By Email
June 5, 2017
Honorable Jay Clayton
Chairman
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Honorable J. Christopher Giancarlo
Acting Chairman
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581
Honorable Martin J. Gruenberg
Chairman
Federal Deposit Insurance Corporation
550 17th Street NW.
Washington, DC 20429
Honorable Steven Mnuchin
United States Treasury Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220
RE: Central Counterparty Standards for Derivatives
Dear Sirs:
The American Council of Life Insurers, Investment Company Institute, Managed Funds Association, and Securities Industry and Financial Markets Association’s Asset Management Group (collectively, the “Associations”)1 write to provide their recommendations on central counterparty (“CCP”) standards for derivatives—namely, futures, swaps and options—that we believe regulators should impose domestically and endorse through international bodies to support financial stability in derivatives markets. Regulators, including the U.S. Department of the Treasury, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, and U.S. Securities and Exchange Commission, in reviewing derivatives regulations for potential reform, should strengthen CCP standards to foster robust derivatives markets while keeping systemic risk in check.
The success of the G20’s over-the-counter derivatives market reforms hinges on whether CCPs can withstand the next financial crisis with a system that increasingly depends upon central clearing. Pension funds, life insurers, retail investor funds (e.g., U.S. mutual funds and UCITS), private funds and other investors for whom asset managers serve as fiduciaries (each a customer of CCP clearing members) have increased their centrally cleared derivatives positions after the financial crisis due to regulatory directives and heightened awareness of bilateral counterparty risks. Post-crisis regulations have advanced this migration directly through mandating the clearing of additional derivatives and indirectly through higher margin requirements and bank capital charges for uncleared transactions.
The value of this shift to clearing will be measured in large part on whether these customers— investors who are ultimate stakeholders of cleared positions with no control of the CCP and no stake in the CCP’s profits—are protected from potential CCP failures by robust resilience, recovery and resolution standards. To this end, the Associations make the following recommendations:
1 For a description of each Association, see the Annex to this letter.