Statement of CFTC Chairman Heath P. Tarbert in Support of Extending Relief for Initial Margin Requirements for Uncleared Swaps

March 18, 2020

Last night, the Commission voted unanimously to finalize a one-year extension of the initial margin compliance deadline for market participants with the smallest uncleared swaps portfolios.

Overview

I am committed to ensuring that initial margin remains a core risk-mitigating component of the global uncleared swaps market.  As of now, the CFTC’s initial margin requirements apply to the biggest 40 swap dealers, thereby covering approximately 97 percent of the U.S. portion of this global market.[1]

In tackling the remaining 3 percent of the U.S. market, phase five of our initial margin requirements would have expanded the number of in-scope entities from 40 to over 700 and required documenting and operationalizing nearly 7,000 initial margin relationships.[2]  Recognizing the operational complexity of this undertaking, the CFTC along with other regulators here in America and around the world proposed adding a sixth compliance phase, extending the compliance deadline by one year for entities with the smallest uncleared swaps portfolios.  There is universal agreement that this extension will mitigate rather than exacerbate risk.

This vote marks the ninth final rule passed by the Commission since I took office last July.  This rapid pace of progress would not be possible without the dedication of my staff, my fellow Commissioners and their staffs, and the agency staff as a whole.

But this is more than another feather in the cap of the Commission.  Approval of this rule is also one of nearly a dozen concrete actions the CFTC and its staff will have taken by week’s end to address the spread of the coronavirus and its effect on financial markets.

Integration with the CFTC’s Coronavirus Response

I recently laid out five key objectives for the CFTC to address this crisis:[3]

1. monitoring derivatives markets and their participants;
2. using our regulatory framework to promote orderly and liquid markets;
3. responding swiftly to changing conditions with practical, targeted relief;
4. communicating consistently and transparently with all stakeholders; and
5. maintaining our commitment to advancing strategic policy goals.

Providing extended relief for initial margin requirements for uncleared swaps clearly fits within the third objective—responding swiftly to changing conditions with practical, targeted relief.  Just as market participants must be committed to following the rules, the CFTC is committed to providing targeted relief where necessary during this historic period of market volatility and uncertainty.

Indeed, this rule gives many buy-side market participants needed time to put required custodial arrangements and documentation in place, which is becoming even more challenging now that many firms’ resources have been appropriately redirected to coronavirus response efforts.

We continue actively encouraging registrants to maintain an open dialogue with us to identify relief or other assistance needed to help ensure the industry can support orderly and liquid markets in the face of the coronavirus.

Importance of the U.S. Derivatives Markets

The real economy—and the everyday Americans who are part of it—depend on our derivatives markets to hedge their risks.  For example, American farmers beginning to plant their spring crops must be confident they can rely on orderly and liquid markets to hedge price risk.  Energy producers must be able to manage the risks of geopolitical developments affecting global supply and demand.  It is especially important in times of immense volatility that our markets operate as intended.

The principles and rules underlying the CFTC’s regulatory regime were developed to promote resilience in stressed market conditions such as those we are currently experiencing.  These principles and rules work, but only if market participants comply with them.  And we will continue to work with stakeholders to adapt these tried and true principles, as needed, to changing conditions.  Simply put, we stand ready to promote the continued resilience of the U.S. derivatives markets on which our nation and much of the world depends.

Conclusion

We face difficult and uncertain times. But I believe the CFTC, and the financial community more broadly, are equal to the challenge.  No matter what the world throws at us, the CFTC will continue to focus on its unique and important mission.  We have a tremendously dedicated staff who are rising to this moment.  The CFTC welcomes further engagement with stakeholders on any assistance the Commission can provide as we weather these challenging times together.
 

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