Thank you Commissioner Stump for convening today’s meeting of the Global Markets Advisory Committee (GMAC).  I am looking forward to hearing presentations from Suyash Paliwal, the Director of the CFTC’s Office of International Affairs, on recent international coordination efforts in the time of COVID-19, as well as from the GMAC Subcommittee on Margin Requirements for Non-Cleared Swaps regarding its report and recommendations on the implementation of initial margin requirements for uncleared swaps. I would like to thank all of the presenters and Committee and Subcommittee members for their participation and engagement. 

Implementation of Uncleared Margin Rules

We are now in the final implementation stages of the margin framework for uncleared swaps.  In 2019, one survey found that the 20 largest market participants, all phase-one firms, had collected approximately $173.2 billion of initial margin for their non-cleared derivatives transactions.[1] Collectively, market participants captured by phases 1-4 comprised approximately 89% of the total average aggregate notional amount of swaps across all phases, with the remaining phases of 5 and 6 comprising approximately 11% of notional amount, but representing approximately 94% of all entities brought into the uncleared margin regime.[2]  As we approach the compliance deadlines for phases 5 and 6, which will bring into scope a much larger and more diverse group of market participants, it is appropriate to reflect on how the uncleared margin regime can be improved to address some of the compliance challenges experienced in earlier stages. I am extremely interested to hear from the Subcommittee on Margin Requirements for Non-Cleared Swaps regarding their thoughts and recommendations.  In particular, I am looking forward to learning more about providing possible relief from initial margin calculations for small covered swap entities, providing compliance grace periods to allow firms time to establish the necessary custodian documentation after the initial margin threshold has been exceeded, and aligning the timing and methodology for the material swaps exposure calculation with the global Basel Committee on Banking Supervision (BCBS) and International Organization of Securities Commissions (IOSCO) framework.  

I would also like to take a moment to acknowledge the BCBS-IOSCO recent amendments to the recommended margin framework to push out, respectively, the phase 5 and phase 6 compliance dates by one year.[3]  In light of the unprecedented economic and social impacts of COVID-19, I would support a one year delay for the final compliance phases.  Given the large number of firms brought into scope during phases 5 and 6 and the estimated 7,000 initial margin relationships that need to be negotiated, and the small overall percentage of swap activity these firms represent, it is important to implement these final phases in the most productive, least burdensome way. Under these difficult circumstances, I think it is appropriate to provide firms with additional time to comply, ensuring that their already strained resources are not diverted from ongoing business continuity efforts. 

In closing, I would like to reiterate my thanks to all of today’s presenters and the GMAC membership for their participation, as well as to Commissioner Stump for organizing this meeting.  

Good morning and welcome to the first Global Markets Advisory Committee (GMAC) meeting of 2020.

I would like to begin by acknowledging that this meeting looks much different than I envisioned even a few short months ago.  While we are not in the same room today, I’m grateful that we can hold this meeting and move forward with the GMAC’s priorities in a format that ensures the health and safety of GMAC members, Commission staff and the public.

I would like to thank Chairman Tarbert and my fellow Commissioners for attending today’s meeting and for your contributions to the discussion.  I would also like to thank the GMAC members who are in attendance and who will no doubt engage in a robust discussion of today’s presentations.  In addition, I would like to thank today’s presenters, Mr. Suyash Paliwal and Ms. Wendy Yun.  Finally, I would like to thank Andrée Goldsmith, the GMAC Designated Federal Officer, for organizing today’s meeting and Chair Angie Karna for her leadership of the GMAC.

Today’s meeting will feature two presentations.  The first, from Suyash Paliwal, Director of the CFTC’s Office of International Affairs, will focus on coordination efforts among the international regulatory community in the face of recent market events.  As we are all aware, the COVID-19 pandemic has affected economies all over the globe, and Mr. Paliwal and his team have been key players in engaging with international coordination efforts during this unprecedented period of market volatility.  The international regulatory community has come together to address the challenges caused by the global pandemic and the CFTC has played a leadership role in those endeavors.

Next, we will turn to the work of the GMAC Subcommittee on Margin Requirements for Non-Cleared Swaps.  Following the last GMAC meeting in September, during which the GMAC heard several presentations on the unique challenges posed by the later implementation phases of margin requirements for non-cleared swaps, the Commission established the Subcommittee.  In our public solicitation for Subcommittee nominations it became obvious that the interest in this matter is vast and the viewpoints are many.  It is therefore remarkable that such a diverse group of representatives was able to deliver a report to the Committee in a relatively compressed timeframe, further complicated by an unprecedented global pandemic.  The Subcommittee’s mandate was to examine the implementation of margin requirements for non-cleared swaps, to identify challenges associated with forthcoming implementation phases, and to recommend actions the Commission may take to mitigate any challenges identified.

The Subcommittee took that mandate and ran with it.  In just a few short months, the Subcommittee has prepared a detailed report outlining several challenges posed by the upcoming implementation phases of margin requirements for non-cleared swaps, and recommending a number of specific potential actions to mitigate these challenges.  The Subcommittee continued its hard work even as its members were responding to recent market events, and the timing of margin requirements was evolving within the Basel Committee on Banking Supervision and International Organization of Securities Commissions.

In short, the effort to get this report before the Committee today was no small task, and I know the full GMAC has carefully considered its content.  I want to thank Warren Gorelick and Carmen Moncada-Terry from the Division of Swap Dealer and Intermediary Oversight for their engagement with the Subcommittee.  I also want to offer appreciation to each member of the Subcommittee, and especially Subcommittee Chair Wendy Yun, for your hard work.  I’m so pleased that many of you could attend this meeting today.  I look forward to hearing the presentation.