CFTC Proposes Amending Wind-Down Plan Requirements for DCOs

The CFTC proposed further defining the requirements as to wind-down plans for derivatives clearing organizations ("DCOs").

In the Notice, the CFTC stated that the proposed revisions and amendments to CFTC Rule 39.39 ("Recovery and wind-down for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations") specify (i) components for the required recovery and orderly wind-down plan of a DCO that is systemically important and (ii) information that must be provided to the CFTC for resolution planning. The CFTC said that under the amendments, an effective and orderly wind-down plan would allow for timely decision-making and the continuation of critical operations to ensure a wind-down occurs in an "orderly and expeditious manner." In addition, the CFTC amendments would require DCOs that are not considered systemically important to submit to the CFTC wind-down plans that "incorporate substantially similar information and procedures." Requiring all DCOs to maintain and submit orderly wind-down plans will advance risk management practices, enhance legal clarity and safeguard the public, the CFTC stated.

Comments on the proposed amendments must be submitted within 60 days of publication in the Federal Register.

Note: The CFTC also recently proposed additional requirements for securities clearing organizations, including that such organizations provide more specificity in their recovery and wind-down plans. See SEC Proposes Toughening Clearing Agency Requirements; Market Participants to Address Implications.

Statements

CFTC staff provided the following statements on the proposal:

• CFTC Chair Rostin Behnam. Mr. Behnam stated that he "fully support[s]" the proposal for building "consistency, awareness, and preparedness" across DCOs in the event that they need to wind down their operations.
• CFTC Commissioner Christy Goldsmith Romero. Ms. Goldsmith Romero highlighted "major benefits" of the proposal, including (i) protecting financial stability by decreasing the likelihood that a clearinghouse's failure would be "disorderly, chaotic or require government intervention" and (ii) providing clearinghouses with the opportunity to identify "potential existential risk[s]," and prevent failure.
• CFTC Commissioner Kristin N. Johnson. Ms. Johnson commended the proposal for providing a foundation for "quick, efficient and effective action in instances of market instability and risk to DCOs operations." She also underscored the transparency that the amendments would facilitate between the CFTC and DCOs.