SPEECHES & TESTIMONY

Opening Statement of Commissioner Dawn D. Stump before the Global Markets Advisory Committee Meeting

September 24, 2019

Good morning and welcome to the second Global Markets Advisory Committee meeting of 2019.

I would like to begin by welcoming Chairman Tarbert.  Given his background in international matters it is fitting that his first CFTC advisory committee as Chairman is one of global focus.  We are fortunate to have a leader with such expertise.  I also want to thank Commissioners Quintenz and Behnam for being here today as well as Commissioner Berkovitz for his engagement via webcast.  Your contributions to the discussion are much appreciated.  I would also like to thank all of the GMAC members who are present, both in person and on the phone.  In addition, I would like to express sincere gratitude to today’s panelists.  We appreciate your time and effort in putting together today’s presentations, and we look forward to hearing what you have to say.  Lastly, I would like to thank Andrée Goldsmith, the GMAC Designated Federal Officer, for organizing today’s meeting and putting together a robust agenda on important global issues. 

At the GMAC meeting in April, we covered a wide variety of issues that made up the key pillars of the 2009 Group of 20 Leaders’ directive regarding the OTC derivatives market.  My goal today is to use the discussions during that meeting as a jumping-off point for today’s agenda.  Specifically, today’s presentations will delve deeper into two specific topics that we touched on in April:  1) the global process applied to implementing initial margin for non-centrally cleared derivatives and how the phasing of such has progressed, and 2) how clearing through central counterparties has evolved since the crisis.  Regarding clearing, we will specifically discuss the European legislation known as EMIR 2.2 as it relates to non-EU based central counterparties, or CCPs, including those under CFTC registration.  

Regarding the exchange of initial margin for non-centrally cleared derivatives, now is a good time to step back and reflect on the past implementation phases and to explore in more detail the issues faced by market participants who have, or will in a future phase, become subject to the requirement.  This exercise is important, in my view, in order to understand whether there are actions that we, as regulators, can take to mitigate the potential compliance bottleneck caused by an unprecedented number of market participants coming into scope in the last implementation phases.  This morning will feature several panels on this topic.

First, we will hear an update from the regulators.  Mike Gibson from the Division of Supervision and Regulation at the Board of Governors of the Federal Reserve System will talk about actions regulators have taken with respect to the margin rules.  In a timely development, several regulators voted on a joint notice of proposed rulemaking last week that would amend certain aspects of their swap margin rule.  Mike will update us on those amendments.  Then, Rafael Martinez will update the group on the CFTC’s actions, including a staff advisory issued in July in support of the BCBS-IOSCO statement from earlier this year, which clarified that documentation requirements for uncleared swaps would not apply until a firm exceeds the $50 million IM threshold with a particular swap dealer. 

Next, we will hear from buy-side market participants.   Richard Grant from AQR Capital Management and Wendy Yun from Goldman Sachs Asset Management will discuss some of the challenges and the preparations their firms have undertaken to prepare for the upcoming implementation phases.  Among the issues Richard and Wendy will touch on are those involving separately managed accounts, seeded investment funds, eligible collateral, and documentation. 

The third panel on uncleared margin will feature Dominick Falco from BNY Mellon and Judson Baker from Northern Trust.  The two panelists represent custodian banks tasked with holding initial margin for non-centrally cleared derivatives.  They will discuss their experiences engaging with market participants, challenges they have seen in the earlier implementation phases, and what they are doing to prepare for the unique challenges of later implementation phases.   The custodian perspective is one that we don’t often get here at the CFTC, and I am looking forward to hearing directly from Dominick and Judson on how they are managing the documentation and operational challenges as more and more market participants come into scope.

Lastly, Tara Kruse from ISDA will present on some of the differences across jurisdictions that have evolved relative to the regulatory implementation of uncleared margin rules.  Jurisdictional differences in key areas, such as settlement timeframes and eligible collateral, present challenges for market participants.

After lunch, we will turn our focus to the cleared derivatives space and how regulation of global central counterparties has evolved.  Specifically, Sean Downey from CME Group, Carolyn Van den Daelen from ICE Clear Europe and Jackie Mesa from FIA will present on the provisions in EMIR 2.2 that affect non-EU based CCPs and ESMA’s  related draft technical advice and consultation reports.  EMIR 2.2 materially changes the regulatory framework for non-EU based CCPs, particularly when those CCPs are determined to be systemically important to the EU or one of its member states.  I believe that it is important that we fully understand the proposed changes and how they might affect our own registered derivatives clearing organizations.  Sean, Carolyn and Jackie will present on the specifics of ESMA’s consultation papers on tiering criteria and on comparable compliance, including their reactions to ESMA’s proposals. 

I am looking forward to digging deeper into some of the topics more generally covered during our last meeting in April.  I believe that today’s presentations are both relevant and timely, and will aid in our understanding of some of the recent developments in the global derivatives markets.  I again want to recognize the tremendous amount of work that has gone into planning this meeting and thank everyone for being here.