Wetjen pushes for new clearinghouse rules

Zachary Warmbrodt | POLITICO Pro

CFTC Commissioner Mark Wetjen today called on the agency to consider new requirements to help better manage risks at clearinghouses that regulators have required to stand in the middle of more derivatives trades since the financial crisis.

Wetjen outlined the proposals in a speech for a Futures Industry Association conference in Singapore.

Wetjen is suggesting new requirements as banks and asset managers push for greater clearinghouse “skin in the game” and transparency.

Wetjen said the CFTC should consider whether to require clearinghouses to contribute capital to cover failing clearing members and whether regulators should specify when clearinghouse capital should be tapped versus the funds of clearing members.

"In the extraordinary event that default losses are so great that a CCP exhausts the defaulter’s collateral, non-defaulting clearing members should never be surprised by how and when their guaranty fund contributions are used,” he said.

Wetjen said more standardized stress tests of clearinghouses would improve coordination among regulators and would provide a clearer picture for firms that work with multiple clearinghouses.

In addition, Wetjen said the CFTC should consider whether customer collateral provided by non-defaulting members should be part of clearinghouse recovery plans. He cited risks to pensioners and endowment beneficiaries.

Wetjen plans to call a meeting of the CFTC’s Global Markets Advisory Committee meeting this winter to produce recommendations.

Read the full article in POLITICO Pro here.