Good morning and welcome to our first open meeting of fiscal year 2023. We will consider two proposals today.  First the Commission will consider a proposal for Reporting and Information Requirements for Derivatives Clearing Organizations.  Then the Commission will consider a proposed order and request for comment on the Application for Capital Comparability Determination submitted on behalf of Nonbank Swap Dealers subject to Regulation by the Mexican Comision Nacional Bancaria y de Valores (Mexican Banking and Securities Commission).  I will share my remarks on the respective proposals in greater detail following staff presentations.

I want to express my great appreciation to our colleagues in the Division of Clearing and Risk and the Market Participants Division for their efforts on the two proposals before the Commission today.  I also thank Alicia Lewis and Abigail Knauff in my office, and my fellow Commissioners and their staff for their support and work to get us here.

Notice of Proposed Rulemaking Regarding Reporting and Information Requirements for Derivatives Clearing Organizations

Today the Commission will consider a proposal to amend certain reporting and information requirements applicable to derivatives clearing organizations (“DCOs”) which are set forth in Part 39 of the Commission’s regulations.  The Commission last amended these requirements in January 2020[1] and is revisiting them today in order to address certain issues identified by the industry and through the Commission’s experience with DCO compliance with the amended reporting and information requirements.  The proposed amendments either codify existing staff no-action letters^[2] and Commission practices[3] or provide further changes to or clarification of certain Part 39 regulations in order to ensure that DCOs understand their reporting obligations and the Commission receives the information it needs to perform its supervisory responsibilities.  Specifically, the proposed amendments would, among other things, update information requirements associated with commingling customer funds and positions in futures and swaps in the same account, address certain systems-related reporting obligations in Regulation 39.18(g) regarding exceptional events, revise certain daily and event-specific reporting requirements in Regulation 39.19(c), and codify, in an appendix, the reporting fields that a DCO is required to provide on a daily basis under existing Regulation 39.19(c)(1).  In addition, the Commission is proposing to amend the delegation provision in Regulation 140.94(c) to provide the Director of the Division of Clearing and Risk with delegated authority to request the information required by Regulation 39.19, any additional information that the Commission determines to be necessary to conduct oversight of the DCO, and to specify the format and manner in which the information required by the regulation is submitted to the Commission.

I fully support the proposed rulemaking as it provides greater transparency, clarity and certainty to our DCOs and market participants regarding our reporting requirements and streamlines how the Commission receives the information necessary to supervise our DCOs.  I believe it is prudent for the Commission to update or revise its regulations based on its experience and in response to certain industry and DCO concerns regarding compliance.  Periodic stock takes and updates of our regulations based on our experiences and ongoing compliance concerns mitigate unintended consequences and ensure that our regulations are operating as intended.  In addition, I would like to encourage continued dialogue between the Commission and market participants regarding elements of our regulations that may be impractical or simply do not work.  As I understand it, the proposed amendment removing the requirement that a DCO report daily variation margin and cash flow information by individual customer account was borne out of discussions with the industry and certain DCOs.  Such engagement assists us in refining our regulations.  I also support changes to the delegation provision as it streamlines how the Commission’s Division of Clearing and Risk receives information the Commission needs to conduct oversight of DCOs in a timely manner.

I look forward to the public’s submission of comments and feedback on this notice of proposed rulemaking.  Many thanks to the staff of the Division of Clearing and Risk for all of their hard work and effort in bringing this proposal to fruition.

Notice of Proposed Order and Request for Comment on the Application for Capital Comparability Determination submitted on behalf of Nonbank Swap Dealers Subject to Regulation by the Mexican Comision Nacional Bancaria y de Valores

Today the Commission will consider a proposed order and request for comment on an application for a capital comparability determination submitted on behalf of three nonbank[4] swap dealers that are domiciled in Mexico and subject to regulation by the Mexican Banking and Securities Commission.  These nonbank swap dealers are Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V.; Goldman Sachs Mexico, Casa de Bolsa, S.A. de C.V.; and Casa de Bolsa Finamex, S.A. de C.V. (Mexican nonbank swap dealers).  Today’s preliminary capital comparability determination for Mexican nonbank swap dealers is the second proposed order and request for comment[5] to come before the Commission since it adopted its substituted compliance framework for non-U.S. domiciled nonbank swap dealers in July 2020.[6]

I support the Commission’s proposed order and request for comment on its preliminary determination that the Mexican nonbank swap dealers organized and domiciled in Mexico are subject to, and comply with, capital and financial reporting requirements in Mexico that are comparable to certain capital and financial reporting requirements under the Commodity Exchange Act and the Commission’s regulations (Capital Comparability Determination), subject to certain conditions set forth in the proposed order.

As CFTC provisionally-registered swap dealers operate and manage risk globally, the Commission’s supervisory framework must acknowledge the realities of multi-jurisdictional operations.  The Commission’s approach to the proposed determination focuses on whether the Mexico Banking and Securities Commission’s capital and financial reporting requirements achieve comparable outcomes to the corresponding CFTC requirements for nonbank swap dealers.[7]  Specifically, the Commission has also considered the scope and objectives of Mexico Banking and Securities Commission’s capital adequacy and financial reporting requirements; the ability of the Mexico Banking and Securities Commission to supervise and enforce compliance with its capital and financial reporting requirements; and other facts or circumstances the Commission has deemed relevant for this application.

Throughout its analysis, the Commission has recognized that jurisdictions may adopt unique approaches to achieving comparable outcomes, and the Commission has focused on how the Mexican Banking and Securities Commission’s capital and financial reporting requirements are comparable to its own in purpose and effect, rather than whether each are comparable in every particular aspect or contain identical elements.  In this regard, the approach was not a line-by-line assessment or comparison of the Mexican Banking and Securities Commission’s regulatory requirements with the Commission’s requirements.[8]

Consistent with the Commission’s authority to issue a Capital Comparability Determination with terms and conditions it deems appropriate, today’s proposed order contains 21 conditions.  These conditions aim to ensure that the proposed order, if finalized, would only apply to Mexican nonbank swap dealers that are eligible for substituted compliance and that these Mexican nonbank swap dealers comply with the Mexican Banking and Securities Commission’s capital and financial reporting requirements as well as certain additional capital, margin, position, financial reporting, recordkeeping, and regulatory notice requirements.

If the Commission, upon consideration of the comments received, determines to issue a favorable comparability determination, an eligible Mexican nonbank swap dealer would be required to file a notice of its intent to comply with the Mexican Banking and Securities Commission’s capital adequacy and financial reporting rules in lieu of the Commission’s requirements.[9]  The Commission (or the Market Participants Division through delegated authority) would then be obligated to confirm to the Mexican nonbank swap dealer that it may comply with the foreign jurisdiction’s rules as well as any conditions that would be adopted as part of the final determination, and that, by doing so, it would be deemed to be in compliance with the Commission’s corresponding capital adequacy and financial reporting requirements.

I believe it is important to note that today’s proposed Capital Comparability Determination, if finalized, would not compromise the Commission’s capital and financial reporting requirements.  Instead, it recognizes the global nature of the swap markets with dually-registered swap dealers that operate in multiple jurisdictions that mandate prudent capital and financial reporting requirements.  As I have said before, a capital and financial reporting comparability determination order of this kind is not a compromise or deference to a foreign regulatory authority.  The Commission would retain its enforcement authority and examinations authority as well as obtain all financial and event specific reporting to maintain direct oversight of nonbank swap dealers located in Mexico.

I look forward to the public’s submission of comments and feedback on this proposed determination and order.

Thank you to the hardworking staff in the Market Participants Division for all of their efforts to bring us here today, as well as the support of our colleagues in the Office of the General Counsel and the Office of International Affairs.