June 7, 2023

CFTC Requires DCOs to Establish Governance Risk Committees that Include Key Stakeholders

The CFTC adopted rule amendments that require derivatives clearing organizations ("DCOs") to involve key stakeholders in their governance.

The amendments to CFTC Rule 39.24 ("Governance"), as previously covered, mandate that DCOs establish and engage with risk management committees ("RMCs") consisting of clearing members and customers of clearing members. The purpose of these committees is to address issues that could significantly impact the risk profile of the DCO.

The following requirements would apply to the RMCs:

  • RMC Composition. An RMC must include clearing members and customers of clearing members. Additionally, the CFTC emphasizes the importance of periodically rotating committee members to ensure fresh perspectives and expertise.
  • Fitness Standards for RMC Members. DCOs must establish and enforce fitness standards for RMC members, ensuring that they possess the necessary qualifications and expertise to contribute effectively to risk management decisions.
  • Written Policies and Procedures. DCOs are obligated to develop and maintain written policies and procedures governing the RMC consultation process and the role of RMC members.

Further, the CFTC introduced additional requirements for DCOs to establish market participant risk advisory working groups ("RWGs"). These groups must convene at least twice a year and adopt written policies and procedures related to their formation and role. The establishment of RWGs aims to broaden the input received from market participants and increase collaboration between the DCO and its stakeholders in identifying and addressing risks.

The effective date will be announced once published in the Federal Register and the compliance date will be one year from the effective date.

CFTC Commissioner Statements

Commissioner Christy Goldsmith Romero emphasized the importance of "[t]ransparency, accountability, predictability, and effective" oversight in clearinghouse governance.

Commissioner Kristin N. Johnson said that requiring DCOs to consider a great diversity of informed views from key stakeholders about risk furthers the CFTC goals outlined by Dodd-Frank and helps to better manage risk in our DCO markets.

Commissioner Rostin Behnam highlighted the inclusion of RMCs and RWGs as crucial mechanisms for gathering input from all clearing members and customers, saying that such cooperation fosters stronger financial markets by bridging differences and advancing shared interests.

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