CFTC Adopts Additional DCO Regulatory Obligations

The CFTC unanimously approved a final rule that amends "certain reporting and information regulations applicable to derivatives clearing organizations ("DCOs")."

The CFTC amended the DCO regulations to, among other things, (i) modify risk management and reporting obligations, (ii) clarify the meaning of certain provisions, (iii) simplify processes for registration and reporting and (iv) codify existing staff relief and guidance.

The amendments:

• expand information requirements associated with commingling customer funds and futures and swaps positions in one account;
• revise certain daily and event-specific reporting requirements in § 39.19(c) ("Reporting");
• codify new Appendix C to Part 39 ("Daily Reporting Data Fields"), addressing the fields that a DCO is required to provide on a daily basis in the Reporting Guidebook under § 39.19(c)(1); and
• amend certain staff-delegation provisions in Reg. 140.94 ("Delegation of authority to the Director of the Division of Swap Dealer and Intermediary Oversight and the Director of the Division of Clearing and Risk").

The CFTC considered and acknowledged public comments.

• The CFTC determined not to amend certain reporting requirements under Rule 39.18(g) ("System safeguards") to remove the materiality threshold for the reporting of exceptional events under § 39.18(g) at this time but will consider further in the future.
• The CFTC added new § 39.13(h)(5)(iii) ("Risk management."), which provides that a DCO that clears fully collateralized positions may exclude from the requirements of paragraphs (h)(5)(i) and (ii) those clearing members that clear only fully collateralized positions.
• The CFTC added new § 39.15(b)(2)(vii) ("Treatment of funds") that requires that a DCO provide an express confirmation that any portfolio margining will be allowed only as permitted under § 39.13(g)(4), which allows portfolio margining of positions only if the price risks with respect to such positions are "significantly and reliably correlated."
• The CFTC added § 39.15(b)(2)(ii), the requirement that a DCO’s analysis address any characteristics that are unusual in relation to the other products cleared by the DCO, "such as margining, liquidity, default management, pricing, or other risk characteristics."

The effective will be 30 days after publication in the Federal Register, and DCOs must comply with the amendments to § 39.19 and appendix C within 18 months after publication in the Federal Register.

Commissioner Statements

Chairman Rostin Behnam said the amendments allow the CFTC to receive the data necessary to properly oversee DCOs, "acknowledging that different risk profiles require more tailored consideration."

Commissioner Christy Goldsmith Romero stated that the amendments increase transparency into the critical risk that is concentrated in DCOs in light of emerging products such as digital assets.

Commissioner Kristin N. Johnson said the amendments to update the DCO requirements were necessary in light of the exponential growth of digital asset products, platforms and technologies, and the "remarkable growth in the market for carbon credits."