Financial Markets

CFTC Forms Two Market Risk Subcommittees

Panels on central counterparties and market structure join roster with those on benchmark reform and climate

Friday, December 6, 2019

By Jeffrey Kutler

The Commodity Futures Trading Commission said it has formed two new subcommittees of its Market Risk Advisory Committee (MRAC): Central Counterparty Risk and Governance; and Market Structure.

The December 2 announcement came less than a month after that of the Climate-Related Market Risk Subcommittee and points to discussion topics and policy priorities mapped out by CFTC Commissioner and MRAC sponsor Rostin Behnam.

Behnam said that “previous MRAC meetings on these topics have provided a solid foundation for further work by the subcommittees, which will provide the MRAC, and ultimately the commission, with well-reasoned recommendations that will benefit the derivatives industry and market participants.”

There are now four subcommittees listed on the home page of the MRAC, which says that it “advises the commission on matters relating to evolving market structures and movement of risk across clearinghouses, exchanges, intermediaries, market makers and end-users. It examines systemic issues that threaten the stability of the derivatives markets and other financial markets, and makes recommendations on how to improve market structure and mitigate risk.”

The longest-standing subcommittee is the one on Interest Rate Benchmark Reform, a year old, with 21 members and Thomas Wipf as chairman. Wipf, who is vice chairman of institutional securities, Morgan Stanley, also chairs the Alternative Reference Rates Committee, which is supporting the transition in the U.S. to the Secured Overnight Financing Rate (SOFR) from the Libor benchmark, which regulators want to see phased out by the end of 2021.

Climate-Related Market Risk is the biggest of the subcommittees, with 35 members. The chairman is Robert Litterman, chairman of the risk committee and a founding partner of Kepos Capital. (See Litterman Named Chairman of CFTC Panel on Climate Risk)

Co-Chairs for Two Panels

Central Counterparty Risk and Governance, which has 18 members, and Market Structure, with 16 members, have co-chairs.

Leading CCP are Lee Betsill, managing director and chief risk officer, CME Group; and Alicia Crighton, chief operating officer, prime services, U.S. Clearing, Goldman Sachs (representing the Futures Industry Association). Members include Nadia Zakir, chair of MRAC and executive vice president and deputy general counsel, Pimco; Richard Berner, co-director of the Volatility and Risk Institute, NYU Stern School of Business; Kevin McClear, corporate risk officer, Intercontinental Exchange; Marnie Rosenberg, managing director and global head of clearinghouse risk and strategy, JPMorgan Chase & Co.; and Kristen Walters, global chief operating officer, Risk and Quantitative Analysis Group, BlackRock.

Co-chairing the Market Structure Subcommittee, which will address such topics as pre- and post-trade transparency and reporting regimes, emerging operational risks, and liquidity and market-concentration issues, are Lisa Shemie, associate general counsel, chief legal officer - Cboe FX Markets and Cboe SEF; and Stephen Berger, managing director and global head of government and regulatory policy, Citadel. Among others on the subcommittee are Isaac Chang, managing director and co-head of trading, AQR Capital Management; Laura Klimpel, managing director, Depository Trust & Clearing Corp.; and Scott Zucker, chief administrative officer, Tradeweb Markets.

Each of the subcommittees gave status reports at the December 11 full MRAC meeting. The topics are not new to MRAC agendas but will now go deeper as the panels “present updates on their focus areas,” Behnam said.

In remarks at the committee meeting, CFTC chairman Heath Tarbert addressed Libor, saying that failure to prepare for the 2021 deadline “is a source of risk to your individual firm as well as the global financial system.” He revealed that in response to requests to regulators from the Alternative Reference Rates Committee, “the CFTC will likely be the first out of the gate to provide Libor-transition-related relief” in the form of no-action letters by December 20. “This relief will remove many of the barriers to converting legacy Libor swaps to SOFR,” Tarbert said. “The relief will cover amendments to existing swaps that either add a fallback provision or change the reference rate to SOFR or another risk-free rate.”

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