CFTC Commissioner Rostin Behnam discussed challenges for central counterparty ("CCPs") and swap market participants since the G-20 reforms and the passage of the Dodd-Frank Act.
According to Mr. Behnam, market participants expressed concern regarding:
- futures commission merchant ("FCM") concentration and access to clearing services;
- the European Commission's proposed cross-border legislation to make EU authorities the primary supervisors of "systemically risky" U.S. CCPs;
- CCP governance and risk management between domestic and international regulators; and
- the use of distributed ledger technologies, such as blockchain technology, for clearing and settlement.
Commentary / Bob Zwirb
In his thoughtful assessment of the impact of Dodd-Frank Act reforms, Commissioner Behnam rightly focuses on the decline in FCMs and reduced access to clearing as unintended consequences. While Mr. Behnam correctly observes that this trend is "head[ing] in the wrong direction," he appears to attribute this decline largely to one factor: the application of the Supplementary Leverage Ratio ("SLR") and its adverse effect on FCM balance sheets. No doubt the SLR capital charge is a material factor in contributing to this trend, but it's far from the only one or even the most significant. Not the least may be the clearing mandate itself. Indeed, a good place to start in considering policy may be SEC Commissioner Hester Peirce's article, Derivatives Clearinghouses: Clearing the Way to Failure, in which she makes the case that it is the clearing mandate itself in conjunction with government prescriptions regarding clearinghouse design, and government support for CCPs, that "threatens financial stability."
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