Welcome to the first 2016 meeting of the Market Risk Advisory Committee (MRAC). I am excited to sponsor this committee, which is composed of a broad cross-section of market participants. I would like to first thank the Chairman and Commissioner Giancarlo for being here today, and their support for the work of this committee. I would also like to extend a thank you to our MRAC members for bringing your passion and expertise to these important issues. Thank you as well to the staff of the Division of Market Oversight and Office of the Chief Economist for providing the technical support for this meeting. And last but not least, thank you to the logistical staff, who worked behind the scenes to put everything together.
One of the goals of MRAC, as noted in our charter, is to “assist the Commission in identifying and understanding the impact and implications of an evolving market structure.” This is a very important role for this Committee. Our markets have undergone a transformational change in how they function today. So, it is extremely helpful to hear about the changing structure of our markets from a cross-section of market participants.
To that end, our first session focuses on how well our derivative markets are functioning. We will hear directly from the end-users and other industry representatives about, among other things, their ability to access liquidity, effectively hedge and allow for accurate price discovery. There are a number of questions that are specifically on my mind:
First, as a Commission, we recently permanently registered 18 swap execution facilities (SEFs). How are market participants using these SEFs? What are the positives and negatives of SEF use? How can we improve the way SEFs function?
Second, the role of the introducing broker (IBs) appears to be undergoing major changes in our markets. How are IBs being used today? Do our rules, which were made for the IBs of the past, fit the IBs of today?
Third, how have changes in technology altered the ways in which market participants access the various markets? Have these changes introduced new risks, and, if so, how can our rules better identify those risks and regulate appropriately?
And last, there has been a great deal of discussion recently about the level of volatility and liquidity in our markets. What are market participants experiencing in regard to volatility and liquidity
I am particularly glad that this discussion is broken up by product class so that we can get a more complete, nuanced picture of the different markets we regulate. And I am specifically interested in learning more about how effectively our end-users in agriculture, energy, and other commodities are able to find counterparties for their vital hedging functions.
Our second session is also extremely important. Based on the data we have collected, portfolio compression is widespread in our markets. It is imperative that we learn as much as we can about a practice that plays such a significant role in our markets today.
I look forward to both of these panels and a constructive discussion. I will now turn it over to Ms. Walker who will introduce our first facilitator and panel.