Derivatives clearing organizations (DCOs) offer a valuable purpose in the investment community. Like many other investment operations, they’re thoroughly regulated, and sometimes those regulations are not as clear-cut as many would prefer. Thus, the Commodity Futures Trading Commission (CFTC) recent approved a new rule change that would address issues present in the DCO community and its wider connection to the CFTC.
The new rule amends sections of Part 39 of CFTC regulations, which establish the basic core principles for DCOs. The CFTC has been actively working with DCOs in a bid to address key points of implementation of Part 39, as well as how to interpret certain sections of it, to produce working principles.
With all this work going on, the CFTC has seen some points that would benefit from some amendment, and is thus working to clear up any misconceptions that may have come about. Additionally, the CFTC is working to specifically codify any guidance or staff relief issued in the time between Part 39’s inception and its subsequent amendment.
Early reports suggest that the new amendments will make the registration and reporting process a bit simpler, as well as clear up obligations around both risk management and reporting. Further, some new requirements are added related to event-specific reporting as well as default procedures.
The CFTC actually has an overarching program in place to address matters like this, known as Project KISS. KISS is a commonly-used acronym for Keep It Simple, Stupid, a reflection of the CFTC’s desire to make its policies more accessible and in turn more likely to be adhered to.
Chairman J. Christopher Giancarlo noted his support for the proposed adaptations, noting that “swaps clearing is among the most sweeping and significant of the swaps reforms adopted by the Dodd-Frank Act.” Giancarlo noted that swaps clearing at the CFTC has so far been “…robust and highly successful,” and with new issues emerging at the CFTC like bitcoin futures contracts, Giancarlo made it clear he backs the proposal.
Meanwhile, Commissioner Dan M. Berkovitz offered support on issuing the amendments to Part 39 for proposal, noting that the notice of proposed rulemaking (NPRM) offered “…a number of beneficial provisions,” and among a range of points, included language that would “…improve requirements around member default management,” a point that recently came up at NASDAQ Clearing.