NIBA - Get to Know the Regulator

U.S. Commodity Futures Trading Commission 

Division of Clearing and Risk

Who is in charge of the Division of Clearing and Risk: 

DCR is run by a Director, who is assisted by the DCR Deputy Directors and Chief Counsel. Jeffrey Bandman is the Acting Director, and the Deputies and their respective branches are as follows: Eileen Donovan, Deputy Director of Clearing Policy; Sarah Josephson, Deputy Director of Product Review; John Lawton, Deputy Director of Risk Surveillance; and Julie Mohr, Deputy Director of Examinations. Robert Wasserman is the DCR Chief Counsel. 

How many employees are a part of DCR: 

DCR has 72 employees, who are located in the CFTC’s Washington, D.C. Headquarters and in the Chicago regional office. 

What is the general function of DCR: 

DCR oversees compliance with the provisions of the Commodity Exchange Act and Commission regulations pertaining to clearing, derivatives clearing organizations (DCOs), and related matters. For example, DCR monitors the clearing of futures, options on futures, and swaps by DCOs, assesses DCO compliance with Commission regulations, and conducts risk assessment and surveillance on market participants that may pose risk to the clearing process, including DCOs, futures commission merchants (FCMs), swap dealers (SDs), major swap participants, and large traders. DCR also makes recommendations on DCO applications and exemptions, rule submissions, and which types of swaps should be required to be cleared.

What are the goals of DCR: 

DCR seeks to protect market integrity and promote the overall safety and soundness of the financial system pertaining to clearing by, among other things, ensuring that DCOs are financially sound and meet standards for fitness and conduct as set forth in the Commodity Exchange Act and the Commission’s regulations.

How does DCR conduct examinations of its registrants: 

DCR staff examines systemically important DCOs at least once a year, and conducts periodic examinations of other DCOs. In addition, regular examinations of intermediaries are undertaken by the self-regulatory organizations (such as the National Futures Association (NFA) and Chicago Mercantile Exchange Inc. (CME)) to which the CFTC has delegated certain authority. 

Does DCR have full access to exchange trade data for purposes of market surveillance: 

DCR has full access to exchange trade data. Moreover, for purposes of assessing regulatory compliance and the financial risk that DCOs, their clearing members, or their customers may pose to the market, DCR conducts risk assessment and financial surveillance through the use of risk assessment tools. These include automated systems to gather and analyze financial information and to identify, quantify, and monitor the risks posed by DCOs, clearing members, and market participants as well as the financial impact of those risks, and to evaluate new DCO margin models and enhancements to existing margin models. In addition, DCR has a sophisticated risk surveillance program, which monitors risks that could impact the derivatives markets, such as market risk, liquidity risk, credit risk, and concentration risk. DCR staff assesses the potential risks posed by and to DCOs and clearing members by carefully reviewing and analyzing position data, financial resource data (including initial and variation margin data), and pricing data. Market surveillance, however, is primarily undertaken by the Commission’s Pision of Market Oversight. 

What is the internal process of DCR in the case it finds registrant activity which it deems an issue: 

DCR will typically investigate non-compliance or registrant risk issues by reviewing the available sources of information and through lengthy discussions with the registrants and with the appropriate self-regulatory organizations that have oversight responsibility over the registrants. DCR may also engage in discussions with other regulators, such as the U.S. Securities and Exchange Commission, if there is overlapping jurisdiction. In addition, DCR may refer the matter to the Commission’s Pision of Enforcement for further review. 

How closely does DCR work with other CFTC divisions: 

DCR works very closely with the other CFTC pisions and offices, on a daily basis, by exchanging expert assistance and advice on those areas for which DCR and the other pisions and offices are responsible. 

What market participants does DCR oversee: 

DCR oversees DCOs, market participants involved in the clearing process, such as FCMs, and other market participants that may pose risk to the clearing process, such as swap dealers, major swap participants, and large traders. 

Does DCR have contact with the general investing public: 

Yes, it does. DCR occasionally receives and responds to queries from customers, via telephonic, electronic, and formal written means regarding DCOs and other market participants and their activities. 

How does DCR work with NFA, if at all: 

DCR works with NFA as part of its customer protection and risk surveillance activities. 

Does DCR work in conjunction with any other DSROs: 

DCR works with CME in its capacity as a DSRO to help monitor the activities of, and risks facing, DCOs. 

Does DCR make direct contact with futures commission merchants (FCMs), introducing brokers (IBs), brokers or traders and if so is there a typical reason: 

DCR frequently works with FCMs and with large traders as part of its risk surveillance program. 

Generally, what does DCR see as a recurring issue within the markets: 

DCR observes potential trader losses that are: 

• Large relative to the market 
• Large relative to the trader’s initial margin requirement 
• Large relative to the capital of the FCM clearing the position 
• Large relative to the DCO’s financial resources and 
• Large across multiple DCOs