("CFTC" or "Commission") Headquarters Conference Center, located at Three Lafayette Centre, 

1155 21st Street, NW, Washington, DC. The meeting consisted of a report from MRAC's 

Interest Rate Benchmark Reform Subcommittee ("Subcommittee") and four panels. Panel I 

provided an overview of current clearinghouse risk management and governance issues. Panel II 

examined approaches to the management of non-default losses generally, as well as in recovery 

and resolution. Panel III discussed the most recent relevant reports from global standard-setting 

bodies that have an impact on central clearing and prudential regulators proposed ules to update 

the calculation of derivative contract exposure under the regulatory capital rules . Panel IV 

discussed the oversight of third party service providers and vendor risk management. 

MRAC Members in Attendance

B. Salman Banaei, Executive Director, Global Head of Clearance and Settlement, IHS Markit 

Stephen Berger, Managing Director and Global Head of Government & Regulatory Policy, 

Citadel 

Lee Betsill, Managing Director and Chief Risk Officer, CME Group 

Isaac Chang, Managing Director and Co-Head of Trading, AQR Capital Management, LLC 

Biswarup Chatterjee, Global Head of Electronic Trading & New Business Development, Credit 

Markets, Citigroup 

Alicia Crighton, Chief Operating Officer, Prime Services, US Clearing, Goldman Sachs, Futures 

Industry Association 

Matthias Graulich, Member of the Executive Board and Chief Strategy Officer, Eurex Clearing 

AG 

Frank Hayden, Vice President, Trading Compliance, Calpine Corporation Lindsay Hopkins, Clearing House Counsel, Minneapolis Grain Exchange 

Annette Hunter, Senior Vice President and Director of Accounting Operations, Federal Home 

Loan Bank of Atlanta 

Demetri Karousos, Chief Risk Officer, Nodal Clear LLC and Managing Director, Market 

Administration and Surveillance, Nodal Exchange LLC 

Sebastiaan Koeling, Chief Executive Officer, Optiver US LLC, Futures Industry Association -

Principal Traders Group 

Derek Kleinbauer, Global Head- Rates and Equity e-Trading, Bloomberg LP and Vice 

President, Bloomberg SEF LLC 

Craig Messinger, Senior Advisor, Virtu Financial 

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

Corporation 

Dennis McLaughlin, Group Chief Risk Officer, LCH Group 

John Murphy, Managing Director and Global Head of the Futures Division, Mizuho Americas, 

Commodity Markets Council 

Dr. Thomas Philippon, Max L. Heine Professor of Finance, New York University-Leonard N. 

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Stem School of Business (Special Government Employee) 

Jonathan Raiff, Senior Managing Director, Head of Global Markets Americas, Nomura 

Securities International, Inc. 

Mamie Rosenberg, Managing Director and Global Head of Clearinghouse Risk & Strategy, JP 

Morgan 

James Shanahan, Vice President, Financial Regulatory Compliance, CoBank ACB 

Dr. Betty Simkins, Head of Finance Department, Professor and Williams Companies Chair in 

Business, Oklahoma State University, Spears School of Business (Special Government 

Employee) 

Tyson Slocum, Director, Energy Program, Public Citizen 

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

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

Kristen Walters, Global Chief Operating Officer of Risk and Quantitative Analysis Group, 

BlackRock 

Suzy White, Chief Risk Officer, Global Banking & Markets and Commercial Banking, 

Americas, HSBC 

Rana Yared, Managing Director Principal Strategic Investments Team, Securities Division, 

Goldman Sachs 

Luke Zubrod, Director of Strategic Initiatives, Chatham Financial 

CFTC Commissioners and Staff in Attendance and Speakers 

J. Christopher Giancarlo, Chairman, CFTC 

Rostin Benham, Sponsor of the MRAC and Commissioner, CFTC 

Dan Berkovitz, Commissioner, CFTC Dawn D. Stump, Commissioner, CFTC 

Alicia Lewis, MRAC Acting Chair/Designated Federal Officer ("DFO"), Special Counsel, 

Office of Commissioner Behnam 

Julie Mohr, Deputy Director, Examinations Division of Clearing and Risk, CFTC 

Sayee Srinivasan, Deputy Director, Risk Surveillance, Division of Clearing and Risk, CFTC 

Robert Wasserman, Chief Counsel, Division of Clearing and Risk, CFTC 

Invited Speakers in Attendance

Thomas Wipf, Subcommittee Chairman, Vice Chairman, Institutional Securities, Morgan 

Stanley 

Teo Floor, Systemic Risk Policy Advisor, Eurex Clearing AG 

Eileen Kiely, Managing Director, BlackRock Eric Nield, General Counsel, ICE Clear Credit, LLC 

Lazaro Barreiro, Director for Governance and Operational Risk Policy, Office of the Comptroller 

of the Currency 
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settlement bank and custodian bank failures to cyber security and the use of third-party service 

providers), what standards guide management of these risks, and who bears those risks and over 

what time horizon. She also stated she was looking forward to participants' comments on the 

Commission's regulatory efforts and whether these regulatory efforts are fit for the purpose they 

were intended. 

Following Commissioner Stump, Chairman Giancarlo gave his opening remarks. He 

thanked Commissioner Benham for holding the meeting, Ms. Lewis, and the rest of the 

Commission staff and presenters. He noted that over the past few years there has been 

substantial progress in ensuring the safety and soundness of central counterparties ("CCPs"), 

especially on·recovery planning. He stated that there was still more to do, in particular on 

resolution planning. He emphasized the need to have an ongoing conversation on risk 

management and governance and expressed concern regarding the concentration of clearing 

services. Finally, he stated that regulators should take note that market participants are moving 

towards outsourcing their infrastructure and to consider this in their model for regulation. 

Following Chairman Giancarlo, Commissioner Benham gave his opening remarks. He 

thanked the Chairman and other Commissioners present, the MRAC members who were 

moderating panels, all of the speakers, and Ms. Lewis. He then gave a background overview of 

the meeting and described the four panels. The last meeting of the MRAC in July introduced 

benchmark reform as a key topic of interest and the Commission voted to establish the Interest 

Rate Benchmark Reform Subcommittee to provide reports and recommendations to the MRAC 

regarding efforts to transition to U.S. dollar derivatives and related contracts to the Secured 

Overnight Financing Rate ("SOFR") and the impact of such transition on the derivatives 

markets. He stated that Mr. Wipf would kick off the meeting by reporting on the 

Subcommittee's first initiatives. He then previewed the panels. 

Commissioner Quintenz could not attend the meeting, but posted his remarks on the 

CFTC website. 

II. Report of l\1RAC's Interest Rate Benchmark Reform Subcommittee 

Mr. Wipf began with a discussion of what happened at the July MRAC meeting. He then 

discussed the work of the Subcommittee in detail. He stated that the Subcommittee was in the 

process of identifying areas of the London Interbank Offered Rate ("LIBOR") transition in 

which it can provide input and recommendations to the MRAC and to the Commission. He 

identified the key goals of the Subcommittee as: (1) removing hurdles to the transition to SOFR 

and (2) suggesting incentives for market participants to transition to SOFR, while (3) avoiding 

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the creation of safe harbors that would circumvent the transition. He also highlighted the 

Subcommittee's goal of producing actionable deliverables within a reasonable amount of time. 

In that regard, the Subcommittee plans to limit its focus to policies and recommendations 

involving the U.S. derivatives market. By the end of December, the Subcommittee planned to 

gather and circulate thoughts on regulation of the U.S. derivatives markets that could be refined 

to encourage the transition to SOFR. On a monthly basis, the Subcommittee planned to discuss 

and collaborate in an effort to deliver meaningful and actionable results to the MRAC. 

Ms. Lewis then opened the floor to questions or comments from the MRAC membership. 

Generally, the concerns and discussion raised in this session included: the need for everyone in 

the market to pitch in, spreading the word about the transition, and the importance of building 

liquidity in swaps referencing SOFR and other risk free rates within an open, competitive, and 

transparent clearing and trading framework. 

III. Panel I: Clearinghouse Risk Management and Governance Today 

Mr. Steigerwald opened the panel by framing the issues to be discussed. He stated that 

governance can be thought of broadly and narrowly. Broadly, governance can include the role of 

regulators overseeing CCPs as well as their members. Narrowly. it can include the different 

types of internal governance arrangements, rule setting, supervision, and market surveillance. 

Governance can bleed into other issues of transparency, flexibility, and decision making that 

often involves risk decisions. He also stated one of the objectives of the panel was to identify 

flexible best practices that can be adopted more broadly by the industry. 

Ms. Rosenberg presented first and stated that JP Morgan has raised issues related to CCP 

risk, recovery, and resolution through two JP Morgan white papers. She emphasized the need to 

further improve CCP governance, margin, and stress testing frameworks as well as increase CCP 

capital contributions through enhanced regulatory standards and oversight. She noted how CCPs 

make key decisions with regard to how they manage risk, yet clearing members bear the 

consequences. She stressed that risk governance rules should ensure that those that bear 

potential losses should have a meaningful voice with regard to how risk is managed and 

suggested independent expert views from representatives of end users and clearing members who 

serve as members of a CCP's risk committee. She also suggested that all clearing members be 

provided with an opportunity to provide their input at the design stage on key risk decisions 

being considered by a CCP and require appropriate documentation. 

Ms. Crighton presented next and discussed three categories related to CCP risk 

management: governance, adequacy and resources of CCP member firms, and CCP skin in the 

game. On governance, she highlighted four areas important to Futures Industry Association 

("FIA") memb~rs

First

regulatory supervision of CCPs should include regular and granular 
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critical to have diverse and robust input to achieve the best risk management results for the entire 

market and to ensure that the inherent financial stability benefits of the central clearing market 

structure, driven in part by a careful balance between defaulter and mutualized resources. He 

emphasized that margin is only one tool in the CME arsenal for ensuring that it has appropriate 

risk management in place, and stressed the importance that CCP risk management works with 

the risk management of its clearing members to proactively monitor the exposures that are being 

brought into the CCP ecosystem. As to default management, he stated that a CCP is not a market 

participant, and as such, relies on the clearing member community to support the default 

management practices, and specifically liquidations. The main incentive for clearing member 

participation in default management is the guarantee fund contributions. 

Mr. Michaels began his presentation by discussing the role of CCPs, stating that CCPs 

are risk managers and they do not take on any market risk. He then discussed a few of the 

critical components of the CCP risk management framework with the first line of defense being 

the clearing membership itself, and the measures they take to monitor risk. The next line of 

defense is the initial margin. Most of the work of CCPs is to calibrate and review initial margins 

as conditions and products evolve, which is one of the most critical aspects of what CCPs do. 

The next level of defense is the clearing/guaranty funds themselves. Much of what CCPs have in 

place for initial margin also applies to stress testing of clearing funds as CCPs look to size those 

funds at the appropriate level. The last line of defense he identified is default management. 

CCPs have to work closely with clearing member firms and with other CCPs to have robust 

default management processes. 

Mr. Slocum emphasized that the CFTC should ensure that the ownership structures, the 

legal and regulatory obligations, and the transparency of operations of CCPs are aligned for 

maximum protection of members, commodity end users, and the public interest. He stated that 

the CFTC should revive rulemaking efforts on governance, transparency, and conflict of interest 

of central counterparties, including explicit standards for compositions of boards of directors, 

disciplinary panels, and risk management committees addressing the role of members on risk 

management committees. 

The panel then turned to a question and answer session. Generally, the concerns and 

discussions raised in this session included: the types of risks that clearinghouses take on, that 

there is no one size fits all approach to governance of clearinghouses, the importance of 

communicating about risk early on and getting a variety of stakeholders involved in providing 

input on risk, the setting of margin and the need for transparency and detailed information to be 

provided regarding the setting of margin, allowing member input and providing flexibility in 

default management proceedings, the importance of having a diverse clearing membership, the 

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need for clearinghouses to have the appropriate amounts of skin in the game, the need for 

transparency, and the need for best practices. 

(Lunch Break) 

IV. Panel II: Non-Defanlt Losses in Recovery and Resolution 

Following the lunch break, Ms. Lewis called the meeting back to order. Mr. Chang 

opened the panel by stating that the panel would be discussing non-default losses generally and 

in the context of recovery and resolution. He stated that losses can be characterized in three 

categories as: (1) losses from businesses or operational failures, (2) losses from investments, and 

(3) losses from custodial failures. Mr. Chang also commented that policies and practices vary 

across clearinghouses and regulatory schemes in dealing with non-default losses. He then 

introduced the panel. 

Mr. Floor presented first and stated that to minimize the impact of non-default losses the 

CCP requires both control and restraint and suggested a two-tiered approach. He proposed 

tackling the member default first and then the non-default losses if they cannot be separated or 

managed simultaneously. He then stated that to be fair and set appropriate incentives, the CCP 

should bear the losses for non-default losses with the exception of those non-default loss types 

that relate to the cleared markets themselves. 

Mr. Nield presented next and stated that clearinghouses are generally liable for their 

business and operational losses, with the exceptions of investment losses and custodial losses. 

Although not currently required, he stated that there should be some sharing ofliability with 

regards to investment losses and custodial losses. In this case, the clearing house would be the 

first loss liability layer prior to mutualizing to the clearing members. He also stressed that, with 

non-default losses, it is important to keep in mind the capital resources available at the 

clearinghouse to pay for any type ofliability. 

Mr. McLaughlin discussed the types of non-default losses clearinghouses face. These are 

losses that are not directly related to the default of a clearing member. For example, 

clearinghouses have to take margin that members give them and find a home for this margin 

because they are not allowed to keep the margin on deposit at a commercial bank. There are also 

regulatory constraints on how to invest that margin, and clearinghouses are exposed to 

investment losses in order to fulfill their function to have the margin ready in the event it is 

needed to cover a member default. Clearinghouses also take legally segregated collateral to 

protect against custodian failure. Finally, he stated that if there is an operational failure, the 

clearinghouse would have a delay in getting its hands on the necessary cash and there could be 

slippage in the market
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be very profitable. With regards to non-default losses, she stated that non-default losses should 

not be passed to the end investor since the end investor has no say in how the CCP uses the 

client's cash or securities or who the custodian or payment bank is. The current legal framework 

may be too ambiguous about how clearing members may be able to allocate losses to investors. 

The panel then turned to a question and answer session. Generally, the concerns and 

discussions raised in this session included: the need for more prescriptive and clear regulatory 

guidance to ensure the appropriate policies for handling non-default losses across clearinghouses, 

expanding the scope of stress testing, default and non-default losses having a more stringent and 

reasoned foundation upon which capital should be held against them, increasing transparency by 

clearly laying out how default and non-default loses are handled in clearinghouses rulebooks, the 

management of enterprise risk and the need for help from regulators to better understand the risk 

standards, and the need to cover non-default losses based on whether the clearinghouse was 

involved in the risk management decisions for those losses. 

V. Panel III: Central Counterparty Resolution, Leverage Ratio, and Incentives to 

Clear 

Ms. Lewis opened the panel by stating that post-crisis reforms include mandatory 

clearing requirements, capital liquidity and margin requirements relating to OTC derivatives, and 

reforms relating resilience, recovery, and resolution of CCPs. These reform measures and their 

effects are the subject of several recent reports, proposed rules, and discussion papers produced 

by global standard setting bodies and prudential regulators, which the panel focused on during its 

discussion. 

Mr. Srinivasan presented first and discussed the Derivatives Assessment Team ("DAT") 

2.0 report which was produced by a good mix of banking and market regulators. DAT was 

tasked with assessing the impact of the interaction of capital margin and clearing groups and the 

G20 reform on incentives for firms to clear OTC derivatives. He stated that the report found that 

reform measures incentivized large financial institutions that actively trade and clear in the 

global derivatives markets. For large global banks, the banks are incentivized by the margin and 

capital rules. For non-banks such as asset managers and hedge funds, the main incentive to clear 

is liquidity considerations. The reform measures are less effective for firms that are less active in 

the derivatives markets. He then discussed the methodology and process the team used to 

finalize the report. 

Dr. Stanley presented on central counterparty resolution and the recent papers on this 

issue. He emphasized the importance of clearing member solvency for CCP resiliency. He 

stated that excessive concentration of clearing services can contribute to systemic risk, and that 

7 
regulators should seek a way to increase the number and diversity of futures commission 

merchants ("FCMs") offering client clearing without increasing the overall leverage in the 

system. He then discussed the three goals of CCP resolution in the Bank of International 

Settlements ("BIS") resolution guidance: (I) maintaining CCP function, (2) protecting taxpayers, 

and (3) maintaining financial stability. He stressed that these goals are best met by members 

being better capitalized. Finally, he stated that initial margin is the most important element of 

loss absorption in a true systemic risk situation and the regulatory stress testing should be the key 

mechanism to ensure that the correct margin is set. 

Mr. Wasserman presented on the Financial Stability Board ("FSB") Financial Resources 

to support CCP Resolution and the Treatment of CCP Equity in Resolution guidance paper, 

Basel Committee on Banking Supervision ("BCBS") Consultative document, and the proposed 

rules of the prudential regulators to update the calculation of derivative contract exposure 

amounts under the regulatory capital rules. He stated that the FSB paper covers financial 

resources through a five step analytical process: (1) look at identifying hypothetical default and 

non-default resolution scenarios, (2) evaluate the existing tools and resources, (3) look at full 

resolution costs, (4) compare the tools and resources to the costs and identify the gaps, and (5) 

consider the availability, costs, and benefits of potential means of addressing those gaps. He 

emphasized certain principles supported by the FSB paper, such as no creditor being worse off 

when allocating financial resources, and asked interested parties to consider policy issues, 

including the incentives of CCPs to pursue sound risk management and the incentives of clearing 

members to support recovery. Mr. Wasserman then discussed the BCBS consultative document 

concerning capital charges based on the leverage ratio and lack of recognition of liquid collateral 

in the hands of the CCP and the clearing member. However, he stated that the BCBS is 

considering recognizing collateral consistent with the Standardized Approach for Credit Risk 

("SACR"). Similarly, he noted that U.S. Prudential regulators in the context of SACR published 

a proposal that invites comment on the recognition of collateral provided by clearing member 

client banking organizations in connection with cleared transactions. In response to concerns 

raised in earlier panels, Mr. Wasserman agreed with those concerns about effective and welldesigned margin models, and that stress testing is a critical part of risk management. 

The panel then turned to a question and answer session. Generally, the concerns and 

discussions raised in this session included: the pro hi biti ve nature of the cost of clearing for enduser and non-end users that are outside the core market, the pros and cons for special 

accommodation and exemption from certain clearing regulations, the scope of the no creditor is 

worse off principle, the challenge of the trade-off between financial stability and systemic risk, 

and the need for the same kind of minimum requirements for cleared and uncleared swaps. 

(Recess) 
emphasized that banks should ensure comprehensive risk management and oversight of third 

party relationships including planning, due diligence, a third party selection process, contract 

negotiations, ongoing monitoring, and a review of how third party agreements may be 

terminated. Mr. Barreiro also stated that the OCC expects good documentation supporting the 

decisions made by banks throughout the life cycle of the process, and to have that process 

subject to independent review periodically. 

Ms. Mohr discussed the work of the Division of Clearing and Risk ("DCR") with regard 

to vendor risk management. She stated that DCR has an examination program that focuses on 

derivatives clearing organization ("DCO") vendor risk management built on compliance with 

CFTC regulations and industry best practices. She discussed the program in detail stating the 

goal of the program is to identify any area within the vendor relationship that has not been 

adequately reviewe~ and assessed, and to suggest remediation plans to adjust the deficiency. 

Mr. Banaei presented next and stated that as the only third party vendor on the panel he 

hoped to present the view of a larger financial technology ("FINTECH") service provider. He 

started by identifying two terms for clarification purposes: (1) direct regulation where an entity is 

under the direct regulatory or supervisory jurisdiction of a particular regulator; and (2) indirect 

regulation where an entity is supervised or otherwise scrutinized by a finn that is regulated 

consistent with that finn's regulatory requirements. This was an important distinction to make 

because some his finn's services are indirectly regulated. 

Next, Mr. Banaei stated that FINTECH is a technologically-enabled financial innovation 

that could result in new business model application processes or products with an associated 

material effect on financial markets and institution. He stated that firms generally outsource to 

FINTECH companies because of their lower cost. He discussed five principles that apply the 

oversight of third party service providers: (1) third-party service providers should document all 

material relationships; (2) third party service providers should not be discriminated against or 

subject to lesser oversight than an in-house function; (3) there should be an open dialogue among 

third party service providers and regulators; (4) regulators should be responsive and encouraging 

of new approaches and new technology and not unduly burden commerce and innovation; and 

(5) regulations should be proportionate to the extent of reliance and risk associated with a 

particular service and under certain circumstances that might require extra validation. 

Mr. Banaei then discussed reasons for directly regulating a financial technology firm. 

First, is to ensure that a particular firm is applying the appropriate conduct for a significant 

fiduciary or customer relationship. Second, is to ensure the integrity, operational integrity, or 

price discovery function of a particular venue. Third, is to ensure appropriate risk management 

9 
for central clearing. Fourth, is to mitigate substantial operational risk. Fifth, is to facilitate 

commerce by providing real certainty for businesses that would benefit. He then gave reasons 

not to regulate: avoiding barriers to entry, encouraging innovation, competition, and regulation 

of a particular service would be disproportionate. 

The panel then turned to a question and answer session. Generally, the concerns and 

discussions raised in this session included: a discussion of various examples of vendor risk 

operational losses or incidents and how these incidents were dealt with, and suggestions on how 

to improve the regulation of third party service providers, with most parties agreeing that 

additional regulations or guidelines would be welcome provided they are targeted carefully. 

VII. Closing Remarks 

In closing the Chairman and Commissioners present all expressed enthusiasm for the 

excellent discussion and stated they were looking forward to future discussions. 

e meeting at 4:08 p.m. 

hair/Designated Federal Officer and Director 

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