMC composition and rotation, and to establish and enforce fitness standards for RMC members.  The rule also requires DCOs to maintain written policies and procedures governing the RMC consultation process and the role of RMC members.  In addition to the RMC, the rule requires DCOs to establish one or more market participant risk advisory working groups (RWGs) that must convene at least twice a year, and adopt written policies and procedures related to the formation and role of the RWG. 

I appreciate that the staff took many commenters’ suggestions to make the rule more flexible for DCOs while still adhering to the Part 39 Core Principles. For example, the final rule does not categorically treat a DCO’s proposal to clear a new product as a matter that could materially affect the DCO’s risk profile, but instead provides flexibility to determine materiality on a case-by-case basis and to then require RMC consultation pursuant to § 39.24(b)(11).  Staff recognized that this could result in unnecessary administrative costs and delays in launching new products, and, importantly, that DCOs are uniquely situated to determine what constitutes a new product. 

Providing Regulatory Clarity to Promote Compliance 

I appreciate that the staff made revisions to certain rule provisions in response to my concerns regarding regulatory clarity.  If a rule is confusing, it can actually inhibit compliance simply because it is unclear what the Commission’s expectations are for our registered entities or registrants.  Mind-reading is not a good approach for rule implementation. 

For example, the preamble to the final rule now provides further clarification that DCOs have flexibility on how they structure the RMC, and the difference between a DCO structuring an RMC as an advisory committee to satisfy § 39.24(b)(11), and the risk management committee of a board of directors, especially for public companies and their subsidiaries and affiliates. 

Proposed § 39.24(b)(11) required a DCO to maintain governance arrangements that establish one or more RMCs, and a DCO’s board of directors to consult with, and consider and respond to input from, its RMC(s) on all matters that could materially affect the risk profile of the DCO, including any material change to the DCO’s margin model, default procedures, participation requirements, and risk monitoring practices, as well as the clearing of new products. 

My concern—reflected in various comment letters—was that the proposal was unclear whether an RMC was required to be structured as a board-level committee, or if the RMC could be structured as an advisory committee, and the DCO could still have a separate risk management committee of the board of directors for corporate governance purposes.  I appreciate that the preamble to the final rule now clarifies that if a DCO structures its RMC as an advisory committee to satisfy the requirements of § 39.24(b)(11), it may also have a separate board-level risk management committee that is comprised of members of the board of directors that is not subject to § 39.24(b)(11). 

If the DCO’s RMC for purposes of § 39.24(b)(11) was a board-level committee, our RMC requirements would potentially conflict with existing standards for corporate governance.  I was concerned the proposal inaccurately suggested a requirement that the RMC must be structured as a board-level committee, and consequently, that DCOs had to appoint clearing members and customers to their boards of directors to meet the requirements of § 39.24(b)(11), among other changes to board procedures and processes.  How a firm establishes board committees and delegates responsibilities is an important corporate governance decision and process, and subject to existing corporations law and other regulations.[6]  Comment letters reflected these concerns and confusion, especially since the SEC has proposed similar (but not identical) risk management committee requirements for clearing agencies, and does require that clearing agencies establish a board-level risk management committee. 

In addition, at my request, the staff has removed the word “independent” from the final rule text with respect to members of an RMC for purposes of § 39.24(b)(11), because  this issue was already addressed by the rule’s requirements for conflicts of interest policies and risk-based input, and it is different from the concept of “independence” for outside board directors.  This issue becomes particularly acute if the RMC is structured as a board-level committee, or if a board director is serving on an RMC that is structured as an advisory committee.  I do not believe that the Commission should interpret or opine on corporate governance law or Delaware corporations law requirements regarding the duties of the board of directors, including fiduciary duties.  I believe that the proposal’s concept of “independence” was more akin to input by RMC members that is informed by expertise with avoidance of conflicts of interest, and the final rule appropriately reflects this. 


In closing, I’d like to thank my fellow Commissioners and the staff for addressing my concerns, and especially thank the staff for their hard work on this rule designed to provide a forum for stakeholders to be engaged in the sound risk management of our clearing system for derivatives markets.  The diverse viewpoints provided by stakeholders, including clearing members and their customers, should help to increase the dialogue between DCOs and clearing members and result in enhanced resilience for CCPs. 

[1] See Opening Statement of Commissioner Caroline D. Pham before the Global Markets Advisory Committee Inaugural Meeting on February 13, 2023, available at

[2] See MRAC CCP Risk and Governance Subcommittee, Recommendations on CCP Governance and Summary of Subcommittee Constituent Perspectives, available at (Feb. 23, 2021).

[4] For instance, Treasury Secretary Yellen recently warned of market stress associated with the U.S. debt limit negotiations.  See Christopher Condon, Yellen Says Treasury Pushing for Debt-Limit Deal, Not Prepping for Default, Bloomberg, (May 24, 2023), available at  The European Central Bank has described the eurozone’s financial stability status as “fragile.”  See Hannah Brenton, ECB warns of ‘fragile’ financial stability after US banking crisis, PoliticoPro (May 31, 2023).

[5] Rep. Glenn “GT” Thompson (PA-15), Opening Statement for the Hearing “Rising Risks: Managing Volatility in Global Commodity Derivatives Markets,” (Mar. 9, 2023), available at  Among the ways in which DCOs performed well during a period of intense volatility, an interim CFTC staff report highlighted that both the size and frequency of portfolio-level breaches were well within risk management tolerances at our DCOs, and major DCOs had sufficient pre-funded collateral in the form of initial margin to cover any potential clearing member defaults within and across and CCPs.  See CFTC Interim Staff Report, Cleared Derivatives Markets: March – April 2020, (2021), InterimStaffClearedDerivativesMarket0420_0621.pdf.

[6]  See, e.g., Matteo Tonello, “Should Your Board Have a Separate Risk Committee?” Harvard Law School Forum on Corporate Governance (Feb. 12, 2012) (based on a Conference Board Director Note by Carol Beaumier and Jim DeLoach, which was adapted from Board Perspectives: Risk Oversight, Protiviti, Issue 24, October 2011), available at