Recommendations of CCP Risk 

Management Subcommittee

Market Risk Advisory Committee

April 25, 2017
Outline of Recommendations

I. Default Management: Coordination, 

Harmonization & Enhancement

 Communication

 Default Management Committees

 Fire Drills

 Auction Process

 Customer Participation in Auctions

II. Porting

 Key issues identified
Recommendations Support CFTC Regulations

Regulation 39.16 – Default Rules and Procedures

 Requires CCP to conduct annual test of written default 

management plan

 Default test scenarios now include testing all CCP 

procedures that affect clearing members and customers

 CCP rules must describe actions that CCP may take (e.g., 

transfer, liquidation, hedging, auctions, or allocations of 

positions)

 CCP rules must describe default waterfall and order of use 

of financial resources held by CCP

 If CCP rules obligate clearing members to participate in 

auctions or accept allocations of positions, CCP must 

permit clearing members to outsource authority to act in 

clearing member’s place to a qualified third party
Recommendation:

Communication

1. Global CCP directory of contacts created by Default 

Risk Management Working Group (DMRWG is voluntary 

group of reps from15 CCPs)

 Contains contact info of decision makers and risk 

personnel at CCPs

 CCPs have agreed to created dedicated email address 

for communications

2. Work ongoing to establish mechanism for CCPs to 

provide information to clearing members & 

customers about status of movement of customer 

positions

 Details should include porting timeframes, 

success/failure of transfers, status of liquidations, direct 

communication with customers

 Status of initiative...
Recommendation:

Default Management Committees

• CCPs should harmonize procedures related to 

committee participation

• CCPs should coordinate availability of seconded 

traders

• Member firms must assist in keeping lists of 

traders updated

• CCPs should consider optimal composition of 

committee

• Including participation by non-clearing member 

representatives
Recommendation:

Multi-CCP Default Exercise

• Regulators: CFTC, Bafin, Bank of England, Bundesbank

• CCPs: CME, Eurex, LCH

• Products: Equities and IRS (interest rate swaps)

• CCPs began drill at approximately same time on April 24, 2017.

• CCPs instructed CMs to assume a “Brexit” level of volatility and 

liquidity. 

• CCPs called CMs for hedge quotes, and recorded times and prices. 

• Regulators focus on hedging and auctioning, operational and 

financial aspects of a CM default at multiple CCPs.

 For example, would there be a potential financial benefit from 

cooperation between CCPs in hedging? 

• Regulators will seek extensive feedback from CCPs and CMs post 

drill. 

• Following April exercise, CCPs will conduct study related to auction 

file format alignment, including potential costs, benefits and barriers. 

• Separate multi-CCP porting exercise to follow, possibly Q1 2018.
Recommendation:

Auction Process

 CCPs should ensure auction process is clearly 

communicated

 CCPs should endeavor to harmonize auction 

process

 Consistency and transparency are key

 CCPs should develop auction playbooks

 Default Working Group created Uniform CCP 

Terminology for Default Management Auctions
Recommendation:

Customer Participation in Auctions

 As a general matter, voluntary, market-based tools 

to re-establish a matched book, e.g., auctions, 

should be encouraged, in order to avoid the 

necessity of mandatory tools such as partial tear-up.

 Permitting qualified non-clearing members to 

participate would potentially expand scope of bids, 

and increase the likelihood of successful auctions.

 Thus, CCPs should be encouraged to consider 

permitting non-clearing members to bid, and if so, 

the appropriate policies, procedures, rights, 

obligations, and confidentiality protections.
Recommendation:

Porting

 Transferring customers of an FCM in distress to a healthy 

FCM (“Porting”) is a key goal, as demonstrated by 

 § 764(b) of the Bankruptcy Code

 Commission’s Part 190 regulations

 Practice of CFTC and staff during prior bankruptcies

 Porting protects both customers and markets.

 Staff have historically taken a practical approach towards 

fostering transfers, before and after bankruptcy.

 Bankruptcy Court approval of transfers has been quick 

and reliable.

 Leverage Ratio makes finding transferees difficult.