Statement of Chairman Timothy Massad before the CFTC’s Market Risk Advisory Committee

April 26, 2016

Thank you very much. I would like to thank Commissioner Bowen, her staff and all of the distinguished members of the Market Risk Advisory Committee for all the work that has gone into today’s meeting and its agenda. And I’d like to welcome all of you in the audience or who are joining us today on the conference line. I am pleased to be here with Commissioner Giancarlo.

These advisory committee meetings are immensely valuable for us. They’re valuable not just for your input – but to have a discussion; an exchange of ideas. We at the CFTC appreciate your participation, and we are looking forward to a very productive meeting.

The topics we will consider today are extremely important. Our first panel will discuss how the derivatives markets are functioning for market participants, and in particular, the commercial end-users who use them every day to hedge commercial risk.

That’s a big question to cover in less than two hours, particularly given that the markets are different for different products. One of the things we will discuss is liquidity. This is an issue that has received a lot of attention lately, including whether post-financial crisis reforms have hurt liquidity. I believe we must always be willing to look at such issues, and be willing to make adjustments if necessary. I’ve noted, for example, my concern about the potential effects of the leverage ratio on clearing. But we must recognize that there are many forces beyond regulation that shape liquidity and market structure, and we must make sure any analysis is grounded in facts, not just suppositions.

I am also pleased that the panel will focus in particular on commercial end-users. As Commissioners, all three of us have sought to be attentive to the concerns of commercial end-users. Since we all took office in June of 2014, the CFTC has taken a number of actions to ensure those businesses can use the markets effectively and efficiently.

We also have taken steps to improve trading and access to the markets generally, including with respect to swap execution facilities (SEFs).

To this end, we recently permanently registered 18 SEFs and have fine-tuned some of our trading rules. I will ask the Commission to consider a codification of those adjustments, and potentially other changes to enhance SEF trading and participation. We have also issued proposals on cybersecurity and automated trading, which go to broader issues of market function. And we are working on finalizing rules on position limits.

I look forward to continuing to work with market participants to ensure transparency, fairness and integrity in trading.

Second, we will explore issues related to the use of portfolio compression. This is an important tool to manage risk. But as with the word “liquidity,” people can use the term to mean very different things. These can range from strategies that simply reduce notional amount to those that change the risk profile and may even increase notional amount.

I look forward to hearing more about the types of portfolio compression strategies being used, and the implications of those different strategies.

So again, thank you all for coming, thanks to my fellow Commissioners, CFTC staff, and thank you in advance for what I’m sure is going to be a constructive exchange of ideas.

Last Updated: April 26, 2016