Statement Of CFTC Chairman Timothy Massad On CFTC Staff Guidance Regarding Clearinghouse Recovery Plans And Wind-Down Plans

Clearinghouses have taken on an increased importance in the global financial system, and the CFTC is focused on making sure they remain strong and resilient. Today’s staff guidance, which will help clearinghouses improve their Recovery Plans and Wind-down Plans, is a critical part of that effort.

CFTC regulations require clearinghouses, or derivatives clearing organizations (DCOs), of systemic importance to maintain viable Recovery Plans and Wind-down Plans. Recovery Plans are designed to help keep a clearinghouse operating continuously in the face of significant credit losses, liquidity shortfalls, or other conditions that may pose a threat to its viability. If recovery is not possible and resolution is not triggered, a Wind-down Plan would guide the process of terminating, selling, or transferring a clearinghouse’s services. Our staff has been working with clearinghouses on the development of these plans, as well as the related rule changes that would be necessary to implement them. The guidance discusses key issues that should be addressed and considerations that should be taken into account in the development of these plans and rules.

Recovery and wind-down planning is also a critical input to the process of resolution planning. Resolution would only occur if the failure of an institution could not proceed under applicable state or federal law without causing serious adverse effects on financial stability in the United States, and in that event only if triggered in accordance with the law. Commission staff also has been actively engaged in assisting staff of the Federal Deposit Insurance Corporation (FDIC) in such planning. The FDIC would be the resolution authority for a systemically important clearinghouse, should it ever be necessary.

Because the business of large clearinghouses transcends national boundaries, the CFTC is also actively working with foreign regulators on these issues. The Commission is co-chairing an effort by international regulators to examine clearinghouse resilience and recovery planning. In addition, we are participating actively in efforts led by the Financial Stability Board on resolution planning and on examining the interdependencies among clearinghouses and their members. Important updates on those efforts will be published in the near future.

Finally, while it is essential that we engage in recovery and resolution planning, our goal is never to get to a situation where either of those is necessary. And that is why daily risk management and monitoring is so important. Those activities, which are carried out by the clearinghouses, the clearing members and ourselves as market regulators, are essential. No recovery plan—and no set of rules that kick in when there is a problem—can take the place of these everyday activities.

In addition to providing guidance to clearinghouses, CFTC staff is publishing this to inform clearing members, clients, and the broader public of the work going on in this important area. We have also held a staff roundtable and public advisory committee meetings to discuss these issues. And we will continue to engage with domestic and international regulators, clearinghouses, clearing members, end-users, and the public broadly regarding these critical issues.

As always, I thank the dedicated CFTC staff for their hard work on this matter, and I thank my fellow Commissioners for their support and constructive input.

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