Thank you Commissioner Stump for convening today’s meeting of the Global Markets Advisory Committee (GMAC).  I am looking forward to hearing presentations from Suyash Paliwal, the Director of the CFTC’s Office of International Affairs, on recent international coordination efforts in the time of COVID-19, as well as from the GMAC Subcommittee on Margin Requirements for Non-Cleared Swaps regarding its report and recommendations on the implementation of initial margin requirements for uncleared swaps. I would like to thank all of the presenters and Committee and Subcommittee members for their participation and engagement. 

Implementation of Uncleared Margin Rules

We are now in the final implementation stages of the margin framework for uncleared swaps.  In 2019, one survey found that the 20 largest market participants, all phase-one firms, had collected approximately $173.2 billion of initial margin for their non-cleared derivatives transactions.[1] Collectively, market participants captured by phases 1-4 comprised approximately 89% of the total average aggregate notional amount of swaps across all phases, with the remaining phases of 5 and 6 comprising approximately 11% of notional amount, but representing approximately 94% of all entities brought into the uncleared margin regime.[2]  As we approach the compliance deadlines for phases 5 and 6, which will bring into scope a much larger and more diverse group of market participants, it is appropriate to reflect on how the uncleared margin regime can be improved to address some of the compliance challenges experienced in earlier stages. I am extremely interested to hear from the Subcommittee on Margin Requirements for Non-Cleared Swaps regarding their thoughts and recommendations.  In particular, I am looking forward to learning more about providing possible relief from initial margin calculations for small covered swap entities, providing compliance grace periods to allow firms time to establish the necessary custodian documentation after the initial margin threshold has been exceeded, and aligning the timing and methodology for the material swaps exposure calculation with the global Basel Committee on Banking Supervision (BCBS) and International Organization of Securities Commissions (IOSCO) framework.  

I would also like to take a moment to acknowledge the BCBS-IOSCO recent amendments to the recommended margin framework to push out, respectively, the phase 5 and phase 6 compliance dates by one year.[3]  In light of the unprecedented economic and social impacts of COVID-19, I would support a one year delay for the final compliance phases.  Given the large number of firms brought into scope during phases 5 and 6 and the estimated 7,000 initial margin relationships that need to be negotiated, and the small overall percentage of swap activity these firms represent, it is important to implement these final phases in the most productive, least burdensome way. Under these difficult circumstances, I think it is appropriate to provide firms with additional time to comply, ensuring that their already strained resources are not diverted from ongoing business continuity efforts. 

In closing, I would like to reiterate my thanks to all of today’s presenters and the GMAC membership for their participation, as well as to Commissioner Stump for organizing this meeting.