DTCC Connection

With new Chairman of the Commodity Futures Trading Commission (CFTC) Chris Giancarlo, what can buy-side and sell-side firms expect from a regulatory perspective? What are some of the challenges the industry is facing on the margin rule for uncleared swaps? Is the new chairman introducing any initiatives the industry needs to keep an eye on? How is the CFTC embracing fintech?

These were some of the questions Mike Gill, CFTC Chief of Staff answered during a panel discussion with Mark Wetjen, DTCC Managing Director, Global Public Policy, at the 3rd Annual Global Collateral Conference. The panel, “The Big Interview: Navigating the Regulatory Agenda,” was a frank discussion on global derivatives regulation. The event attracted parties from both buy-side and sell-side practitioners in the derivatives space interested in what to expect with new leadership on board at the CFTC.

Directionally, as it relates to policy, the industry shouldn’t expect any dramatic changes from the new chairman - the focus will be on implementation and refinement while keeping keep those reforms that are working well. Further, CFTC leadership are interested in looking more closely at areas, including swaps execution and risk centralization with the goal of getting swap data repositories and the concept of reporting of swaps to work better. The two also discussed the recent migration of swaps to clearing noting the amount of swaps being cleared has raised a lot of questions of whether we’re centralizing risk again.

Leading the KISS

Gill has been tasked with leading the Keep it Simple Stupid (KISS) project for the CFTC with the goal to increase efficiency. Project KISS is also open to the public for input and DTCC has contributed suggestions in data reporting rules and fintech.

Wetjen described the challenges firms face with compliance on cyber security. “It’s an issue that we all face where you have different rules, different compliance checklists and different exams. A lot of time spent focusing on documentation rather than prevention,” he said.

The CFTC identified that entities that are doing two forms that are roughly the same but just different enough between the SEC and CFTC are creating a compliance headache. The CFTC is addressing that and there is tremendous commitment to get harmonizing the two agencies in terms of that rule set.

Earlier this year, the CFTC made the decision to keep the March 1 deadline for dealers subject to the final margin rule for uncleared swaps, but have a no-action on enforcement until September. While some folks on The Hill have questioned this decision, the CFTC is confident that this was the right thing for the agency to do.

The CFTC launched a campaign to get the word out internationally about the CFTC’s decision. Now past the September deadline, the CFTC feels there’s been tremendous movement although some challenges exist to make the necessary changes.

Fintech Innovation at LabCFTC

To make the CFTC more accessible to fintech innovators and promote fair competition, LabCFTC was created. Wetjen questioned Gill on how he would define success for LabCFTC. The lab, which is located in New York, provides companies the ability to be in a separate part CFTC’s system so they can show the different capabilities. Innovators are talking with LabCFTC about anything from collateral management to portfolio compression to how you use a shared ledger in an environment for swap reporting. The CFTC hopes to take the lab further by adding the capacity to test these new technologies inside the agency, but confirmed that more funding would be needed.