Objective 2.1
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Objective 2.1
| Clearing organizations and firms participating in the derivatives industry are financially sound. |
In ensuring the financial integrity of transactions and the mitigation of systemic risk, the Commission’s main priorities are to avoid disruptions to the system for clearing and settling contract obligations and to protect the funds that customers entrust to FCMs. Clearing organizations and FCMs are integral to the operation of a sound clearing and settlement system as their financial well being mitigates the systemic risk posed by the financial difficulties of one market participant. The Commission will have to expand its program to assess the way these entities, and new entrants into the regulatory environment, mitigate these risks.
Strategy 2.1.1 Monitor, review, and assess DCOs’ compliance with core principles.
To ensure the sound financial condition of DCOs, the Commission oversees DCOs’ compliance with core principles. The Commission processes requests for orders addressing the regulatory treatment of certain cleared products. The Commission is required to examine systemically important DCOs at least yearly, and intends to examine all DCOs on an annual basis.
Performance Measure 2.1.1.1 Review systemically important DCOs annually.
Percentage of systemically important DCOs reviewed.
| FY 2011 |
75% |
| FY 2012 |
100% |
| FY 2013 |
100% |
| FY 2014 |
100% |
| FY 2015 |
100% |
Performance Measure 2.1.1.2 On a risk-based
basis, review all other DCOs annually to assess
compliance with DCO core principles and Commission requirements.
| FY 2011 |
100% |
| FY 2012 |
100% |
| FY 2013 |
100% |
| FY 2014 |
100% |
| FY 2015 |
100% |
Performance Measure 2.1.1.3 Percent of requests for Commission orders that are
completed following review under the applicable provisions of the CEA.
| FY 2011 |
90% |
| FY 2012 |
92% |
| FY 2013 |
94% |
| FY 2014 |
96% |
| FY 2015 |
98% |
Strategy 2.1.2 Review and assess DCMs’ applications for compliance with the financial integrity provisions of the CEA.
Under the core principles, DCMs must establish and enforce rules to ensure the financial integrity of contracts traded, including the clearance and settlement of the transactions with a DCO or SEF, and rules to ensure the financial integrity of FCMs and the protection of customer funds. Commission staff review DCM applications to determine whether they demonstrate compliance with the requirements of the core principles, and also review DCMs with respect to enforcement of their rules regarding financial integrity of FCMs and protection of customer funds.
Performance Measure 2.1.2.1 Applications are reviewed and a determination made
regarding compliance with financial integrity provisions of the CEA within statutory time frames.
Percent in compliance with financial integrity provisions.
| FY 2011 |
100% |
| FY 2012 |
100% |
| FY 2013 |
100% |
| FY 2014 |
100% |
| FY 2015 |
100% |
Strategy 2.1.3 Review and analyze monthly and annual filings and conduct risk-based direct examination of FCMs’ and RFEDs’ compliance with financial requirements.
Capital and segregation requirements protect markets from systemic risk and protect FCM customers against risks posed by other customers and the FCMs themselves. Commission staff closely monitor exceptions in financial filings and required notices regarding noncompliance with financial and segregation requirements and address them promptly. Commission staff conduct examinations of the FCMs that present the most concern regarding possible financial risk, within available resources. With the implementation of financial and other requirements for RFEDs in 2010, the Commission will monitor financial filings from RFEDs as well. As the provisions of the Dodd-Frank Act are implemented, changes regarding the computation and application of capital and segregation requirements will occur, and thus require additional resources to be devoted to this activity.
Performance Measure 2.1.3.1 All material exceptions in monthly and annual financial filings by FCMs and RFEDs and notices of noncompliance with respect to minimum capital and segregation are reviewed and assessed within one business day. Percent completed within one business day.
| FY 2011 |
100% |
| FY 2012 |
100% |
| FY 2013 |
100% |
| FY 2014 |
100% |
| FY 2015 |
100% |
Performance Measure 2.1.3.2 On a risk-based basis, conduct direct examinations of FCMs and RFEDs, identify deficiencies, and confirm that all deficiencies identified are corrected within the specified period of time. Percent corrected within specified time period.
| FY 2011 |
90% |
| FY 2012 |
92% |
| FY 2013 |
94% |
| FY 2014 |
96% |
| FY 2015 |
98% |
Strategy 2.1.4 Review swaps submitted to the Commission for a determination regarding whether such swaps are required to be cleared.
The Dodd-Frank Act requires the Commission to adopt rules for the review of swaps to make a determination as to whether the swaps should be required to be cleared. In addition, the Dodd-Frank Act directs the Commission to prescribe criteria, conditions, or rules under which the Commission will determine the initial eligibility or the continuing qualification of a DCO to clear swaps.
Performance Measure 2.1.4.1 Reviews of swaps
submitted to the Commission are completed
within statutory and regulatory deadlines.
| FY 2011 |
100% |
| FY 2012 |
100% |
| FY 2013 |
100% |
| FY 2014 |
100% |
| FY 2015 |
100% |
Strategy 2.1.5 Review new rules and rule amendments submitted by DCOs.
DCOs are required to submit new rules and rule amendments to the Commission. Under the Dodd-Frank Act, a new rule or rule amendment will become effective 10 business days after the certified rule or rule amendment is received by the Commission. If the Commission determines that the new rule or rule amendment presents novel or complex issues, is certified with an inadequate explanation, or is potentially inconsistent with the CEA or the Commission’s regulations, the Commission may stay the review for 90 days and must provide a 30-day public comment period within the 90-day review period.
Performance Measure 2.1.5.1 Reviews of DCO rules submitted to the Commission are completed within statutory and regulatory deadlines.
| FY 2011 |
100% |
| FY 2012 |
100% |
| FY 2013 |
100% |
| FY 2014 |
100% |
| FY 2015 |
100% |
Strategy 2.1.6 Review and analyze financial risks on large trader and clearing member positions and determine whether they are being appropriately managed by traders, firms, and DCOs.
The Commission uses stress testing of large trader and clearing member positions to determine whether a firm would pose systemic risk in the event of a major market move and, thereby, necessitate action to mitigate such risk. On a risk-based basis, staff meet with large traders and FCMs to discuss in more detail the risks of their positions, the resources available to cover them, and the risk-mitigating steps taken by the traders or FCMs. These activities will be expanded to encompass the newly regulated instruments and entities, and to determine the appropriate risk analysis techniques to address changes in the marketplace precipitated by the Dodd-Frank Act.
Performance Measure 2.1.6.1 Perform risk analysis and stress testing on large trader and clearing member positions to ascertain those with significant risk and confirm that such risks are being appropriately managed. Number of positions analyzed.
| FY 2011 |
500,000 |
| FY 2012 |
550,000 |
| FY 2013 |
600,000 |
| FY 2014 |
650,000 |
| FY 2015 |
700,000 |
Performance Measure 2.1.6.2 On a risk-based basis, meet with large traders, FCMs, swap dealers, and other industry participants to discuss risk management issues. Number of entities met with and risk issues reviewed.
| FY 2011 |
110 |
| FY 2012 |
122 |
| FY 2013 |
132 |
| FY 2014 |
143 |
| FY 2015 |
154 |
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