Statement of CFTC Chairman Heath P. Tarbert Regarding COVID-19 Before the FSOC Principals Meeting

March 26, 2020

Thank you, Secretary Mnuchin.  I want to commend you for your outstanding leadership in working with the President and Congress to develop a comprehensive response to the impact of the COVID-19 (coronavirus) pandemic on our nation’s economy.  I also very much appreciate your convening this public meeting on the measures FSOC members are taking to safeguard the U.S. financial system during this unprecedented period of market volatility. 

In turbulent and uncertain times like this, it is important that market participants, as well as the general public, know we are on the job.  But it is critical that they also have a sense of what we are doing.  In that regard, I welcome this opportunity to highlight some of the steps the CFTC is taking in light of the coronavirus pandemic.  We have a tremendously dedicated staff who are rising to this moment.

First, we are actively monitoring derivatives markets and their participants.  We are in frequent contact with trading venues, and are checking regularly on the financial resources and operational status of key market participants and intermediaries.  But we are especially focused on the critical “pipes” at the clearinghouses through which trades are margined and settled.  I am pleased to report that market infrastructures continue to operate seamlessly.  Clearinghouses have issued—and brokers and dealers have met—margin calls occurring multiple times each day.  The value of investments may have dropped significantly, but the markets have not frozen as some did in 2008.

Second, we are using our regulatory framework to promote orderly and liquid markets.  The rules and principles underlying our framework were developed to promote resilience in both normal and stressed market conditions, and they are doing just that.   We stand ready to adapt these tried and true principles, as needed, to changing conditions.

Third, we are responding swiftly to changing conditions by granting practical, targeted relief.  Social distancing has created novel hurdles to complying with regulatory requirements that were written with traditional, centralized offices in mind.  For instance, teleworking traders may not have access to recorded phone lines, which the CFTC otherwise requires when brokers take customer orders by phone.  Last week, we issued nine no-action letters that provide temporary relief from those kinds of recordkeeping and operational requirements.  In addition, we extended temporary margin relief for market participants with the smallest uncleared swaps portfolios.  We continue to encourage registrants to identify relief or other assistance that may be needed to help ensure the industry can support orderly and liquid markets in the face of the coronavirus.

Fourth, we are maintaining clear and frequent communications with all relevant stakeholders, including Congress and our fellow financial regulators here in America and overseas.  The FSOC and the President’s Working Group on Financial Markets are serving as essential channels for information sharing and coordinated action.  The almost daily conversations that are happening between and among many of the agencies, both at a principal level and between and among staff, are vitally important at this time. 

Fifth, I want to emphasize that, while responding to coronavirus-related market disruptions, we may need to change the way our agency does business in the near term.  But we will not alter the substance of that business.  The important policy work of the CFTC will go on. 

Let me share one more observation in closing.  The coronavirus pandemic has led to one of the most volatile periods the derivatives markets have ever experienced.  The number of futures, options, and swaps contracts and trades has surged to an all-time high.  Yet far from amplifying risk throughout our financial system, our derivatives markets so far have acted as shock absorbers for this historic volatility.  Unlike during the 2008 financial crisis, derivatives have internalized the impact of market swings.

There is no question these are unsettling times.  But I am reminded of the words of President Truman: “America was not built on fear.  America was built on courage, on imagination and an unbeatable determination to do the job at hand.”  The CFTC, and the FSOC as a collective, are indeed determined to confront this challenge head on.

Thank you again, Secretary Mnuchin.

-CFTC-