Systemically important derivatives clearing organizations: The CFTC proposes recovery and wind-down plans

September 2013
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Systemically important derivatives clearing organizations: The CFTC proposes recovery and wind-down plans

At a glance

The CFTC proposed rules to heighten regulatory standards for systemically important DCOs, which should be viewed in light of two other documents also released in August (by CPSS/IOSCO and by ISDA) focusing on SIDCO recovery and continuity planning.

Last month, the Commodity Futures Trading Commission (CFTC) proposed amendments to its Derivative Clearing Organization (DCO) regulations in order to heighten regulatory standards for systemically important DCOs (SIDCOs). A SIDCO is a type of Systemically Important Financial Market Utility (SIFMU) that is registered with and regulated by the CFTC.

The fairly complex CFTC proposal is significant for several reasons, but the following two are worthy of particular focus:

  • First, the CFTC proposal allows US DCOs that have not been deemed as systemically important to opt-in to the SIDCO regulatory regime in order to allow global banks that trade through US DCOs to qualify under Basel III for lower capital charges (i.e., the proposal allow a US DCO to be considered a “Qualified Central Counterparty” under Basel III).
  • Second, the proposal requires SIDCOs to maintain “viable” recovery or orderly wind-down plans.

The CFTC proposal has an effective date for its recovery and wind-down rules of December 31, 2013. Several comments filed on the proposal strongly urged the CFTC to postpone the effective date because of the complexity of the proposals and the relatively short window to develop such plans. ISDA requested the CFTC to invoke its extended review process for its proposal which would allow for more time to consider the proposal. Whatever the outcome of these requests for delay, SIDCOs need to begin – if they have not done so already – to develop a plan and project structure to identify the tools and resources for developing suitable recovery and wind-down plans.

This Financial Services Regulatory Brief (a) briefly discusses the two key elements of the CFTC proposal and (b) focuses on important global themes in FMU recovery and wind-down planning that have emerged, incorporating the three August proposals and our view of what SIDCOs should be doing now.


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