Commodity Futures Trading Commission 

 Office of Public Affairs 

 Three Lafayette Centre 

 1155 21st Street, NW 

 Washington, DC 20581 

 www.cftc.gov

Proposed Rule on Financial Resources Requirements for DCOs and SIDCOs 

The Commodity Futures Trading Commission is proposing financial resources requirements for derivatives 

clearing organizations (DCOs) and systemically important DCOs (SIDCOs).

Commodity Exchange Act (CEA) 

Commodity Exchange Act, Section 5b(c)(2): Sets forth core principles with which a DCO must comply to be 

registered and to maintain registration as a DCO. 

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 

Section 725(c) of the Dodd-Frank Act amends Section 5b(c)(2) of the CEA by revising certain core principles and adding 

new ones. The Dodd-Frank Act also allows the Commission to adopt implementing rules and regulations for the core 

principles pursuant to its rulemaking authority under Section 8a(5) of the CEA.

Section 805(a) of the Dodd-Frank Act allows the Commission to prescribe regulations for those DCOs that the Financial 

Stability Oversight Council has determined are systemically important. 

Core Principle B 

Core Principle B, as amended by the Dodd-Frank Act, requires a DCO to possess financial resources that, at a minimum, 

exceed the total amount that would enable the DCO to meet its financial obligations to its clearing members notwithstanding 

a default by the clearing member creating the largest financial exposure for the DCO in extreme but plausible market 

conditions; and enable the DCO to cover its operating costs for a period of 1 year, as calculated on a rolling basis. 

Default resources 

The proposed rule would require a DCO to maintain sufficient financial resources to meet its financial obligations to its 

clearing members notwithstanding a default by the clearing member creating the largest financial exposure for the DCO in 

extreme but plausible market conditions. For purposes of determining the largest financial exposure, the exposures of 

affiliated clearing members would be combined and treated as those of a single clearing member. 

 

Because the failure of a SIDCO to meet its obligations would have a greater impact on the financial system than the failure of 

other DCOs, the proposed rule would require a DCO that is also a SIDCO to maintain sufficient financial resources to meet 

its financial obligations to its clearing members notwithstanding a default by the clearing members creating the two largest 

financial exposures for the SIDCO in extreme but plausible market conditions. 

Financial resources that a DCO would be permitted to use to meet the requirement include: (1) margin of a 

defaulting clearing member; (2) the DCO’s own capital; (3) guaranty fund deposits; (4) default insurance; and (5) potential 

assessments for additional guaranty fund contributions. 

At appropriate intervals, but not less than quarterly, a DCO would have to compute the current market value of each financial 

resource. Haircuts would have to be applied as appropriate and evaluated on a quarterly basis. 

The value of assessments would be subject to a 30 percent haircut, and a DCO would only be permitted to count the value of 

assessments, after the haircut, to meet up to 20 percent of the requirement. A DCO that is also a SIDCO would not be able 

Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

to count the value of assessments to meet the obligations arising from a default by the clearing member creating the single 

largest financial exposure; it could however count the value of assessments, after the 30 percent haircut, to meet up to 20 

percent of the obligations arising from a default by the clearing member creating the second largest financial exposure. 

The financial resources allocated to meet the requirement would have to be sufficiently liquid to enable a DCO to fulfill its 

obligations during the settlement cycle. A DCO would be allowed to take into account a committed line of credit or similar 

facility for the purpose of meeting the liquidity requirement. A DCO also would be required to have sufficient cash to meet 

the average daily settlement variation pay per clearing member over the last fiscal quarter. 

A DCO would be required, on a quarterly basis, to perform stress testing that would allow it to make a reasonable calculation 

of the financial resources needed to meet the requirement.

Operating resources 

The proposed rule would also require a DCO to maintain sufficient financial resources to cover its operating costs for at 

least one year, calculated on a rolling basis. Financial resources that a DCO would be permitted to use to meet the 

requirement include the DCO’s own capital and any other financial resource deemed acceptable by the Commission. 

At appropriate intervals, but not less than quarterly, a DCO would have to compute the current market value of each financial 

resource. Haircuts would have to be applied as appropriate and evaluated on a quarterly basis. 

The financial resources allocated to cover operating expenses for one year would have to include unencumbered, liquid 

financial assets (i.e., cash and/or highly liquid securities) equal to at least six months’ operating costs. A DCO would be 

allowed to take into account a committed line of credit or similar facility for the purpose of meeting the liquidity requirement. 

A DCO would be required, on a quarterly basis, to make a reasonable calculation of its projected operating costs over a 1-year 

period. 

Reporting 

Each fiscal quarter, or at any time upon Commission request, a DCO would be required to report to the Commission: 

• The amount of financial resources necessary to meet the regulatory requirements; 

• The value of each financial resource available; 

• For guaranty fund deposits, the value of each individual clearing member’s guaranty fund deposit; and 

• A written explanation of the methodology used to compute its financial requirements. 

A DCO also would have to provide the Commission with a financial statement, including the balance sheet, income statement, 

and statement of cash flows, of the DCO or its parent company