This report was approved on February 12, 2021 by the CCP Risk and Governance Subcommittee of the 

Market Risk Advisory Committee (MRAC). The views, analyses, and conclusions expressed herein reflect 

the work of the CCP Risk and Governance Subcommittee of the MRAC, and do not necessarily reflect the 

views of the MRAC, the Commodity Futures Trading Commission or its staff, or the U.S. 

government. Reference to any products, services, websites, organizations, or enterprises, or the use of 

any, organization, trade, firm, or corporation name is for informational purposes only and does not 

constitute endorsement, recommendation, or favoring by the U.S. Government.

Acting Chairman Rostin Behnam, Sponsor 

Lee Betsill & Alicia Crighton, Co-Chairmen

RECOMMENDATIONS REGARDING CCP MARGIN 

METHODOLOGIES

Report of the Central Counterparty (CCP) Risk and Governance 

Subcommittee,

Market Risk Advisory Committee of the 

U.S. Commodity Futures Trading Commission

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1

CCP Risk and Governance Management Subcommittee of the Market Risk Advisory 

Committee of the CFTC

Recommendations regarding CCP Margin Methodologies

The Market Risk Advisory Committee (“MRAC”) advises the Commodity Futures Trading Commission

(“CFTC”) on matters relating to evolving market structures and movement of risk across clearinghouses, 

exchanges, intermediaries, market makers and end-users. The MRAC established the CCP Risk and 

Governance Subcommittee (“Subcommittee”) to provide reports and recommendations directly to the 

MRAC regarding current issues impacting clearinghouse risk management and governance. The 

Recommendations regarding CCP Margin Methodologies reflects the collective work of the 

Subcommittee in putting forth recommendations to the CFTC related to CCP margin methodologies.1

This paper sets forth recommendations across six key elements of a robust margin framework, many of 

which CCPs are following today. Where recommendations could not be agreed on by a majority of the 

Subcommittee, a summary of the discussion on additional areas for consideration is also noted below.

I. Anti-procyclicality

Within the international risk management standards for financial market infrastructures, CPMI-IOSCO 

defined procyclicality as the “changes in risk-management requirements or practices that are positively 

correlated with business or credit cycle fluctuations and that may cause or exacerbate financial 

instability.”2 Considering this definition and the impact that margin requirements may have on overall 

financial stability, CCPs need to be able to manage the procyclical nature inherent in all the markets they 

serve.

CPMI-IOSCO provided further guidance on how CCPs should measure and address procyclicality in its 

margin methodology, including by using quantitative metrics to assess procyclicality and developing 

“appropriate methods or tools for mitigating the potential for destabilizing, procyclical changes arising 

from its margin system.”3 Prescriptive requirements for European-based CCPs to address procyclicality 

were adopted with the promulgation of Article 41 of EMIR and Article 28 of the RTS, which set out 

requirements for CCPs to monitor procyclicality and adopt at least one of three anti-procyclicality 

margin measures.4In contrast, the CFTC takes a more principle-based approach to addressing procyclical 

risk pursuant to CFTC Regulation 39.13.

1 Certain of the recommendations reflected in this document may not be applicable to all CCPs given differences in 

instruments cleared, business models or CCP rules and regulatory requirements.

2 Committee on Payment and Settlement Systems (later renamed the Committee on Payments and Market 

Infrastructures, or CPMI) and Technical Committee of the International Organization of Securities Commissions 

(IOSCO), Principles for Financial Market Infrastructures [hereafter PFMI] (April 2012). 

3 Committee on Payments and Market Infrastructures and Board of the International Organization of Securities 

Commissions, Resilience and Recovery of Central Counterparties (CCPs): Further Guidance of the PFMI [hereafter 

Further guidance of the PFMI] (July 2017).

4 The three measures prescribed in Article 28 of the RTS are for CCPs to apply a margin buffer at least equal to 25% 

of the calculated margins which it allows to be temporarily exhausted in periods, where calculated margin

requirements are rising significantly; assign at least 25% weight to stressed observations in the lookback period

calculated in accordance with Article 26 of the RTS; or ensure that its margin requirements are not lower than 

those that would be calculated using volatility estimated over a 10-year historical lookback period.
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2

Managing procyclicality is a fundamental aspect of a CCP’s holistic risk management framework, and the 

Subcommittee is supportive of efforts by international standard setters, regulators, and CCPs to address 

procyclicality within margin methodologies. The Subcommittee believes that an effective approach to 

managing procyclicality must be tailored to the unique products and markets that different CCPs clear. 

CCPs must maintain the ability to apply expert judgement with appropriate governance in response to 

market volatility to balance procyclical changes to initial margin requirements with prudent risk 

management and broader financial stability. As a general principle, CCPs should seek to limit the 

reactivity of margins to volatility changes, which may exacerbate liquidity stress, and balance that with 

overall margin coverage levels.

To achieve these ends, the Subcommittee overall recommends that policymakers adopt an outcomesbased approach to anti-procyclical margin standards and ensure that future guidance is not prescriptive 

to the extent that it restricts a CCP’s ability to appropriately manage risk, especially in times of high 

volatility or market stress. FCM, Buy-side, One CCP and Independent Voting Members of the MRAC 

Subcommittee thought more prescriptive procyclicality measures should be included in this report 

similar to those detailed in the October 2020 FIA Paper5such as stress lookback periods be long enough 

to include periods of significant market stress, minimum volatility floors be implemented and 

appropriately calibrated for the contract and asset class and margin amounts be calculated based on 

analysis of absolute and percentage returns. Procyclicality was also addressed in the January 2021 ISDA 

paper.6

Recommendation #1:

The CFTC should enhance its flexible approach to supervising how CCPs manage procyclical margin 

requirements that prioritizes the desired outcome of reducing procyclicality, not the specific means of 

reducing it. Supervisory expectations should recognize that CCPs may employ a range of tools to 

measure and manage procyclicality that are uniquely tailored to the products and markets it clears. 

Other tools may include, but are not limited to: 

• A standard set of metrics to measure procyclicality that are suitable to the specific CCP

to enable the CCP to determine targets to be achieved

• Portfolio-level margin floors based on longer-term volatility or other metrics

• Product level margin floors for significant products; Those could be calibrated including a

defined period of stress (worst-of, or weighted), considering either relative or absolute price

changes or both; Product-level margin floors applied to significant outright margins along with

similarly significant inter-commodity spreads and select intra-commodity spreads, such as those

for commodity-based products that have seasonality considerations

• Seasonality measures for products that demonstrate significant changes in price and volatility

during certain times of the year, especially where seasonal factors outweigh historical volatility

over a longer time horizon

5

FIA’s October, 2020 paper: Revisiting Procyclicality: The Impact of the COVID Crisis on CCP Margin Requirements

6

ISDA’s January, 2021 paper : COVID-19 and CCP Risk Management Frameworks
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• The usage of extended lookback periods, the inclusion of stressed periods of risk, margin

buffers, limits on the speed of margin increases relative to volatility increase, or input of stress

conditions into margin requirements

Importantly, the tools and overall framework adopted by CCPs to limit procyclicality should be 

transparent to market participants. FCM, Buy-side, One CCP and Independent Voting Members of the 

MRAC Subcommittee believe that such transparency can be achieved through enhanced CCP PFMI 

quantitative and qualitative disclosures which could also be improved by the inclusion of product level 

breach disclosures for significant products. 

II. Concentration and Liquidity Add-ons

In accordance with CFTC requirements, derivatives clearing organizations (“DCOs”) must have “initial 

margin requirements that are commensurate with the risks of each product and portfolio, including any 

unusual characteristics of, or risks associated with, particular products or portfolios.”

7 The use of margin 

add-ons, including those that address the impact of concentration and liquidity on the expected 

closeout costs of a portfolio, allows CCPs to address risks in the market that are unique to certain 

products or portfolios they clear. 

CPMI-IOSCO provided further guidance that “add-on charges can address risks that may be more 

challenging to model accurately, or are not readily discernible in the price histories of the products 

cleared.”8 The Subcommittee agrees with this statement and believes that a CCP should have the ability 

to exercise its expert judgment to apply concentration and liquidity add-ons in its margin methodology 

in a flexible manner to address risks that are not easily modeled. Applying too granular of a standard to 

the way that margin add-ons are utilized by CCPs may undermine their ability to address these sorts of 

risks and in turn increase overall systemic risk in the markets.

Recommendation #2:

CCPs should be allowed flexibility to apply margin add-ons that consider the impact of liquidity and 

portfolio concentration on expected closeout costs. The application of liquidity and concentration addons by CCPs should be based on market depth9 and position exposures and may consider the following 

factors:

• Clearing member polls or other modeling techniques of bid/offer prices should be used to

capture possible liquidity add-ons

• CCPs should consider volume, open interest, order book data, or other similar metrics to

capture concentrated position exposures at a product or portfolio-level for possible margin addons

• CCPs should consider position concentration relative to product liquidity and the impact

of differences in bid/offer prices of closing out a portfolio in determining the amount of

7 CFTC 17 CFR § 39.13 (g)(2)(i)

8

See Further guidance of the PFMI at ¶ 5.2.12

9

For new product launches, market depth assumptions made at launch can be reassessed over time and as trading 

patterns emerge or change.
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concentration add-on to apply. For less liquid products, or those where fewer 

participants are active, this may require explicit modelling of liquidation costs

• The impact of position size on close-out costs, i.e., concentration risk, should be

captured at a product or product group level based on the cost of closing out positions

or through an analysis of product or product group volume

• Liquidity and concentration add-ons should be transparent, easily replicable, and where

possible, also applied at the customer origin

• Any further liquidity or concentration add-ons or limits applied by clearing members to their

customers should also consider similar principles as those outlined above

• Note: FCM, Buy-side, Independent Voting Members of the MRAC Subcommittee thought

additional add-ons should be considered as part of this report, including jump-to-default,

wrong-way risk, sovereign, holidays, and whether the underlying asset is subject to default such

as equity and corporate bond cash and derivative instruments.

III. Intraday and Ad-Hoc Margin Calls

CCPs are exposed to the accumulation of current exposures from intraday changes to market prices and 

the positions of their participants. To mitigate this risk, the PFMI state that CCPs “should have the 

authority and operational capacity to make intraday margin calls and payments, both scheduled and 

unscheduled, to participants.”

10 CPMI-IOSCO provided further guidance that “a CCP should identify, 

establish and implement clear triggers and thresholds to recalculate margin requirements on an intraday 

basis.”11

In the context of intraday exposures, it is critical to distinguish between the collection of initial versus 

variation margin intraday and the use of scheduled/predictable event-driven versus unpredictable, adhoc intraday margin calls. The Subcommittee supports the scheduled/predictable event-driven and 

routine collection of intraday variation and initial margin triggered by price changes or position changes

to prevent uncollateralized current exposures from building up at a CCP. Unpredictable, ad-hoc intraday 

settlement cycles during which the CCP collects variation or, where practicable, initial margin triggered 

by margin parameter changes, should only be executed in extreme and exigent circumstances and in a 

manner that considers the prevailing market conditions.

Recommendation #3: 

The CFTC should promote the use of scheduled/predictable event-driven and routine intraday variation 

settlement cycles to prevent the accumulation of current exposures at CCPs as appropriate. In addition, 

CCPs should be allowed the discretion to manage intraday exposures with unscheduled/not predictable 

event-driven intraday margin calls under the following conditions:

10 See Principle 6, Key Consideration 4 of the PFMI

8

See Further guidance of the PFMI at ¶ 5.2.23
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• CCPs should clearly distinguish the amount of an intraday margin call that is used to manage

current (variation margin) versus potential future (initial margin) exposure

• Margin frameworks should maintain that unpredictable ad-hoc intraday variation and initial

margin calls would only be required in times of extreme market dislocation

• When intraday variation margin is collected by a CCP, the corresponding gains should also be

paid out to clearing members or netted off against any other margin owed to the CCP on the

same day, as feasible

• Intraday initial and variation margin calls should be met within one hour or as soon as

practicable given CCP and Clearing Member infrastructures

• CCPs should provide full transparency for triggers of intraday margin calls. This will assist

clearing participants in actively tracking and monitoring liquidity demands

• An ad-hoc intraday or emergency call should only be charged to members of the relevant

clearing service in which the margin call is being triggered

• CCPs should proactively engage with clearing members ahead of applying any unpredictable, adhoc margin add-ons or issuing unpredictable, ad-hoc margin calls due to market conditions or

the credit profile of the clearing member. This will smooth out the potential liquidity risk for

clearing members and provide transparency for the adjustments

IV. Margin Period of Risk

The expected closeout period for a given product, i.e., the margin period of risk (“MPOR”), is a critical 

assumption that a CCP must make in developing its margin methodology. As noted by CPMI-IOSCO, this 

assumption may vary among products and markets and should be based on a number of factors, 

including a product’s liquidity, price, how it’s commonly traded, and the overall depth of the market.12

While the CFTC has prescribed a minimum MPOR for various products that a DCO must use,13 a CCP 

ultimately must use its expert judgement to determine an appropriate MPOR based on the unique 

characteristics of the markets and products for which it clears. Such characteristics should include the 

account structure, market structure, and liquidity of the product, each of which will impact how a CCP 

would manage the potential default of a clearing member portfolio. The Subcommittee agrees with 

CPMI-IOSCO and the CFTC in that the MPOR should be based on the estimated time between when the 

CCP will have collected the last margin payment and the point at which the defaulter’s portfolio will be 

effectively hedged or liquidated.14 15

Recommendation #4:

When evaluating the appropriateness of a CCP’s MPOR assumption, the CFTC should consider the 

following principles:

12 See Further guidance of the PFMI at ¶ 5.2.4

13 CFTC 17 CFR § 39.13 (g)(2)(ii)

14 See Further guidance of the PFMI at ¶ 5.2.6

15 CFTC 17 CFR § 39.13 (g)(2)(ii)
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• The MPOR should be commensurate with the CCP’s default management framework.

The MPOR should be aligned with the time needed to hedge the delta, port client

positions to a new clearing member, or otherwise liquidate and/or auction the portfolio

to return the CCP to a matched book, as appropriate to the account type

• CCPs should disclose their general framework for making MPOR decisions and

demonstrate to market participants that the CCP’s overall MPOR is appropriate given

the CCP’s default management capabilities, which may include documentation and

rationalization to support their choices

• The MPOR should consider longer timer periods for less liquid products,16 which could

be based on volume, orders, polling data, or open interest data analysis to determine

overall liquidity

• MPOR should be based on the liquidity attributes of the product, irrespective of how it is traded

(i.e., OTC or on exchange)

• Note: FCM, Buy-side, One CCP and Independent Voting Members the MRAC Subcommittee

believe that minimum MPOR should be set at two days to align with the time needed to hedge,

port, or liquidate a defaulted portfolio while other CCP members believe that it is more

important to collect customer margin on a gross basis rather than focusing on a minimum MPOR

V. Pricing

Reliable pricing data is an important input into how CCPs accurately and effectively measure credit 

exposure. In accordance with CFTC requirements, DCOs are required to have a reliable source of pricing 

data and “written procedures and sound valuation models for addressing circumstances where pricing 

data is not readily available or reliable.”17 While CCPs can rely on the transparent pricing from the deep, 

liquid exchange-traded markets that utilize central limit order books, OTC cleared products are generally 

less standardized and provide less price transparency. As noted in the PFMI, for some cleared markets, 

prices may not be reliable for various reasons, including the lack of a continuous liquid market or volatile 

bid-ask spreads.

18 In scenarios where CCPs cannot obtain updated prices because of a lack of trading or 

orders placed in the market, CCPs must have a robust framework that can effectively update prices to 

avoid utilizing stale prices within its margin methodology.

Recommendation #5:

CCPs should have a robust framework for determining end of day settlement prices and theoretical 

intraday pricing. A robust pricing framework should incorporate the following principles:

• Broker quotes and/or bids/offers should be considered in a CCP’s pricing framework to better

reflect current market conditions for less liquid products

16 As with concentration charges, MPOR decisions linked to market depth assumptions made at launch for new 

products can be reassessed over time and as trading patterns emerge or change.

17 CFTC 17 CFR § 39.13 (g)(5)

18 See PFMI at ¶ 3.6.5
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• The pricing of instruments that are less liquid could be modeled from comparable instruments

with more liquidity. This could be achieved with, for example:

o Back-month derivative products based off front-month products with an appropriate

spread charge

o Stocks that are a constituent of an index may use the movement of the index value

o Modeling the implied volatility surface to interpolate and extrapolate volatilities across

the curve

• CCPs should consider a modeled price if no market information is available

• CCPs should consider modeling underlying cash flows of an instrument to determine

settlements

• CCPs should consider incorporating an incentive mechanism, as necessary and appropriate, for

clearing members to submit quotes to determine pricing for OTC products

VI. Transparency

MRAC Subcommittee on CCP Risk and Governance plans to issue a position paper with 

recommendations related to transparency and disclosures at a future date but determined that margin 

transparency was an important enough topic that it was deserving of the high-level recommendation 

below.

Recommendation #6:

CCP margin methodologies should be sufficiently transparent to market participants so they can 

understand how models react to certain market conditions for liquidity planning and risk management 

purposes.
Members of the MRAC Central Counterparty Risk and Governance Subcommittee 

Name Entity Representing Title

1. Lee Betsill (Co-Chair) CME Group Managing Director and Chief Risk Officer

2. Alicia Crighton (CoChair)Futures Industry Association Global Co-Head of Futures and Head of OTC and Prime 

Clearing Businesses, Goldman Sachs

3. Richard Berner Clinical Professor of Management Practice in Finance 

and Co-Director of the Stern Volatility and Risk 

Institute, NYU Stern School of Business 

4. Peter Borish Quad Group Chief Strategist

5. Chris Dickens HSBC Managing Director, Chief Operating Officer, Global 

Markets, EMEA

6. Matthias Graulich Eurex Clearing AG Member of the Executive Board and Chief Strategy 

Officer

7. Graham Harper Futures Industry Association – Principal 

Traders Group Head of Public Policy and Market Structure at DRW

8. Lindsay Hopkins Minneapolis Grain Exchange Clearing House Counsel

9. Demetri Karousos Nodal Exchange, LLC Chief Risk Officer, Nodal Clear, LLC, and Managing 

Director, Market Administration and Surveillance, 

Nodal Exchange, LLC

10. Eileen Kiely BlackRock Managing Director, Deputy Head of Counterparty Risk

11. Kevin McClear Intercontinental Exchange, Inc. Corporate Risk Officer

12. Dennis McLaughlin LCH Group Group Chief Risk Officer

13. Dale Michaels The Options Clearing Corporation Executive Vice President, Financial Risk Management

14. John Murphy Commodity Markets Council Managing Director and Global Head of the Futures 

Division, Mizuho Americas

15. Marnie Rosenberg JP Morgan Managing Director and Global Head of Clearinghouse 

Risk & Strategy

16. Dr. Marcus Stanley Americans for Financial Reform Policy Director

17. Robert Steigerwald* Federal Reserve Bank of Chicago Senior Policy Advisor, Financial Markets

18. William Thum Vanguard Principal and Global Head of Capital Markets Legal and 

Regulatory

19. Nadia Zakir** Pacific Investment Management 

Company LLC (PIMCO)

Executive Vice President and Deputy General Counsel

*-Mr. Steigerwald, in representing the Federal Reserve Bank of Chicago, is a non-voting member. In this capacity, he did not 

provide advice and recommendations on this report

**-denotes MRAC Chair
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CONCURRING STATEMENTS
February 12, 2021 

BlackRock Statement on CFTC MRAC CCP Risk and Governance 

Subcommittee Papers 

BlackRock commends Acting Chair Behnam for establishing the CFTC’s CCP Risk & 

Governance Subcommittee to provide reports and recommendations regarding issues 

impacting clearinghouse risk management and governance. BlackRock believes that 

stable and secure financial markets are paramount to the protection of end-users’ 

investment activity and as such, we support the recommendations made in the 

Subcommittee’s papers as they would serve to enhance CCP risk management and 

governance. 

The papers contain specific recommendations on CCP Margin Methodologies and CCP 

Risk Governance, many of which are also highlighted in A Path Forward for CCP 

Resilience, Recovery, and Resolution, a paper that BlackRock co-authored with a group 

of a buy-side and sell-side firms, released in 2019.[1] The paper proposed twenty 

recommendations to enhance CCPs’ resilience, recovery and resolution. 

The Subcommittee papers represent an important part of a broader endeavor to 

enhance financial stability that is supported by CCPs, clearing members and end-users 

alike, and BlackRock encourages the CFTC and other relevant regulatory authorities to 

pursue rulemaking to implement these recommendations. While there were some areas 

of disagreement between CCPs and the clearing members and end-users, we believe 

the work presented by the Subcommittee as a meaningful first step and look forward to 

working through the Subcommittee in the months to come to address other key issues, 

such as transparency, disclosure, capital and stress testing. 

Recommendations Regarding CCP Margin Methodologies 

We support the recommendations on margin methodologies as we feel they will provide 

the CFTC with guidance on the market’s expectations for how the CFTC’s principlesbased approach on CCPs’ margin should be interpreted. We encourage the CFTC staff 

to apply this guidance when considering the adequacy of a particular margin practice. 

Recommendations Regarding CCP Risk Governance 

BlackRock supports the governance recommendations presented by the Subcommittee, 

as they would require CCPs to establish appropriate information channels with end-user 

participation that would allow the exchange of risk-based market views (to the extent a 

CCP does not already have such a channel). 

[1] The paper was originally published in October 2019 and was re-released in March 2020 with nineteen

signatories.
JPMorgan Chase Statement on CFTC MRAC CCP Risk and Governance Subcommittee

Papers

JPMorgan commends Acting Chair Behnam for establishing the CFTC’s CCP Risk & 

Governance Subcommittee (Subcommittee) last year and supporting the development of 

actionable recommendations to enhance CCP risk management and governance. The two 

papers prepared by the Subcommittee, with specific recommendations on CCP Margin 

Methodologies and CCP Risk Governance, are an important step forward. Notably, they seek to 

address several of the issues highlighted in A Path Forward for CCP Resilience, Recovery, and 

Resolution, a white paper that JPMorgan, together with a group of a buy-side and sell-side 

firms, released in 2019.1 This white paper proposes twenty recommendations to enhance CCPs’ 

resilience recovery and resolution, for consideration by relevant policymakers and regulators.

Overall, we support the recommendations in the Subcommittee’s papers and encourage the 

CFTC and other relevant regulatory authorities to pursue rulemaking to implement them. We 

also endorse ongoing work by the Subcommittee, with support from Acting Chair Behnam, to 

continue the development of recommendations pertaining to issues of CCP transparency and 

disclosures, CCP capital, and CCP stress testing which were also raised in the 2019 industry 

white paper on CCP resilience, recovery and resolution referenced above.

Recommendations Regarding CCP Margin Methodologies

We support the six recommendations on margin methodologies which are intended to ensure 

that CCPs’ margin models are robust, including those which require margin frameworks to 

address procyclicality, include concentration and liquidity add-ons, and align the margin period 

of risk with the liquidity of products. We also support the overarching requirement for greater 

transparency around margin models to enhance their predictability and support market 

participants’ liquidity planning and risk management. While these recommendations represent a 

good starting point on these issues, we would welcome further examination on the topics of 

margin procyclicality, margin add-ons, and related disclosures by regulators. As stated in the 

paper itself, Subcommittee members representing FCMs, buy-side firms and one CCP along 

with the independent voting members thought procyclicality measures similar to those detailed 

in FIA’s October, 2020 paper, Revisiting Procyclicality: The Impact of the COVID Crisis on CCP 

Margin Requirements should be included as recommendations along with expansion of CCP 

public disclosure requirements to include product level breach disclosures for significant 

products and setting the minimum margin period of risk assumption at two days to align with the 

time needed to hedge, port, or liquidate a defaulted portfolio.

Recommendations Regarding CCP Risk Governance

We support the recommendation to require CCPs to solicit, consider, and address market 

participants’ views in the early stages of proposing changes that could materially affect a CCP’s 

risk profile, for example through risk advisory working groups comprised of clearing members 

and end-users. Similarly, we support the recommendation to codify best practices related to 

CCPs’ risk management committees. However, we would like to highlight that the independent 

voting member, clearing member and end-user perspective that CCPs should be required to 

formally consult with market participants before filing any rule submission with the CFTC that 

could materially affect the risk profile of the CCP’s activity was not agreed upon by the full 

Subcommittee. We hope that this perspective can be revisited in future forums.

1 The paper was originally published in October 2019 and now has twenty signatories.
P.O. Box 2600

Valley Forge, PA 19482

vanguard.com

February 12, 2021

Submitted electronically

Alicia Lewis

CFTC MRAC Designated Federal Officer

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, N.W. 

Washington, DC 20581

Re: CFTC MRAC CCP Risk and Governance Subcommittee: Vanguard Statement with 

respect to recommendations related to CCP Governance and CCP Margin 

Methodologies

Dear Ms. Lewis:

Vanguard1appreciates the opportunity to serve on the Central Counterparty (“CCP”) Risk and 

Governance Subcommittee (the “Subcommittee”) of the Commodity Futures Trading Commission’s 

(“CFTC”) Market Risk Advisory Committee (“MRAC”). We commend Acting Chair Rostin Behnam for 

establishing the Subcommittee to develop actionable recommendations to address CCP risk issues.2

In multiple forums in recent years, Vanguard has consistently called on global regulators to 

address risks related to CCPs. In 2019, Vanguard joined with a group of concerned asset managers and 

futures commission merchants (“FCMs”), to publish “A Path Forward for CCP Resilience, Recovery, 

and Resolution” which sets forth twenty recommendations to improve CCP incentives, transparency and 

governance.

While our support for clearing is resolute, we see compelling opportunities to enhance the 

resiliency of CCPs, and to better prepare for their recovery and resolution. Especially as non-defaulting 

market participants are required to backstop CCP failures, it is imperative for market participants to have 

an effective voice in CCP governance and a clear window into CCP risks. The global ruleset must also be 

enhanced to strengthen the incentives for CCPs to offer products they can effectively risk manage, as the 

downside of a CCP’s risk management failure is presently disproportionately borne by non-defaulting 

market participants, including, potentially, our mutual funds.

1 Vanguard is a global asset manager that offers more than 420 funds with aggregate assets of approximately $7 

trillion. Our core purpose is to take a stand for all investors, treat them fairly, and give them the best chance for 

investment success

2 As a part of prudent management, Vanguard funds enter into derivatives contracts, including swaps and futures, to 

achieve a number of benefits for our investors, including hedging portfolio risk, lowering transaction costs, 

managing cash, and achieving more favorable execution compared with traditional investments. Vanguard has been 

fully supportive of global derivatives regulatory reform to bring much-needed transparency and regulation to the 

derivatives markets.

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CFTC MRAC CCP Risk and Governance Subcommittee

February 12, 2021

Page 2

Vanguard supports the recommendations in the papers addressing CCP Governance and CCP 

Margin Methodologies presented for consideration by the MRAC as being directionally appropriate 

improvements to existing practices in these areas. The progress to be achieved from the implementation 

of the recommendations should be further expanded through committed efforts on matters highlighted in 

the papers which did not receive full Subcommittee support. For example, margin anti-procyclicality 

measures noted in the paper should be further considered to mitigate risks so clearly demonstrated in 

2020. Likewise, additional work is required to advance the discussions aimed at ensuring that market 

participants have notice of, and the opportunity to comment on, matters that materially impact the risk 

profile of a CCP.

We also recommend that the work of the Subcommittee continue to develop actionable 

recommendations in the areas of CCP transparency, incentives, stress testing and liquidity, and default 

management. Vanguard is committed to productively engage in this meaningful effort to enhance the 

overall foundational resiliency of CCPs and thereby mitigate the potential systemic risk presented by this 

now critical market infrastructure.

* * * * *

We appreciate the opportunity to serve on the CFTC’s MRAC Subcommittee on CCP Risk and 

Governance. If you have any questions about Vanguard’s comments or would like any additional 

information, please contact William C. Thum, Principal, at (610) 669-9823 or 

william_thum@vanguard.com.

Sincerely,

/s/ William C. Thum, Principal

Global Head of Capital Markets Legal and Regulatory Practice Group

Vanguard

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