Public Statements & Remarks

Statement of Commissioner Goldsmith Romero: The Public's Interest in Transparency Accountability, Predictability, and Effective Oversight in Clearinghouse Governance

Final Rule: Governance Requirements for Derivatives Clearing Organizations

June 07, 2023

Transparency, accountability, predictability, and effective Commission oversight—these are the public interests that I wrote last summer in the description of our proposed governance rule. These public interests are foundational to clearinghouse resilience. They remind us that the impact of market disruptions and stress is felt the hardest by farmers, ranchers, and producers, who face rising inputs, and hardworking American families who may have to pay more to feed their family, drive their car, or cool and heat their homes.

Commodity and derivatives markets have faced unexpected global challenges and disruptions over the last few years. Some were unexpected, hopefully once-in-a-lifetime events, like the pandemic and Russia’s war against Ukraine. Others, like climate disasters and cybercrime, have been building for years, and we should expect that markets will continue to grapple with them indefinitely.

As I said at a Global Markets Advisory Committee meeting, “We have arrived at a time when we should expect the unexpected. By expecting the unexpected, exchanges, clearinghouses, intermediaries, the Commission, and others can prepare a game plan for future market challenges—a game plan that holds the lessons of past disruptions, but also has the flexibility to adapt to new challenges. There is great benefit to clear heads planning now….[C]omplex issues impacting global derivatives markets would benefit from forward thinking. Working through them now with clear heads and the benefit of time can lead to a workable game plan that will keep markets functioning well during times of stress.”[1]

The best game plan comes from engagement and collaboration between all stakeholders, specifically here, clearinghouses, their members, and market participants. Under the rule, the Commission would require a clearinghouse to consult with, consider, and respond on the merits to substantive input from, a risk management committee made up of clearing members. This consultation would be required for all matters that could materially affect the risk profile of the clearinghouse. Clearinghouses will also be required to establish a risk advisory working group to consider input from an even broader array of market participants.

Together, clearinghouses, their members, and market participants, can benefit from a 360 degree view of risk, and make a powerful force in developing a workable game plan to keep markets functioning well during times of stress. The rule balances ensuring members’ voices are adequately heard in a meaningful way, with the critical public service perspective of clearinghouses. The rule recognizes strength in numbers and diversity of opinion.

There are several enhancements that I advanced in the proposed rule after speaking to many stakeholders.[2] These enhancements are in addition to recommendations made by the Market Risk Advisory Committee (“MRAC”) in early 2021, after the pandemic, but prior to unprecedented levels of volatility and high prices triggered by Russia’s war against Ukraine. I am grateful for MRAC members who contributed, stakeholders who shared their views with me, and for the staff who worked with me. I was pleased to see that the enhancements I advanced were substantially supported by public comment and are included in the final rule.

In particular, I advanced requirements for a clearinghouse to maintain written policies and procedures: (1) describing in detail the consultation process between a clearinghouse and its risk management committee, including for deciding which matters could materially affect the clearinghouse’s risk profile; and (2) governing the role of members of the risk management committee and risk working group including addressing any conflicts of interest. I also advanced the requirements for a clearinghouse to document: (1) the meetings of the risk management committee and risk working group; and (2) the clearinghouse’s consideration of, and response to, the input of the risk management committee. I also advanced requirements for regular periodic meetings of the risk working group. I thank all who provided comments supporting these enhancements. I am thrilled to see them adopted in the final rule.

My intent in including requirements for written policies and procedures, accompanied by documentation, was to ensure that our rule met the public’s interest. Drawing on my experience as a former Inspector General, I have witnessed time and time again that requirements for policies and procedures as well as documentation promote transparency, accountability, and predictability, and facilitate effective Commission oversight.

Policies and procedures help ensure that a game plan on how matters that could materially impact a clearinghouse’s risk profile will be assessed, and who will have a say, are made now, not during times of market disruption. Requirements for policies, procedures, and documentation also promote consistency over the full range of clearinghouses, and may lead to best practices. This includes systemically significant clearinghouses and other well established clearinghouses who may already meet some or all of these requirements. It also includes new or future entrants, including in the digital asset space, who may not have a history of risk management committees, the consideration of input from clearing members, or policies, procedures or documentation requirements. I remain hopeful that these requirements will serve as a launch pad towards best practices that promote the public’s interest in transparency, accountability, predictability, and effective oversight.

For these reasons, I support the final rule.

[1] CFTC Commissioner Christy Goldsmith Romero, Expect the Unexpected in Global Markets, (Feb. 13, 2023) Opening Statement of Commissioner Christy Goldsmith Romero Regarding Global Markets Advisory Committee Meeting | CFTC.

[2] CFTC Commissioner Christy Goldsmith Romero, Statement of Commissioner Christy Goldsmith Romero Regarding the Proposal to Strengthen the Resilience of Clearinghouses to Future Risk, (July 27, 2022) Statement of Commissioner Christy Goldsmith Romero Regarding the Proposal to Strengthen the Resilience of Clearinghouses to Future Risk | CFTC.