Market Participants Respond to CFTC-Proposed Wind-Down Plan Requirements

Trade associations and financial groups responded to a CFTC proposal that would further define requirements on recovery and wind-down plans ("RWPs") prepared by derivatives clearing organizations ("DCOs") (see previous coverage).

In a joint comment letter, ISDA and FIA recommended that under the proposal (i) clearing members should have limited exposure to their DCO so that liquidity shortfalls are "manageable," (ii) risk of DCO non-default losses should not be borne by clearing members, (iii) DCOs should be required to consult with stakeholders during the design of their plans and (iv) both domestic and international authorities should take part in reviewing RWPs.

On the market side, comments included:

  • CME Group Inc. expressed concern with the "prescriptive nature" of the proposal. CME recommended that the CFTC (i) clearly limit the focus of CFTC Rule 39.39 ("Recovery and wind-down for systemically important derivatives clearing organizations and subpart C derivatives clearing organizations") to those operations and services that are critical, (ii) address overlapping areas of the proposed requirements with current regulations and (iii) provide more flexibility to determine how DCOs test their RWPs.
  • Options Clearing Corporations. The Options Clearing Corporations ("OCC") urged the CFTC to avoid "overly prescriptive requirements" with regard to RWPs and said that the proposal should instead allow DCOs to create plans that reflect their specific business risks. The OCC added that the CFTC proposal would require certain DCOs to produce, upon request, a wide range of highly sensitive information that would "impose a virtually limitless, ongoing burden[.]" The OCC asked that the CFTC provide Subpart C DCOs (which includes the OCC) an exemption from the requirement to maintain information for resolution planning because they are already designated as systemically important and subject to SEC oversight.
  • Cboe Global Markets, Inc. Cboe recommended a compliance date of one year from publication of the final rule rather than the proposed six-month period.