COMMODITY FUTURES TRADING COMMISSION

MINUTES OF THE TUESDAY, MAY 19, 2020

GLOBAL MARKETS ADVISORY COMMITTEE MEETING

The Global Markets Advisory Committee (“GMAC”) convened for a public meeting, via

teleconference, on Tuesday, May 19, 2020, at 10:03 a.m. The meeting agenda consisted oftwo

panels. Panel I consisted of a presentation on International Coordination in the Time ofCOVID19. Panel II consisted of a presentation ofthe Report and Recommendations from the GMAC

Subcommittee on Margin Requirements for Non-Cleared Swaps (“Subcommittee”).

GMAC Members in Attendance

Angie Kama, Managing Director, Legal Department and Head ofLegal for Global Markets, 

Americas, Nomura Securities International, Inc., GMAC Chair 

Chris Allen, General Counsel, Clients and Products, Standard Chartered Bank 

Edward (“Ted”) Backer, Global Head ofListed Derivatives Execution, Morgan Stanley 

Ashley Belich, Head ofGlobal OTC Derivatives & Dodd-Frank Advisory, RBC Capital 

Markets

Shawn Bernardo, ChiefExecutive Officer, TP ICAP SEE

Darcy Bradbury, Managing Director, D.E. Shaw & Co., LP

Maria Chiodi, Managing Director, Credit Suisse Securities (USA), LLC

Joe Cisewski, Consultant, Better Markets

Gerry Corcoran, Chairman ofthe Board and ChiefExecutive Officer, RJ. O’Brien and

Associates, LLC

Sunil Cutinho, President, CME Clearing

Paul Hamill, Global Head ofFixed Income, Currencies and Commodities, Citadel Securities

Amy Hong, Head ofMarket Structure Strategy, Goldman Sachs

John Horkan, Group ChiefOperating Officer and Head ofNorth America, LCH Group

Adam Kansler, President ofFinancial Services, IHS Markit

Robert Klein, Managing Director and General Counsel, Citigroup Global Markets

Agnes Koh, ChiefRisk Officer, Singapore Exchange Limited

Ben MacDonald, Global Head ofEnterprise Products & President ofBloomberg’s SEF and 

SDR, Bloomberg LP

Joe Nicosia, Global Platform Head ofCotton, Louis Dreyfus Co.

Murray Pozmanter, Managing Director & General Manager, Depository Trust & Clearing 

Corporation (DTCC)

Thomas Sexton, President and ChiefExecutive Officer, National Futures Association (NFA)

Jessica Sohl, Partner and President, HC Technologies, LLC

Thane Twiggs, ChiefCompliance Officer, Cargill Risk Management

Supuma VedBrat, Managing Director and Global Head ofTrading, BlackRock

Masahiro (“Masi”) Yamada, Managing Director & Head ofAmerica’s Cross Asset Structuring,

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Commissioner Stump welcomed the meeting attendees, and then emphasized that since 

CFTC-regulated markets are global in nature, it is critical to maintain cooperation with

international regulatory counterparts during the COVTD-19 pandemic as well as in less stressful 

periods. After thanking the GMAC members for their expertise, she provided an overview ofthe

meeting agenda, which included a report from Mr. Paliwal on the coordination among the

international regulatory committee regarding recent market events and a presentation and vote

regarding the Subcommittee report and recommendations. She commended the Subcommittee 

for producing the report within a compressed timeline, especially in light ofrecent market

events, and especially thanked the Subcommittee Chair and the CFTC staffwho engaged with

the Subcommittee during its preparation ofthe report and recommendations.

Next, Chairman Tarbert provided his opening remarks. He thanked the GMAC and 

Subcommittee for their work, noting their contributions are critical to the CFTC’s mission. He

remarked that he looked forward to the Subcommittee’s presentation, and noted that the Basel 

Committee on Banking Supervision (“BCBS”) and the International Organization of Securities 

Commissions (“IOSCO”) have supported extending the compliance deadline for Phases 5 and 6

ofthe margin requirements by a year in response to COVID-19. He also stated that margin rules

serve as a key systemic risk reducer, noting that firms eligible for this extension are those with

the smallest non-cleared swaps portfolios. He urged the Commission to follow the example of

their international regulatory counterparts. He also noted, more generally, his appreciation that a 

number ofthe Subcommittee’s recommendations suggested multiple alternative ways of

accomplishing the stated objective, which was helpful to the Commission in determining how to

address the issues identified in the report.

Commissioner Quintenz acknowledged that the compliance deadlines for Phases 5 and 6

will entail a much larger, more diverse group ofmarket participants. For example, while Phases 

5 and 6 comprise only 11% ofswaps notional amount, they represent about 94% of all entities 

brought into the uncleared margin regime. He noted that he was specifically interested in the

Subcommittee’s recommendations regarding relieffrom initial margin (“IM”) calculations as

applied to small covered swap entities (“CSEs”); a forbearance period to allow firms to establish

the necessary custodian documentation after the IM threshold has been exceeded; and alignment 

on timing and methodology for the material swaps exposure calculation with BCBS and IOSCO 

framework.

Commissioner Behnam commended the GMAC and Subcommittee for their good work

on the report, noting the importance ofsuch report in detailing the challenges facing market

participants, as well as the need forregulators to be flexible in allowing the markets to function 

smoothly. He noted while uncleared margin is a “critical foundational point ofthe [Dodd-Frank] 

reforms,” he would like to emphasize the importance ofproceeding with Phases 5 and 6 in an 

effective manner in order to reduce operational risks and allow market participants—^including

end users—open and free access to our markets.

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Lastly, Mr. Paliwal discussed recently-issued Commission no-action letters that provided

targeted, temporary relief aimed at easing the impact ofCOVID-19 on market participants.

Since social distancing has created compliance issues for rules originally intended for centralized 

offices, the no-action letters were crafted to accommodate the displacement ofregistrants’

personnel from their normal business sites. He also mentioned a no-action letter that addresses 

the net capital treatment ofloans obtained by futures commission merchants (“FCMs”) and

introducing brokers (“IBs”) through the Paycheck Protection Program administered under the

CARES Act.

Following Mr. Paliwal’s presentation, Ms. Kama opened the floor for questions. Ms.

Belich reiterated the need for coordinated efforts between domestic and international regulators, 

and expressed support for areas ofreliefthat the CFTC is considering in response to COVID-19.

There was no further discussion.

III. Presentation: Report and Recommendations from the GMAC Subcommittee on

Margin Requirements for Non-Cleared Swaps

Ms. Wendy Yun, Co-Chair (Derivatives Committee), SIFMA Asset Management Group,

gave an overview ofthe Subcommittee’s Report and Recommendations on Margin Requirements 

for Non-Cleared Swaps (“Report”). She noted that since there are still significant 

implementation challenges faced by counterparties subject to the final compliance phases ofthe

uncleared margin requirements, the Report’s proposed adjustments would render the new rules 

more user-friendly without compromising the CFTC’s regulatory mandate.

Specifically, Ms. Yun outlined the Report’s two-pronged approach, namely, the

“Immediate Term Recommendations,” and the “Later Term Recommendations.”

The Immediate Term Recommendations, suggested for adoption before the Phase 5

compliance date ofSeptember 1, 2021, included the following:

• Issuance ofinterpretive guidance to confirm that a CSE can continue to trade with a 

separately managed account (“SMA”) client in the case of an inadvertent breach ofthe

$50 million IM threshold if certain conditions are met;

• Removal of certain collateral eligibility restrictions regarding money market funds;

• Removal ofthe requirement that a seeded fund consolidate its swap exposure amounts 

with its sponsor during the seeding period;

• Adoption ofno-action reliefto small CSEs to allow them to rely on their counterparties 

for purposes of calculating regulatory IM;

• Adoption ofa one-time, up to six-month forbearance period for compliance with the

margin rules in order to reduce congestion.

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investors to get exposure to strategies with reduced fees, and to maintain a diversity ofportfolios

in a controlled manner. Ms. Yun added that while end-users will either trade with themselves or

operate through a limited use of asset managers, SMAs such as pension funds and other

institutional investors may hire multiple asset managers for diversification and will likely not be

involved in trading themselves. Thus, margin rules that require aggregation ofdata and

coordination among multiple parties may create additional compliance hurdles for SMAs that

might require additional time beyond the one-year extension period.

Ms. VedBrat then asked Ms. Yun to further explain the Subcommittee recommendation

of a flat IM allocation across SMAs, noting that from an asset manager perspective, it is

important that firms have legal certainty and the continuous ability to hedge. She further

indicated concern that there could be a cliff-edge issue where one SMA entity exceeds the

threshold limit, which would stop all the other asset managers from trading. Ms. Yun responded

that since it may be difficult for the CSE and managers to continuously, and throughout the day,

monitor the $50 million threshold on a dynamic basis, the flat IM allocation would provide more

certainty by granting dealers the ability to use that flat IM amount per asset manager. Ms.

Sakemi added that even with the Subcommittee’s flat IM proposal, asset managers would still

need a Commission interpretation to confirm that each SMA relationship is separate in order to

avoid cliff-edge events and to ensure the other asset managers’ ability to continue trading even in 

the event that the IM threshold was breached with one asset manager.

Ms. Kama then asked whether a flat EM threshold of $10 million could result in an 

aggregate exceeding the $50 million threshold, and ifthere are ways to prevent managers from 

setting up more accounts to breach the threshold intentionally. Ms. Cochrane responded that, 

while this scenario seems unlikely, the CFTC has anti-evasion powers that could be used in such 

instance. Ms. Yun agreed that other natural guardrails exist to prevent this possibility. 

Specifically, she explained that high transactional costs to establish an SMA significantly 

outweigh any other costs levied upon firms subject to the margin requirements. Ms. Kama then

asked which party, i.e., the CSE, the client, or the asset manager, would be responsible for 

compliance under this proposal. Ms. Yun and Ms. Cochrane indicated that the CSE would be in 

the best compliance position, given its regulatory obligations and the level oftransparency on a 

real-time basis.

Mr. Yamada commented that the complexity ofthese problems is well-documented in the

Report, particularly within Appendix C. He stated that the flat IM proposal is an elegant solution 

that limits the buildup ofunmargined risk, while acknowledging the practical realities ofthe

market structure. He then echoed the others’ views, that given the high costs ofsetting up 

SMAs, there is little risk for abuse.

Ms. Kama then asked ifsmaller CSEs are disadvantaged by the requirement to use a

quantitative initial margin model like the ISDA SIMM ifthey choose not to elect the grid 

regulatory schedule. In addition, she wondered ifsmaller swap dealers have any ability to

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market funds account for most ofthe collateral being segregated today and that many clients in

the Phase 5 timeframe have made a request to preserve this strategy under the new regulatory

regime. Ms. Yun agreed that the ability to use money market funds as eligible collateral would

minimize frictions, avoid the bifurcation between voluntary initial margin and mandatory initial 

margin, and promote efficiency and diversification.

With regard to the timing and methods of calculation for MSB, Commissioner Stump

asked ifthere are any issues that market participants should anticipate, given the different 

approaches taken by the US and BU regulators. Ms. Kruse responded that market participants 

near the bottom ofthe $8 billion threshold would have to run multiple, separate calculations at

different time periods each year to determine whether they are in or out ofscope. Since this 

scenario may create considerable burdens, Ms. Kruse hoped the U.S. would consider aligning its 

timing and methods of calculation with the BCBS-IOSCO framework.

Following the discussion, Ms. Kama asked whether there was a motion to adopt the

Report and recommend to the Commission that it consider adopting the Report’s

recommendations. Mr. Thane Twiggs made a motion, which Ms. Bradbury seconded. The 

GMAC then voted 17-1 (with four abstentions) to adopt the Subcommittee Report and

recommend to the Commission that it consider the Report’s recommendations.

VI. Closing Remarks

The Chairman and Commissioners made brief closing remarks, thanking all meeting

attendees and Commission staff.

The GMAC telephonic meeting was adjourned 12:30 p.m.

I hereby certify that the foregoing minutes are accurate.

Angie Kam„

Chair, Global Markets Advisory Committee

Date

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