CFTC Chair Massad Outlines Recent Actions and 2016 Priorities

CFTC Chair Massad provided the following overview of the CFTC actions taken at the close of 2015 and outlined priorities for 2016:

Margin for Uncleared Swaps

The CFTC adopted a "strong and sensible" final rule setting margin requirements for uncleared swaps designed to reduce the risk that a default of a large financial entity would lead to further defaults by its counterparties. Chair Massad highlighted the following rule requirements to ensure appropriate protections to the safety and soundness of swap dealers: (i) full variation margin in exchange for inter-affiliate swaps, (ii) initial margin, in certain cases, in order to prevent evasion of the requirement to collect margin from third parties, and (iii) inter-affiliate swaps subject to a centralized risk management program reasonably designed to monitor and to manage the risks associated with such transactions.

Cybersecurity

Chair Massad discussed cybersecurity proposals that identify five types of testing as critical to a sound system safeguards program: (i) vulnerability testing, (ii) penetration testing, (iii) controls testing, (iv) security incident response plan testing, and (v) enterprise-wide assessment of technology risk. Chair Massad asserted that "such efforts are vital to mitigate risk and preserve the ability to detect, contain, respond to, and recover from a cyberattack."

Proposed Rule on Automated Trading

Chair Massad discussed the CTFC proposal that "focuses on minimizing the potential for disruptions or other operational problems" that can be caused by automated trading. The proposal requires pre-trade risk controls, "but does not prescribe parameters or limits of such controls."

Improving Data Reporting

Chair Massad stated that because building an efficient system to collect and analyze data from the market is "an enormous undertaking," the CFTC is taking important steps to ensure that the swap data it receives is "accurate, consistent and timely." The CFTC staff proposed technical specifications for the reporting of 120 priority data elements and is requesting public input on these efforts to help identify priority areas where standardization or clarification is needed.

De Minimis Threshold

"We now have substantial information that we can use to have a discussion about what is the appropriate level at which to set the de minimis threshold [for swap dealing and major swap participants]," Chair Massad said. "And our staff report aims to start that conversation, by taking a fresh look at the issue." He also stated that the CFTC will study the feedback, produce a final report, and make a decision on what, if any, action to take.

Focuses in Early 2016

Chair Massad listed the CFTC's priorities for the beginning of 2016, including: (i) emphasizing clearinghouse strength and resiliency, (ii) recovery planning, (iii) finalizing the CFTC's proposed rule on the cross-border application of rules on margin for uncleared swaps, (iv) reproposing rules related to capital requirements for swap dealers and major swap participants, (v) considering a number of changes to enhance SEF trading and participation, and (vi) working to understand differences between the CFTC's and the MiFiD II's technical standards in order to make progress toward harmonization.