CFTC Commissioner Dawn D. Stump urged greater cross-border collaboration in order to operate and build a more resilient clearing system.

At the World Federation of Exchanges' Clearing and Derivatives Conference 2021, Ms. Stump said that central counterparties ("CCPs") should (i) account for any new product's impact on the CCP's risk profile and management, and (ii) pursue private sector solutions, which "will yield far better results than a government-dictated, one-size-fits-all-approach." Ms. Stump also urged the international regulatory community to implement comparable requirements for CCPs so as to permit "regulatory deference" between jurisdictions.

Ms. Stump acknowledged that the United States "has not always been as deferential as I believe we should," noting, in particular, the absence of the ability of U.S. customers to access exempt derivatives clearing organizations ("DCOs") through U.S.-registered futures commission merchants ("FCMs") in a 2019 proposed registration exemption for DCOs. Ms. Stump stated that the proposal would set a "potentially irreversible precedent" in the limitations it would impose on CFTC-registered FCMs to facilitate clearing for U.S. clients. Ms. Stump stated that the proposal would likely push CCPs to build U.S.-facing offerings so as to obtain a registration exemption, which would, "oddly," limit choices for U.S. clients.

Additionally, Ms. Stump argued that a regulator should minimize policies that impose domestic rules on clearing corporations based in other jurisdictions, but serving clients in that regulator's home jurisdiction. Ms. Stump stated that such "location-based policies" contribute to financial instability by blocking access to clearing infrastructure that may be outside the home country.

Commentary Nihal Patel

Ms. Stump's comments on the exempt DCO proposal make an important policy point: there are benefits to be achieved for U.S. market participants by allowing customer access to overseas markets through U.S.-registered clearing firms. However, Ms. Stump does not address one of the primary legal concerns raised by the CFTC as to this issue: treatment of customer assets in an FCM insolvency. This issue was highlighted by Commissioner Dan Berkovitz in his statement when the CFTC adopted parts of the DCO proposal last year. At the time, Mr. Berkovitz expressed an openness to revisiting the ability for U.S. customers to clear at exempt DCOs, if the CFTC were to change its interpretation of  CEA Section 4d(f) ("Swaps") or if statutory changes were made.

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