MINUTES OF THE MEETING OF THE

U.S. COMMODITY FUTURES TRADING COMMISSION’S 

MARKET RISK ADVISORY COMMITTEE 

December 11, 2019 

The Market Risk Advisory Committee (MRAC or Committee) convened for a public 

meeting on December 11, 2019, at 9:30 a.m., at the U.S. Commodity Futures Trading 

Commission’s (CFTC or Commission) Headquarters Conference Center, located at Three 

Lafayette Centre, 1155 21st Street, NW, Washington, DC. The MRAC received reports from its 

subcommittees on Climate-Related Market Risk (CRMR), Market Structure, Central 

Counterparty (CCP) Risk and Governance (CCPRG), and Interest Rate Benchmark Reform

(IRBR). Additionally, there would be a follow-up discussion on Central Counterparty 

Adjustments to Discounting/Price Alignment Interest Environment. The MRAC also discussed

other issues involving the transition from the LIBOR to alternative risk-free reference rates 

(RFRs); including the recent consultation of the International Swaps and Derivatives Association 

(ISDA) on the final parameters for the spread and term adjustments that will apply to RFRs if

derivatives fallbacks are triggered. 

MRAC Members in Attendance

Nadia Zakir, MRAC Chair and Executive Vice President and Deputy General Counsel, Pacific 

Investment Management Company LLC (PIMCO)

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

Dr. Richard Berner, Clinical Professor of Management Practice in Finance and Co-Director of 

the Stern Volatility and Risk Institute, NYU Stern School of Business (Special Government 

Employee)

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 Markets BCE Management, Representing Citigroup

Alicia Crighton, Global Co-Head of Futures and Head of OTC and Prime Clearing Businesses, 

Goldman Sachs, Representing 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 

Vincent B. Johnson, Head of Commercial Advocacy & Regulatory Affairs, BP Integrated Supply 

and Trading

Demetri Karousos, Chief Risk Officer, Nodal Clear, LLC, and Chief Operating Officer, Nodal 

Exchange, LLC

Derek Kleinbauer, Global Head of Fixed Income & Equities Electronic Trading, Bloomberg LP 

and Vice President, Bloomberg SEF LLC

Laura Kimpel, Managing Director, The Depository Trust & Clearing Corporation 
2 

Sebastiaan Koeling, Chief Executive Officer, Optiver US LLC, Representing Futures Industry

Association - Principal Traders Group 

Robert Mangrelli, Director, Chatham Financial

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

Dennis McLaughlin, Group Chief Risk Officer, LCH Group

Craig Messinger, Senior Advisor, Virtu Financial

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

Corporation 

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

Representing Commodity Markets Council 

Dr. Sam Priyadarshi, Principal, Global Head of Portfolio Risk Management and Derivatives, 

Vanguard

Jonathan Raiff, Senior Managing Director and Deputy Head of Global Markets, Nomura Global 

Financial Products, Inc.

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

Morgan 

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

Lisa Shemie, Associate General Counsel, Chief Legal Officer – Cboe FX Markets and Cboe 

SEF, Cboe Global Markets 

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

Business, Oklahoma State University, Spears School of Business 

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

Janine Tramontana, Vice President and Senior Counsel, Federal Reserve Bank of New York

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, Merchant Banking Division, Goldman Sachs 

Scott Zucker, Chief Administrative Officer, Tradeweb

Invited Speakers and Panelists in Attendance

Bob Litterman, CRMR Subcommittee Chairman, Founding Partner and Risk Committee 

Chairman, Kepos Capital 

Lisa Shemie, Market Structure Subcommittee Co-Chairman, Associate General Counsel, Chief 

Legal Officer – Cboe FX Markets and Cboe SEF, Cboe Global Markets 

Stephen Berger, Market Structure Subcommittee Co-Chairman, Managing Director and Global 

Head of Government & Regulatory Policy, Citadel 

Alicia Crighton, CCPRG Subcommittee Co-Chairman, Chief Operating Officer, Prime Services, 

US Clearing, Goldman Sachs, Futures Industry Association 

Lee Betsill, CCPRG Subcommittee Co-Chairman, Managing Director and Chief Risk Officer, 

CME Group 

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

Stanley
3 

Biswarup Chatterjee, IRBR Subcommittee Initial Margin Working Group Leader, Global Head 

of Markets BCE Management, Citigroup 

Ann Battle, IRBR Subcommittee Disclosure Working Group Leader, Assistant General Counsel, 

ISDA

Agha Mirza, IRBR Subcommittee Member, Managing Director and Global Head of Interest Rate 

Products, CME Group 

Dennis McLaughlin, IRBR Subcommittee Member, Chief Risk Officer, LCH

CFTC Commissioners and Staff in Attendance 

Rostin Benham, Commissioner and MRAC Sponsor 

Heath P. Tarbert, Chairman

Brian D. Quintenz, Commissioner 

Dawn D. Stump, Commissioner 

Richard Haynes, Supervisory Research Analyst, Office of the Chief Economist

Alicia Lewis, MRAC Designated Federal Officer (DFO), Special Counsel and Detailee, Division 

of Clearing and Risk (DCR) 

I. Opening Remarks

Ms. Lewis called the meeting to order. Commissioner Behnam provided an overview of 

the agenda, stating that there would be updates from the MRAC’s three newest subcommittees: 

the CRMR Subcommittee, Market Structure Subcommittee, and CCPRG Subcommittee, and he 

praised the accomplishments of the MRAC and the IRBR Subcommittee related to the transition 

away from LIBOR, specifically referencing the MRAC’s approval of “plain English” disclosures 

for new derivatives referencing LIBOR and other IBORs. Commissioner Behnam noted that 

these disclosures are intended as helpful disclosures that market participants could use as 

appropriate, with clients and counterparties with whom they transact derivatives referencing 

LIBOR and other IBORS. He added that the “plain English” disclosures are not meant to 

undermine transition from LIBOR. Commissioner Behnam then discussed the forthcoming 

briefing from Richard Haynes, from the Commission’s OCE, discussing an OCE-published 

Commission research paper, “Legacy Swaps under the CFTC’s Uncleared Margin and Clearing 

Rules,” as well as the IRBR Subcommittee’s findings on the uncleared margin impact of 

transitioning legacy IBOR-linked derivatives to risk free rates. He added that the OCE paper’s 

conclusions underscore the important role to be played by the Commission and other regulators 

in the transition away from LIBOR. Commissioner Behnam then noted there would be a 

discussion on ISDA’s fallback consultations for benchmark fallback adjustments that have taken 

place as part of the larger global benchmark transition effort. Additionally, he stated that there 

would be current proposals from CME and LCH for transitioning price alignment interest and 

discounting for U.S. dollar OTC-cleared swaps to SOFR. He mentioned that the IRBR

Subcommittee could play an important role by hosting a tabletop exercise on the transition. 

Finally, he stated that he remains committed to ensuring that the MRAC continues to play an 

additive role in addressing the remaining challenges in transitioning away from LIBOR. 

Chairman Tarbert stated that it is critically important that the CFTC take a leadership role 

in helping the LIBOR-to-SOFR transition, particularly in the derivatives space. He noted that 

the UK FCA has been unequivocal that after 2021, LIBOR is going away. He warned that 
4 

failing to transition away from LIBOR is a source of risk to both the individual firm and a 

potential source of systemic risk to the global financial system. He announced that CFTC staff 

would be publishing no-action letters next week that will address concerns related to the 

amendment of legacy LIBOR swaps for the transition to SOFR. He explained that the CFTC 

would work to address the lurking threat of any potential “zombie LIBOR apocalypse,” where

LIBOR may continue to be published but is no longer a representative benchmark. In this case,

swaps could still be priced against a seemingly alive rate whose integrity as a benchmark is 

completely dead. 

Commissioners Quintenz and Stump and Chairwoman Zakir thanked Commissioners, 

members, and participants for their efforts and support. Chairwoman Zakir then conducted a roll 

call of the members participating by telephone.

II. Report from the Market Structure Subcommittee 

Ms. Shemie explained that the report of the subcommittee includes a list of topics related 

to market structure that the subcommittee plans to address over the next six months to a year, 

explaining that the group was solicited to provide ideas and topics for discussion that were then 

whittled down to threads of principles that would provide discussion. The subcommittee 

members were then briefed on the initial list, and, based on feedback from the group, a final list 

of topics was developed. The principal subcategories relate to trading, clearing, and reporting. 

Separate working groups have been formed to address topics within these subcategories and 

come up with initial recommendations for the Commission. 

Mr. Berger noted that the issues the subcommittee will be looking at are those that have 

been addressed by other groups and he gave examples of topics. For example, the trading 

working group, that is part of the subcommittee, has discussed “made available to trade” and

self-certifications by SEFs, while the clearing working group, that is also part of the 

subcommittee, has discussed clearing member concentration in both the swaps and futures 

markets and how the Basel capital requirements may disincentivize client clearing services by 

certain clearing members. Within the reporting category—another subcommittee working 

group—there has been discussion of the post-trade transparency regime and possible updates to 

block trade thresholds. 

Questions from the Committee were entertained, such as how the subcommittee intended 

to narrow the list of recommendations, if each of its working groups would make separate 

recommendations, and the timing of the recommendations for presentation to the MRAC. Other 

Committee members asked whether other Commission advisory committees could look at how 

other market aspects that the Commission looks at interact with market structure issues, as well 

whether the subcommittee could examine the conditions that support non-bank Swap dealers. In 

response to questions from the Committee, Ms. Shemie and Mr. Berger explained that the goal is 

to push out recommendations to the Commission within six months, and that the subcommittee 

will seek input from market participants and other committees. 
5 

III. Report from the CCP Risk and Governance Subcommittee 

Mr. Betsill stated that the subcommittee is working to deliver actionable 

recommendations and where it can, detailed best practices, to enhance the safety and soundness 

of cleared derivatives markets. The subcommittee will form two working groups, one to focus 

on CCP resilience and a second to focus on governance and capital issues. Ms. Crighton added

that for some topics (such as margin), it may be difficult to come to agreement on some of the 

recommendations, but it should be possible to come up with principles that will form the basis 

for some of the recommendations. Ms. Crighton said that the subcommittee will work to provide 

an update to the Commission on its progress by mid-2020 and substantive recommendations by 

the end of the year or the December 2020 meeting. 

In response to questions from the Committee, Ms. Crighton explained that the topics the 

resilience working group wants to focus on include margin, stress testing, liquidity, and 

principles of default management. She said that the governance and capital working group is 

considering governance and transparency, including cross-border regulatory issues, CCP capital 

and default resources (including skin in the game), and non-default losses. The discussion by 

MRAC members also touched on a number of issues, including the potential for systemic risk in 

the central clearing space, transparency around risk management practices, whether CCPs should 

allocate capital for the default fund, the potential adoption of new reporting processes for data 

sharing, and margin requirements. 

IV. Report from the Climate-Related Market Risk Subcommittee

Mr. Litterman stated that the subcommittee is tasked with writing a report by June 2020 

that will focus on climate-related financial and market risks and make recommendations to the 

Commission. He said that he hopes that the report can play an important role in guiding the 

climate response of the U.S. financial community. He anticipates that at the heart of the report 

will be a section on the implications for market oversight policies, including disclosures, 

governance, strategy, risk management, and conduct. The subcommittee also intends to 

recommend additional market and derivatives products that may improve the identification and 

hedging of climate-related financial risks, and recommend policies designed to facilitate capital 

flows required to finance the transition to a low-carbon economy. The subcommittee members 

reached a consensus that the appropriate role of the public sector is not to direct investments, but 

to provide incentives and the appropriate regulatory framework and let the market freely allocate 

capital. In response to questions, Mr. Litterman stated that he believes members of the 

subcommittee will break up into different workstreams that will be largely consensus-driven and 

that any member that wants to have input on different workstreams will be able to do so. Mr. 

Litterman was asked by the Chairwoman how the report would be prepared, and its anticipated 

completion date, and he stated that the work would be broken down into different work streams 

for processing, with an anticipated completion date of next June. 

[Break]

V. Report from the Interest Rate Benchmark Reform Subcommittee
6 

Mr. Wipf began by recapping the key developments in the LIBOR transition since 

September. He mentioned a number of key regulatory developments, such as publication by 

U.S. Prudential Regulators of proposed amendments to uncleared margin rules to provide broadbased relief for interest rate reform; a letter from the ARRC to the CFTC requesting regulatory 

relief related to the transition of derivative contracts from IBOR rates to alternative risk-free 

rates (which Chairman Tarbert referenced above); and a letter from the Financial Stability 

Board’s Official Sector Steering Group (OSSG) to ISDA reiterating its preference to include a 

pre-cessation trigger in ISDA’s new fallback language. He then referenced market 

developments, such as ISDA’s publication of the results of its consultation on final parameters 

for benchmark fallback adjustments; the ARRC’s publication of practical implementation 

checklists to help market participants with the LIBOR transition; and continued refinement by 

the clearinghouses of their proposals for how they will adjust discounting and price alignment 

interest. 

Mr. Wipf also introduced the three panel presentations on Legacy Libor Swaps and Initial 

Margin Findings, ISDA Developments, and CCP Adjustments to Discounting and Price 

Alignment Interest. He stated that there would be a discussion on the CFTC and MRAC’s 

subcommittees’ findings on the uncleared margin impact of transitioning certain legacy LIBORlinked derivatives to risk-free reference rates. Regarding LIBOR transition, he stated that the 

U.S. Prudential Regulators published proposed amendments to their uncleared margin rules to 

provide relief for interest rate reform; the Commission received a letter from the ARRC 

regarding regulatory issues regarding the transition from LIBOR He noted that both LCH and 

CME would give brief overviews of their current proposals on discounting and price alignment 

interest adjustments. Regarding LIBOR transition in the absence of any relief from the 

Commission, he stated that the subcommittee would attempt to quantify the impact to uncleared 

margin if no relief is granted, working with the Office of the Chief Economist at the 

Commission. The resulting published report used the regulatory grid method to estimate the 

initial margin that would be posted if these swaps lost their legacy status. He also mentioned that 

ISDA has made progress in finalizing benchmark fallback language that can be agreed to on a 

voluntary basis for legacy trades. Further, he stated that the subcommittee had discussed the 

operational challenges and potential market turbulence that could arise from differences between 

clearinghouses in compensation methodologies, and that both clearinghouses have coalesced 

around a single transition date, currently scheduled for mid-October 2020. He expects the 

discussion of coordination between the clearinghouses on their respective Single Step proposals 

will be ongoing over the next several weeks and months. He reiterated the subcommittee’s

request that the MRAC consider the merits of hosting a public tabletop demonstration involving 

both clearinghouses well before the October 2020 switch date as this could help market 

participants think through their respective steps to the Single Step event so they can risk-manage 

appropriately well in advance. He noted that the ARRC has established a Swaptions Working 

Group to focus on the clearing treatment for certain physically-settled swaptions, particularly 

after the Single Step transaction has occurred at the clearinghouses. He also discussed future 

steps for the subcommittee’s work which would include a discussion of coordination between the 

clearinghouses on their respective Single Step transition proposals, as well as a request to the 

MRAC to consider hosting a public tabletop demonstration on how transparency into the Single 

Step transition would benefit the market. 
7 

VI. Legacy LIBOR Swaps and Initial Margin Findings

Mr. Haynes presented a summary of the CFTC Office of the Chief Economist’s research 

paper titled “Legacy Swaps under the CFTC’s Uncleared Margin and Clearing Rules.” He 

commented on the implications of the markets transitioning away from LIBOR rates to other 

stronger rates such as SOFR. He noted that as markets adjust, market participants have asked for 

clarification regarding existing legacy swaps not subject to the new requirements, such as

whether this would cause legacy swaps to lose their status, and possibly be faced with uncleared 

initial margin (IM) requirements. He noted that if the LIBOR transition causes loss of legacy 

status, an initial margin may need to be posted for phased in counterparties, which is likely to be 

significant based on timing. Mr. Haynes calculated the initial margin—using graphics—

applying the so-called standardized grid method to the uncleared LIBOR-based swaps, yielding 

an aggregate total initial margin needed of around $100 billion. 

Mr. Chatterjee thanked Mr. Haynes for his presentation, and noted that the $100 billion 

amount presented will be spread out across market participants, covering a significantly 

meaningful amount of market participants, and that using the Standard Initial Model Margin 

(SIMM) model would result in an initial margin in the $40 billion range, rather than the $100 

billion amount, due to a number of caveats that may cause the grid model estimate to move in 

either direction. Mr. Chatterjee encouraged the Commission to continue examining the issue, 

and recommended that the MRAC approve the considerations of the Initial Margin working 

group and recommended that the Commission consider the findings and their recommendations 

regarding any relief.

VII. International Swaps and Derivatives Association, Inc. (ISDA) Developments

Ms. Battle delivered an overview of the work that ISDA is doing and has published 

regarding derivatives fallbacks, including timing for the implementation of these fallbacks. She 

explained that ISDA provided standard definitions and rate options selected by counterparties as 

a floating rate in OTC derivatives that have a floating rate. Ms. Battle explained that

standardized publishing provided ISDA the ability to update them and include more robust 

fallbacks. She explained that fallbacks are part of the important effort to move the market away 

from LIBOR, and amending legacy LIBOR contracts to include the fallbacks, would protect 

market participants from potential disruptions if LIBOR is discontinued, and their contracts are 

without a clear fallback rate. 

Ms. Battle commented on market participants concerns as to whether there should be a 

definitive moment to trigger the use of ISDA definitions regarding amended and restated rate 

options prior to the cessation of LIBOR. She commented that pre-cessation triggers should 

examine: the existing price source information; a statement identifying the objective triggers for 

a ‘permanent cessation’ that would activate the selective fallbacks; and a description of the 

fallback that would apply upon the occurrence of that trigger. She stated that ISDA is continuing 

with implementation of permanent cessation fallbacks while also working simultaneously with 

regulators and industry to increase market understanding of the implications. 
8 

Ms. Battle said that Bloomberg will publish the fallback adjustments and the relevant 

spread adjustment similar to that of LIBOR. Ms. Battle stated that in the first quarter of 2020, 

ISDA and Bloomberg will finalize the parameters for fallback rates while ISDA publishes 

amendments to its 2006 ISDA definitions and protocol for legacy transactions. She added that, 

in the second quarter of 2020, Bloomberg will publish adjustment and fallback rates. 

During the discussion, Mr. Betsill commented that pre-cessation issues should be geared 

to the market and that the CCPs needs to provide greater clarity if it is determined that LIBOR is 

no longer reliable. Mr. McLaughlin stated that benchmarks need to be representative of the 

underlying market. Mr. Hayden and Mr. Messinger both commented on Bloomberg being 

selected as the vendor to publish these adjustments, agreeing that it would provide information 

that is commercially accessible and offer the greatest market coverage. Mr. Mangrelli 

inquired—given that the ARRC has recommended fallback language—if any thought had also 

been given to reconsidering any other topics where ISDA and ARRC language may significantly 

differ. Ms. Walters commented on what will happen to the cash products linked to LIBOR after 

the deadline, wondering if there is a clear mechanism to apply fallback language to these 

products, and the future of LIBOR as it pertains to these cash products. 

Following the discussion, the MRAC voted on and approved the recommendation from 

the Interest Rate Benchmark Reform Subcommittee that the Committee approve the initial 

margin impact findings and for such findings to be submitted for consideration by the 

Commission. The recommendation was approved by unanimous vote. 

VIII. Follow Up Discussion on Central Counterparty Adjustments to Discounting/Price 

Alignment Interest Environment

Mr. McLaughlin stated that while LCH’s proposal will have further review, they 

attempted to design the process to be simple and straightforward. LCH is proposing that (1) 

compensation for the valuation and risk change will include both cash and compensating legacy 

swaps; (2) client accounts will have the option to elect cash-only if they choose; (3) and an 

auction will be used for the cash-only election. Mr. McLaughlin stated that LCH is targeting the 

conversion to take place on or around October 17th, 2020. 

Mr. Mirza stated that the CME Group believes that transitioning to SOFR will promote 

liquidity. He added that CME is looking for the transition to take place on October 16th, 2020. 

Mr. Mirza added that in order to have a smooth transition, market participants will be presented 

with various options. He concluded that effective October 19th, 2020, CME will apply SOFR to

all cleared USD interest rate swap products.

Following the presentations, Chairwoman Zakir opened the floor for questions and 

comments. The MRAC then voted to approve the recommendation from the Interest Rate 

Benchmark Reform Subcommittee to hold a table-top exercise simulating the October 2020 

transition to SOFR. The recommendation was approved by unanimous vote. 
IX. Closing Remarks 

Commissioner Behnam thanked the participants and especially the Co-Chairs, and noted 

that the MRAC has a lot to consider going forward. He stated that to make progress on CCPs the 

focus should be on what can be agreed on to move the conversation forward to maintain healthy 

markets. Regarding the LIBOR transition, Commissioner Behnam stated that, although there are 

still a lot of unresolved issues, it is important to understand the CCP topic in order to make better 

decisions. He agreed that the tabletop exercise recommended would be good to do if a workable 

date and time can be determined. Ms. Lewis adjourned the meeting at 1 :08 p.m. 

I hereby certify that the foregoing minutes are accurate. 

Chair, Market Risk Advisory Committee 

9