CFTC Chair Massad Reports Progress on Transatlantic CCPs, Swap Margin Rules and Cybersecurity

In remarks before the Institute of International Bankers, CFTC Chair Timothy Massad highlighted progress on (i) a common approach to transatlantic central clearing counterparties, (ii) a rule on margin for uncleared swaps, (iii) improving domestic and international clearinghouse resiliency, and (iv) proposals to strengthen cybersecurity.

Chair Massad described the following regulatory developments:

• Common Approach for Transatlantic CCPs. Chair Massad outlined the agreement between the U.S. and the EU, which requires U.S. clearinghouses that seek European recognition to (i) demonstrate that they meet the European standard that "rules that require the collection of house margin for futures is in an amount sufficient to take into account a two-day liquidation period," and (ii) "show their rules and procedures are designed to limit procyclicality and that they meet a 'cover two' standard." In addition, Chair Massad stated, the CFTC will consider a "substituted compliance" determination that will encourage European central counterparty compliance with CFTC rules by adhering to the corresponding European Market Infrastructure Regulation ("EMIR") requirements.

• Margin for Uncleared Swaps. Chair Massad emphasized that the CFTC has adopted a "strong and sensible rule" that requires swap dealers and major swap participants to post and collect margin with financial entities with which they have significant exposures. He noted that the CFTC will soon "take up the last remaining element of [the] margin rule – which is its cross-border application."

• Clearinghouse Resiliency. Chair Massad stressed that the activities involved in ongoing risk management – "daily margining practices, the stress and back testing, the oversight and ongoing risk surveillance – are critically important." He noted that IOSCO subcommittees have made "significant progress" in examining whether further granularity or guidance is needed with respect to the implementation of IOSCO's "Principles for Financial Market Infrastructures," and stressed that the CFTC continues to be involved in efforts, led by the Financial Stability Board, to examine resolution planning for clearinghouses.

• Cybersecurity. Chair Massad remained optimistic that the CFTC will finalize cybersecurity proposals to enhance protections by ensuring that private firms responsible for the critical infrastructure in our markets – the exchanges, swap execution facilities, clearinghouses and swap data repositories – will follow best practices when testing their cybersecurity defenses and other protections against similar technological risks.

Chair Massad also highlighted proposals that address (i) automated trading, (ii) the cross-border application of the margin for uncleared swaps rule, (iii) enhanced swap execution facility ("SEF") trading and participation, (iii) harmonization with the European Securities and Markets Authority MiFiD II technical standards, (iv) position limits, and (v) improved swaps data reporting through the standardization, harmonization and simplification of reporting obligations.

Chair Massad announced that later in the year, he will ask the CFTC to consider a number of rule changes intended to "enhance SEF trading and participation . . . [and] to formalize through notice-and-comment rulemaking a number of the 'no-action' positions the staff has taken, such as simplifying the confirmation process, streamlining the process for correcting error trades, and others."