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.

RECOMMENDATIONS ON CCP GOVERNANCE AND SUMMARY OF 

SUBCOMMITTEE CONSTITUENT PERSPECTIVES

Report of the Central Counterparty (CCP) Risk and Governance Subcommittee,

Market Risk Advisory Committee of the 

U.S. Commodity Futures Trading Commission

Acting Chairman Rostin Behnam, Sponsor 

Lee Betsill & Alicia Crighton, Co-Chairmen

Approved by the Market Risk Advisory Committee for CFTC Consideration

February 23, 2021
Approved by the Market Risk Advisory Committee for CFTC Consideration

February 23, 2021

MRAC: Subcommittee on CCP Risk and Governance: Summary of Clearing Member & End-user Recommendations, CCP Responses and Areas of Agreement

Representatives on the MRAC Subcommittee on CCP Risk and Governance (the “Subcommittee”) from DCOs, clearing members, and end-users held several meetings to 

discuss their perspectives on CCP Risk Governance. The Subcommittee’s discussions focused on the CFTC’s DCO rule filing process under the Part 40 Rules, DCO forums and 

processes to solicit participant feedback, and standards governing DCOs’ risk committees (“RCs”). Recommendations for improving DCOs’ governance arrangements were 

initially drafted by a subset of MRAC members representing clearing members and end-users (collectively referred to herein as “market participants”1,2). The market 

participants’ recommendations seek to further enhance the effectiveness of CFTC governance standards by ensuring that DCOs’ management and their boards of directors 

have a formalized process to solicit, consider, and address input from varied clearing members and end-users before making decisions that could materially affect the risk 

profile of the DCO’s activity3. The DCOs’ responses to the recommendations reflect a shared objective to solicit and consider market participants’ risk-based (noncommercial) feedback through DCO forums and codify standards governing DCOs’ RCs. 

As an output of the Subcommittee’s exercise, recommendations for DCOs’ governance arrangements from the clearing members and end-users of the Subcommittee4 and 

the related responses from the DCOs of the Subcommittee are included in Section I. The statutory authority of the CFTC related to governance and existing CFTC regulations

are summarized in Section II.

The specific recommendations where areas of agreement were reached by the Subcommittee5 are summarized as follows with additional details on these 

recommendations, in the table further below. 

• Risk Forum to Obtain Input: A DCO should establish various channels (such as risk advisory working groups) to solicit and obtain risk-based views of market

participants in the early stages of proposing changes that could materially affect the risk profile of the DCO’s activity and choose the appropriate means of soliciting

views depending on the issue to be addressed. The Subcommittee agreed to support a CFTC rule amendment as follows:

1

For the purpose of governance arrangements, “market participants” should be formally defined to include at a minimum clearing members and end users whose margin and positions are 

at risk in a tail event.

2

See The ClearingHouse Recommendations on Current CCP Risk Governance & Member Consultation Processes, FIA Global CCP Risk Position Paper, ISDA CCP Best Practices, Joint Trade 

response to CPMI-IOSCO Consultative report Resilience and recovery of central counterparties (CCPs):Further guidance on the PFMI. Many of these recommendations are also reflected in 

A Path Forward for CCP Resilience, Recovery, and Resolution published by 20 firms representing clearing members and end-users.

3 The International Monetary Fund recommended in its August, 2020 United States : Financial Sector Assessment Program-Technical Note-Supervision of Financial Market Infrastructures, 

Resilience of Central Counterparties and Innovative Technologies (see Table 1 on pg. 8 and para 22 on pg. 16) that the CFTC strengthen the rule approval process for systemically important 

CCPs from a “no-objection” approach to an affirmative approval process to be in line with the systemic profile of CCPs and recommended adding a public consultation phase into CFR 40.10 

to allow stakeholders to formally express their opinion.

4

Independent members of the sub-committee, Richard Berner, Clinical Professor of Management Practice in Finance and Co-Director of the Stern Volatility and Risk Institute, NYU Stern 

School of Business, and Marcus Stanley, Policy Director, Americans for Financial Reform, expressed views generally supportive of the Clearing Member and End-User perspectives as laid out 

in the remainder of this paper.

5

Specific language of the proposed rule changes would not align with Nodal’s or MGEX’s governance structure but Nodal and MGEX believe their existing structures achieve the 

goals/outcomes of the proposed changes and are therefore generally supportive of the intent/ objective of the recommendation.
o Amend Rule 39.26 or Rule 39.13 to require establishment and regular scheduling of one or more market participant risk advisory working groups as a

forum to seek risk-based views from a broad array of market participants; and

o For purposes of DCO risk forums or risk advisory working groups, define market participants within Rule 39.26 (or Rule 39.13) to include at least

representatives from clearing members and end-users.

• Risk Management Committees: RC members must have clearly defined roles and obligations regarding the interests they represent and must have the ability and

expertise to perform their role effectively. Therefore, the Subcommittee agreed to support a codification of best practices for RCs with amendments to CFTC Rule

39.24 as follows:

o Adding a new Rule 39.24(b)(4) (and re-numbering accordingly) that states:

(b) A derivatives clearing organization shall have governance arrangements that: (4) Establish one or more risk management committees and require the

board of directors to consult with and consider feedback from the risk management committee(s) on all matters and proposed changes to the derivatives

clearing organization’s rules, procedures, or operations that could materially affect the risk profile of the derivatives clearing organization, including any

material change to the derivatives clearing organization’s risk model, default procedures, participation requirements, and risk monitoring practices, as well

as the clearing of new products that could significantly impact the derivatives clearing organization’s risk profile;

o Adding a new Rule 39.24(c)(1)(iii) (and re-numbering accordingly) that states:

(c)(1) A derivatives clearing organization shall establish and enforce appropriate fitness standards for: (iii) Members of each risk management committee;

o Adding a new Rule 39.24(c)(2)(iv)(A)-(B) that states:

(2) A derivatives clearing organization shall maintain policies to make certain that: (iv) Members of each risk management committee: (A) Are able to

provide a risk-based independent, informed opinion on all matters presented to the risk management committee for consideration and perform their duties

in a manner that support the safety and efficiency of the derivatives clearing organization and the stability of the broader financial system; and (B) Include

representatives from market participants.

o Adding a new Rule 39.24(c)(2)(v) that states:

(2) A derivatives clearing organization shall maintain policies to make certain that: (v) Membership of each risk management committee is reconstituted on

a regular basis.

I. Clearing Member & End-user Recommendations and CCP Responses

General Views

Topic Clearing Members & End-Users Perspective DCO Perspective

General A. Regulatory requirements on CCP governance standards must be

enhanced to ensure that CCP management and their boards of

directors have a formalized process to solicit, consider, and address

risk-based input from varied clearing members and end-users

(collectively referred to herein as “market participants”) before

Pursuant to the DCO Core Principles7 and CFTC rules, a DCO’s governance 

arrangements are required to prioritize the stability of the broader 

financial system. In addition to its regulatory obligations, a DCO is 

inherently incentivized to effectively manage the risks of its market 

participants and in a manner that supports financial stability, since the 

7 7 U.S.C. 7a-1.
making decisions that could materially affect the risk profile of the 

CCP’s activity. In particular, greater risk-based input should be 

solicited from any market participants or segments of the industry 

which the CCP believes may be disproportionately or directly 

impacted by such decisions from a membership/user risk 

perspective. CFTC Rule 39.26 does not require DCOs to solicit, 

consider, and address the independent risk-based views of 

different segments or categories of market participants. 

B. Where risk-based input received by a CCP through such a

formalized process is not fully reflected in the outcome of the

CCP’s action, the CCP should be required to explain the decision

making to market participants and provide feedback to its

regulators on the various risk-based viewpoints considered (and

not just summarized substantive viewpoints as is now required),

and rationale for adopting a specific approach (and not

incorporating input received).

C. These recommendations are not in any way intended to advance

participant commercial interests and are being put forth to solely

enhance CCP risk governance processes and ensure relevant and

appropriate participant risk concerns are voiced and considered.

Below are the gaps within the applicable CFTC rules identified by the 

clearing members and end-users of the Subcommittee relative to their 

recommendations: 

The CFTC has adopted regulations setting explicit minimum requirements 

in Rule 40.5, Rule 40.6, Rule 40.10 and Rule 39.26 to achieve the 

statutory objectives set forth in the Core Principles. However, there is no 

explicit rule that requires DCOs to solicit, consider, and address views of 

all participants on all issues being considered by the DCO that could 

materially affect the risk profile of the DCO’s activity or to establish a 

forum to solicit such views.

• Rule 40.5 (Rule approval) and Rule 40.6 (Self-Certification) require

DCOs to post notices on their website, but these rules do not

require DCOs to solicit the views of market participants or to solicit

franchise value of a DCO is dependent on the integrity of its markets, 

which is predicated on its success as a risk manager. A significant risk 

management failure by a DCO directly results in the owners of the DCO 

and/or its parent company experiencing a degradation of the value of 

their ownership stake. In contrast, market participants generally accrue 

commercial benefits from their directional positions, whereas a DCO and 

its owners are solely focused on the integrity of the markets it clears.

A DCO’s market participants form an important part of their governance 

arrangements, including as represented on the board of directors. 

However, given that market participants’ decision-making can be 

motivated by their commercial interests, a DCO must ensure that only 

market participants’ risk-based input informs a DCO’s risk management 

decisions under its governance arrangements. This requires a carefully 

calibrated feedback mechanism that excludes commercially driven views, 

while allowing for the risk management expertise of clearing members 

and their customers to inform the DCO’s risk management decisions. One 

example of this framework is through a DCO’s RC or similar forum, where 

clearing members, customers, and other stakeholders (e.g., service 

providers) have the opportunity to provide risk-based feedback to the 

DCO, but are required to act in the best interests of financial market 

stability, rather than in the interests of their employers. A duty of RC 

members to prioritize the stability of the markets for which a DCO clears 

is appropriate and prevents commercially driven views from influencing 

the input a DCO receives via such committee. 

The regulatory requirements imposed by the DCO Core Principles and 

related CFTC rules for DCOs set appropriate requirements for governance 

arrangements, including seeking market participant feedback and 

ensuring that the arrangements reflect the public interest considerations 

of the DCO’s stakeholders. These regulatory requirements are reflected in 

the governance arrangements described above, including in relation to 

the RC or similar forum. 
views across different segments or categories of market 

participants. 

• Rule 40.5 and Rule 40.6 require DCOs to report substantive

opposing views to the extent they are provided by market

participants, but it is unclear what the “substantive” standard

means and if minority views would be reported.

• Rule 40.6 allows the Commission to issue a stay and provide for a

public comment period, but does not require DCOs to conduct a

consultation with market participants prior to filing (when CCPs

would have greater ability to consider and address such

comments). Rule 40.5 does not allow the Commission to issue a

stay or provide for a public comment period.

• Rule 40.10 requires SIDCOs to provide 60-day notice to the CFTC

and Federal Reserve Board of any “proposed change to its rules,

procedures, or operations that could materially affect the nature or

level of risks presented by the systemically important derivatives

clearing organization6”, but does not require SIDCOs to solicit the

views of market participants or to solicit views across different

segments or categories of market participants.

• Rule 39.26 (adopted in January 2020) requires that a DCO include

market participants and individuals who are not executives,

officers, or employees of the DCO or an affiliate thereof on the

DCO’s governing board or board-level committee with the ultimate

decision-making authority for the DCO, but does not require DCOs

to solicit, consider, and address the independent views of different

segments or categories of market participants as would be

provided by the abovementioned methods. The term “market

participant” is not defined for purposes of Rule 39.26 and, as such,

it is unclear if it includes representatives from end-users.

It is also noted that DCOs are required to provide feedback to regulators 

on the substantive opposing views expressed in response to their rule 

filings. The DCOs on the Subcommittee understand that it has been 

suggested that such a requirement is not sufficient and must be 

expanded. The DCOs on the Subcommittee take a different view. The 

requirement to only provide feedback on substantive opposing views is 

sensible and one which ensures that non-substantive and commercially 

driven views are not subject to unnecessary and/or inappropriate 

disclosure and review. Such views are not relevant to risk management 

decisions, thus they are rightfully excluded from the regulatory review 

process.

While the CFTC regulatory framework is sufficient to elicit and consider 

input from market stakeholders, the DCOs on the Subcommittee are 

open to the creation of additional avenues for market stakeholders to 

express their risk management views to DCOs. For example, the 

utilization of a “Risk Advisory” committee, which some DCOs already 

have in place, would be an appropriate mechanism to provide additional 

avenues for clearing members and customers to provide risk-based input. 

We look forward to working with our market stakeholders to expand on 

this framework. 

Below the CFTC’s current regulatory framework for a DCO’s governance

arrangements is summarized, as well as its benefits.

DCO Regulatory Framework

Pursuant to DCO Core Principle O, a DCO must have governance 

arrangements that are transparent in order to fulfil public interests 

requirements and consider the views of owners and participants. In 

addition, DCO Core Principle Q requires that a DCO’s board must include 

market participants. CFTC Rule 39.26 further promulgates that a DCO’s 

board is required to include “market participants and individuals who are 

not executives, officers, or employees of the derivatives clearing 
organization or an affiliate thereof.” Market participants form an 

important part of a DCO’s governance arrangements by providing their 

expertise. 

CFTC Rule 39.24(a)(1)(iv) goes on to require that a DCO’s governance 

arrangements must prioritize supporting the stability of the broader 

financial system and other public interests, while placing a high priority 

on the safety and efficiency of the DCO itself. This includes the public 

interests of clearing members, end-users, and other relevant 

stakeholders. As such, pursuant to CFTC Rule 39.24(a)(2), major decisions 

of a DCO must appropriately reflect the legitimate interests of clearing 

members, end-users, and other relevant stakeholders. In order to comply 

with such requirements a DCO appropriately designs its governance 

arrangements to ensure that the board, typically through the DCO’s 

management, receives risk-based input from market stakeholders. DCOs 

have multiple forums for seeking the views of these stakeholders, as 

described below, which are appropriately tailored to the unique 

characteristics of a given DCO.

CFTC regulations under the Part 40 Rules set out a framework for a DCO 

to file changes to its rulebook and risk management practices – rule 

filings follow a standardized format and are publicly available. Such 

regulations provide that market participants substantive opposing views 

are appropriately reflected in a DCO’s rule filings, while also 

differentiating between material changes and less impactful changes, in 

order to allow for appropriate time for review and challenge. 

Consistent with DCO Core Principle O, CFTC Rule 39.24(a)(1)(i)-(ii)

requires that a DCO’s governance arrangements should be written, clear, 

and transparent. This would include relative to the RC, which should have 

written charters and other documentation, as necessary, that clearly lay 

out the duties of members and responsibilities of such committee. 

Further, in line with CFTC Rule 39.13(b), a DCO’s board must adopt the 

DCO’s risk management framework and be responsible for making major 

decisions, while its management is responsible for the actual 
implementation of this framework. The framework should clearly identify 

and document the range of risks to which the DCO is exposed and 

address the monitoring and management of the entirety of those risks.

Specific Recommendations

Topic Clearing Members & End-Users Recommendations DCO Response

Risk Forum to 

Obtain Input

Agreed to amend Rule 39.26 or Rule 39.13

Clearing members contribute to a CCP’s mutualized default fund and endusers’ margin and positions are at risk in a tail event impacting a CCP; as 

such, CCP governance arrangements should consider risk-based input from 

market participants.

CCPs should establish various channels (such as risk advisory working 

groups, member ballots) to solicit and obtain risk-based views of market 

participants in the early stages of proposing changes that could materially 

affect the risk profile of the CCP’s activity and choose the appropriate 

means of soliciting views depending on the issue to be addressed. This 

would allow all market participants to freely represent the risk-based views 

of their firms and other similarly situated market participants. Irrespective 

of the forum used, CCPs should be required to demonstrate that broad 

market participant risk-based input has been sought and considered from a 

variety of market participants across different segments of the industry.

A. Amend Rule 39.26 or Rule 39.13 to require establishment and

regular scheduling of (a) one or more market participant risk

advisory working groups as a forum to seek risk-based views from a

broad array of market participants, and (b) a mechanism to

conduct a poll of clearing members and use the results to inform

(though not necessarily instruct) CCP decisions.

B. Define market participants within Rule 39.26 (or Rule 39.13) to

include representatives from clearing members and end-users.

We acknowledge that some CCPs have risk advisory or working groups but 

others only have operational and/or product advisory working groups. 

Further, even in case of CCPs that have risk advisory groups, there have 

been instances when specific rule changes increasing member liability have 

A DCO provides multiple forums to obtain input from market 

stakeholders that are appropriately tailored to the DCO’s governance 

arrangements, as well as the topic at hand. The forums that a DCO 

leverages to obtain input must recognize that only risk-based input from 

market participants should be considered relative to risk management 

decisions. Forums to obtain input may include RCs, working groups, 

coordination through industry associations, one-on-one discussions, and 

rule filings. This is in addition to market participants being included on a 

DCO’s board, as required under DCO Core Principle Q and CFTC Rule 

39.26. Of note:

- RC: RCs act as forum for DCOs to garner the risk management

expertise of their market participants, where they act in a manner

that prioritizes the safety and efficiency of the DCO and the

stability of the broader financial markets. Although, the views

solicited through an RC are those of its represented market

stakeholders, the composition of the RC and the responsibilities

thereof, are designed to represent the best interests of the market

as a whole. As such, RCs provide DCOs an effective vehicle for

soliciting risk-based input from market participants.

- Rule Filings: Rule filings follow a standardized format established

under the CFTC’s Part 40 Rules, which is intended to allow for rule

filings to be easily digestible to market participants and provide a

venue that is suitable for market participants to provide their

commentary to a DCO and other key market stakeholders over a

given period of time. The period of time for review varies by the

filing type, with the filing type determined based on the type of
been filed with regulators without discussion in these forums. Ideally, all 

CCPs would be required to institute risk advisory or working groups with 

meetings at a regular frequency (at least quarterly) and ensure all material 

risk matters are in scope for discussion.

change and in the case of SIDCOs, its materiality. The length of 

time is designed to provide market stakeholders the necessary

time to review the change, while being appropriately efficient. 

Further, pursuant to CFTC Rules 40.6(c) and 40.10(f), the ruling 

filing process also provides the CFTC time to issue a stay of the 

certification or extend the review period, respectively. This 

provides the CFTC additional time to analyze the filing and for 

interested parties to provide feedback and in turn, for such 

feedback to be considered.

Many DCO members on the Subcommittee currently have “Risk Advisory” 

committees or other similar forums, however believe that participant 

ballots would be an unacceptable method for seeking risk management 

feedback due to the negative implications for efficiency, difficulty in 

ensuring that all the participants in such a large forum avoid letting their 

commercial interests impact their feedback, and the fact that material 

risk management decisions by DCOs are already subject to robust review 

as described below. Notwithstanding the foregoing, the use of a “Risk 

Advisory” committee sidesteps these potential problems. As such, 

generally, the DCO members find the recommendation in A(a) to amend 

Rules 39.26 or 39.13 from the market participant members on the 

Subcommittee to be acceptable. It must be clear, however, that while a 

DCO must provide forums for seeking input and legitimate risk-based 

input should be appropriately considered by the DCO, a DCO’s board 

must ultimately maintain the responsibility for making major decisions

consistent with well-established corporate law principles and 

requirements.

Consultation 

Prior to Rule 

Filing

No Agreement between DCOs and Clearing Members & End-Users

CCPs should conduct such a consultation with market participants8 before 

filing any rule submission with the CFTC that could materially affect the risk 

profile of the CCP’s activity. Such consultation is separate and distinct from 

existing RCs because not all participants are represented in RCs and those 

Consistent with CFTC rules, a DCO designs its governance arrangements

to ensure that market participants are appropriately consulted and have 

the opportunity to provide risk-based input as appropriate. As discussed 

immediately above, DCOs provide a number of forums for consultation 

8 There are many clearing members and even more end users, and a CCP cannot be expected to obtain input from all constituents. There needs to be a mechanism for ensuring that a 

“sufficient quorum” of participants is consulted. 
committees’ members often have duties that preclude them from 

representing their employers. In addition, RC members are often precluded 

from consulting relevant experts within their organizations, which can 

impede the value of the consultation. We note that EU regulation requires 

that “[t]he CCP shall have a process ... prior to implementing any material 

changes to consult with all affected clearing members and submit the 

proposed changes to the competent authority.”9

The consultation should include whether the proposed rule change 

“presents novel or complex issues” as that term is used in Rule 40.6, and 

therefore, should be identified as such in the rule filing with the CFTC.

C. Amend Rule 40.5 (a) (6), Rule 40.6(a)(2) and Rule 40.10 (a) (1) to

add the following section to require consultation with market

participants allowing them to provide formal feedback prior to any

rule filing that could materially affect the risk profile of the CCP’s

activity: For submissions by a derivatives clearing organization,

such derivatives clearing organization shall also provide a

certification that it has notified and consulted with a variety of

market participants representing different segments of the

industry and the relevant risk management committees, and a

description of the manner in which the notification and

consultation was conducted.

We note several examples of rule filings pertaining to material changes to 

recovery rules increasing membership liability without consulting members 

and these were filed either via CFTC Rules 40.10 or 40.6. A CCP amended its 

end of waterfall recovery rules through the 40.6 self-certification process 

without prior consultation with market participants, and such amendments 

introduced variation margin gains haircutting and partial tear-ups. Another 

CCP increased membership liabilities through a 40.10 rule filing, introducing 

allocation of non-default losses to members without prior notice or 

consultation with members. A CCP had product expansion to Bitcoin 

contracts without consultation which exposed members to new/novel risk 

and the forum used is selected based on the type of change and of 

course, the DCO’s specific governance arrangements. Given the number 

of clearing members and even greater number of end-users that engage 

in a DCO’s clearing services, a DCO cannot and should not be expected to 

engage every participant. Such an approach would be unwieldy, reduce 

operational and risk management efficiency, and have limited benefit to 

overall market resilience. However, DCOs design their governance 

arrangements to require consultation with market participants prior to 

rule filings that modify clearing rules – e.g., rule filings under CFTC Rules

40.6, 40.5, and 40.10. 

In addition, the rule filing process, in conjunction with a DCO’s 

governance arrangements, is designed to ensure that only risk-based 

input is considered prior to and during the rule filing process. This is 

critical. As detailed above, commercially driven views cannot and should 

not influence a DCO’s risk management decisions. Considering this, the 

DCO members of the Subcommittee believe that the commentary from 

the market participant members of the Subcommittee on the launch of 

Bitcoin contracts was driven predominantly by commercial interests. For 

example, in the case of CME, its Bitcoin contract did not present new or 

novel risk. In fact, the contract is a simple cash-settled index future, 

which has similar risk characteristics to other contracts CME clears. CME’s 

risk analyses, prior to clearing the contract, affirmed this and in 

particular, that the price risks associated with the contract could be 

readily managed through CME’s current risk management tools and 

protocols. In addition, the expected and actual open interest for the 

CME’s Bitcoin contract represents an immaterial risk in the scope of the 

broader clearing house risk universe.

Notwithstanding the foregoing, as described above, the different rule

filing types are designed to take into account the significance of the rule 

change and the DCO’s standing, or lack thereof, as systemically important 

9

See Article 5: Compliance Policy and Procedures of COMMISSION DELEGATED REGULATION (EU) No 153/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the 

European Parliament and of the Council with regard to regulatory technical standards on requirements for central counterparties 
through the mutualized default fund. Following a rule filing under 40.6 

without sufficient input from members and end-users, the CFTC staff issued

Advisory with respect to Virtual Currency Derivative Product Listings. The 

Advisory recommends consultation with members and other relevant 

stakeholders prior to any rule filing. It is unclear how a DCO’s board of 

directors can make certain that legitimate interests of market participants 

are reflected and demonstrated in cases where no consultation occurs prior 

to rule submission.

Given the Commission’s recognition that market participants can provide 

valuable input prior to a rule filing under 40.10, 40.6 or 40.5, this process 

should be formalized by the Commission for at least novel and complex 

product filings and rule changes that could materially affect the risk profile 

of the CCP’s activity. In the case of 40.6,this enhancement would keep selfcertification in place while ensuring necessary input by impacted firms.

in the U.S. It is inappropriate to create a “one size fits all” framework for

the rule filing process, including their review and solicitation of feedback. 

While all rule filings are subject to the appropriate level of review by the 

CFTC in light of the type of change filed, filings pursuant to CFTC Rule

40.10 are subject to particularly rigorous review by the CFTC and also the 

Board of Governors of the Federal Reserve System. The significant review 

time for these filings is embedded into the regulation and allows ample 

opportunity for market stakeholders to provide feedback to the given 

DCO and CFTC. 

The DCO members of the Subcommittee appreciate the focus of market 

stakeholders on risk management in their feedback through this exercise, 

but it is unclear why the current level of risk management review of 

initiatives is insufficient. In particular, in the case of material changes, 

including those related to major decisions (regardless of a DCO being 

systemically important or not), review is concluded internally by the 

DCOs’ boards and/or board-level committees and externally by RCs (or 

similar forums) and the CFTC, as well as the Board of Governors of the 

Federal Reserve System in certain cases. All of these parties have 

significant expertise in derivatives markets and risk management. 

Additionally, in many cases, an expanded set of market stakeholders is 

engaged for risk management input prior to filing a rule. Notably, all 

parties involved in the formalized review process have obligations to 

prioritize the stability of the broader financial system, in order to ensure 

that they have appropriate incentives in conducting their reviews.

Notwithstanding this, CFTC Rule 39.24(a)(2) explicitly requires that the 

DCO’s board makes certain that “major decisions appropriately reflect 

the legitimate interests of clearing members, customers of clearing 

members, and other relevant stakeholders”. As stated in the section on 

“Forum to Obtain Input”, it’s critical that only risk-based input from 

market participants inform risk management decisions. Major decisions 

are also clearly disclosed to the relevant stakeholders. While a DCO must 

appropriately define within its governance arrangements how to 

determine if a decision is a “major decision” relative to its structure and 
offering, a major decision is typically one that has a significant impact on 

a DCO’s risk management practices or resources. 

Feedback 

Loop

No Agreement between DCOs and Clearing Members & End-Users

There must be a clearly defined process for CCPs to factor in risk-based 

feedback received (through the forum and consultation processes per 

above) prior to submitting a rule filing. While there could be some 

dynamic tension across the viewpoints expressed by market participants 

and CCPs, to the extent that specific risk-based feedback from any 

constituent has not been incorporated (even if this is the exception), CCPs 

should be required to revert back to market participants informing them 

of the decision and outlining the rationale behind their action. There is no 

CFTC requirement currently for CCPs to provide direct feedback to 

participants on decisions made and reflected in rule filings.

• Amend Rules 40.5, 40.6 and 40.10 as follows to require a

response to market participants on feedback provided

prior to rule filing: In the event a market participant

provides risk-based input on a proposal and such proposal

could materially affect the risk profile of the derivatives

clearing organization’s activity, if the rule proceeds

without adopting the market participant’s feedback, the

derivatives clearing organization shall provide the market

participant with a brief explanation for its action.

This rule amendment would promote an open dialogue and 

greater understanding between the CCPs and market 

participants.

DCOs have clearly defined processes for considering risk-based feedback 

from market participants, as supported by the CFTC regulatory 

framework and in particular, the rule filing process. As noted above, 

additional mechanisms for feedback, beyond Risk Advisory committees

and other forums a DCO currently uses, risk allowing commercially driven 

feedback to be provided in the context of making risk management 

decisions, unless strict limitations are in place to eliminate such feedback. 

In particular, rule filings are published publicly on the CFTC website, 

which is a practice not followed in many jurisdictions and rule filings 

under CFTC Rules 40.6, 40.5, and 40.10 require:

“A brief explanation of any substantive opposing views expressed to 

the registered entity by governing board or committee members, 

members of the entity or market participants, that were not 

incorporated into the rule, or a statement that no such opposing 

views were expressed.”

Including such explanation, in addition to receiving feedback in the first 

place and subjecting the rule filing to review under the DCO’s defined 

governance arrangements, provides for appropriate transparency to 

market participants and scrutiny. While a DCO must fairly consider 

legitimate risk-based input from market participants, it would be unduly 

burdensome with unclear benefits for a DCO to address every piece of 

received feedback. Market participants benefit from transparency, which 

is provided by the current rule filing process and DCOs benefit from 

market participant feedback, which is provided as described in the 

section “Consultation Prior to Rule Filing”. 

In addition, in order to comply with CFTC Rule 39.24(a)(2), in the case of 

major decisions, it is required that when a DCO receives feedback from 
market participants such feedback must be appropriately disclosed to a 

DCO’s board of directors.

Reporting No Agreement between DCOs and Clearing Members & End-Users

While implementing changes that alter the risk profile of a CCP’s activity, 

there should be clear documentation provided to regulators as to the 

feedback received, CCP response/action, and rationale for accepting, 

incorporating, or rejecting the feedback. While the CFTC rules require 

substantive opposing views to be explained, minority risk-based views 

and/or those deemed by the CCPs to be not substantive, are not generally 

reported.

• Amend Rule 40.5 (a) (8), Rule 40.6 (a) (7) (vi) as follows and add

this new language to 40.10 (a) (1): to require all (not just

substantive) opposing views, including minority risk-based views,

to be reported to regulators as part of a rule filing:

o Provide a brief explanation of all opposing risk-based

views expressed to the registered entity by governing

board or committee members, members of the entity or

through its consultation process with market participants

that were not incorporated into the rule, or a statement

that no such opposing risk-based views were expressed.

Current CFTC rules set-out an appropriate framework for requiring a DCO

to notify the CFTC of changes to its practices. In particular, as noted 

above, Part 40 Rules establish a standardized format for filing rule 

changes with the CFTC – the specific filing type (e.g., contents of the filing 

and length of review) is determined by the type of change and in the case 

of SIDCOs, its materiality. As noted above, rule filings under CFTC Rules

40.6, 40.5, and 40.10 require:

“A brief explanation of any substantive opposing views expressed to 

the registered entity by governing board or committee members, 

members of the entity or market participants, that were not 

incorporated into the rule, or a statement that no such opposing 

views were expressed.”

As detailed further above, the substantive standard is appropriate to 

ensuring that only legitimate risk-based feedback is provided as part of 

the rule filing process. In addition, CFTC Rules 39.19(c)(4)(xxi) and 

39.24(a)(3)(i) also require that the CFTC be notified of any major decision 

of the DCO’s board of directors.

Risk 

Management 

Committee 

Standards

Agreed to amend Rule 39.24

RC members must have clarity on the role they play/interest they 

represent and must have the ability and expertise to perform their role 

effectively.

We have observed the best practices outlined below: 

- Duty of RC members: RC members provide an independent,

informed opinion on a CCP’s risk management strategy and the

impact of a CCP’s actions on CCP stability, market participant

stability, and market resilience, rather than act as fiduciaries of the

CCP.

The following standards generally apply to a DCO’s RC or similar forum:

- Duty of RC members: RC members provide an independent,

informed opinion on a CCP’s risk management strategy and the

impact of a CCP’s actions on CCP stability, market participant

stability, and market integrity – this could be achieved through

being required to act, not a as fiduciary, but with a duty of care

that prioritizes the safety and efficiency of the DCO and the

stability of the broader financial markets.

- Scope of the RC: The minimum requirements or scope of risk

matters that must be considered by an RC should be clearly

articulated in the RC’s charter (or similar documentation) to
- Scope of the RC: CCPs prescribe the minimum requirements or

scope of risk matters that must be considered by an RC to ensure

that material risk matters are considered and addressed. At

minimum, these should include a significant change in the CCP’s

risk model, default procedures, membership criteria and

surveillance practices as well as to the clearing of new products.

- Ability to consult internally: RC members are permitted to consult

with experts internally at their employer firms subject to certain

guidelines (and bound by appropriate terms of confidentiality) to

enhance the effectiveness of the RCs.

- Tenure of participation: Committees should be established on a

term-basis with rotation of members at the end of the term to

ensure diversity of perspective across participants.

In order to codify these best practices, we recommend amending CFTC Rule 

39.24 as follows:

- Adding a new 39.24(b)(4) (and re-numbering accordingly) that

states: “(4) Establish one or more risk management committees

and require the board of directors to consult with the risk

management committees on all matters to be considered by the

board of directors and all proposed changes to the derivatives

clearing organization’s rules, procedures, or processes that could

materially affect the risk profile of the derivatives clearing

organization’s activities, including a material change to the risk

model, default procedures, membership criteria, surveillance

practices, new product definitions or criteria, or services of the

derivatives clearing organization;”

- Adding a new 39.24(c)(1)(iii) (and re-numbering accordingly) that

states: “(iii) Members of each risk management committee;”

- Adding a new 39.24(c)(2)(iv) that states: “(iv) Members of each risk

management committee provide an independent, expert opinion

on all matters presented to the risk management committee for

consideration,”

ensure that material risk matters are considered and addressed. 

To support this, the charter should be subject to regular review. 

At minimum, the RC’s review should include any significant 

changes in the DCO’s risk model, default procedures, 

membership criteria, and surveillance practices, as well as to the 

clearing of new products that could have a significant impact on 

the risk profile of the DCO.

- Ability to consult internally: RC members are permitted to

consult with experts internally at their employer firms to enhance

the effectiveness of the RCs, where permitted pursuant to the

governance arrangements of the RC (e.g., approval of RC’s

chairman).

- Tenure of participation: Committees should be established on a

term-basis with rotation of participants at the end of the term, as

appropriate. In selecting participants, diversity of representation

(e.g., type of market participant, products, etc.) should be

prioritized and as such, to ensure ongoing diversity, participation

by a person in an RC may be for one-term or extended for

multiple terms. Selection of participants should be conducted

pursuant to clearly defined governance arrangements and RCs

should be re-constituted on a regular basis (e.g., annual).

In order to codify these standards, we recommend amending CFTC Rule 

39.24 as follows*:

- Adding a new Rule 39.24(b)(4) (and re-numbering accordingly)

that states:

“(b) A derivatives clearing organization shall have governance

arrangements that: (4) Establish one or more risk management

committees and require the board of directors to consult and

consider feedback from the risk management committee(s) on

all matters and proposed changes to the derivatives clearing

organization’s rules, procedures, or operations that could

materially affect the risk profile of the derivatives clearing

organization, including any significant change to the derivatives
- Adding a new 39.24(c)(2)(v) that states: “(v) Membership of each

risk management committee is reconstituted on a regular basis;

and”

- Adding a new 39.24(c)(2(vi) that states: “(vi) Each risk management

committee includes representatives from clearing members and

customers of clearing members.”

clearing organization’s risk model, default procedures, 

participation requirements, and risk monitoring practices, as 

well as the clearing of new products that could significantly 

impact the derivatives clearing organization’s risk profile;”

- Adding a new Rule 39.24(c)(1)(iii) (and re-numbering accordingly)

that states:

“(c)(1) A derivatives clearing organization shall establish and

enforce appropriate fitness standards for: (iii) Members of each

risk management committee;”

- Adding a new Rule 39.24(c)(2)(iv)(A)-(B) that states:

“(2) A derivatives clearing organization shall maintain policies to

make certain that: (iv) Members of each risk management

committee: (A) Provide a risk-based independent, expert opinion

on all matters presented to the risk management committee for 

consideration and perform their duties in a manner that support 

the safety and efficiency of the derivatives clearing organization 

and the stability of the broader financial system; and (B) Include 

representatives from market participants.”

- Adding a new Rule 39.24(c)(2)(v) that states:

“(2) A derivatives clearing organization shall maintain policies to

make certain that: (v) Membership of each risk management

committee is reconstituted on a regular basis.”

*Proposed additions are reflected as follows.

II. Background on regulatory authority related to governance

The regulatory regime applicable to DCOs is guided by the CFTC’s long-standing principles-based approach to regulation, supported by the core principles for DCOs under 

the Commodity Exchange Act (or the “DCO Core Principles”). The DCO Core Principles pertaining to governance are specifically dealt with in DCO Core Principle Q and DCO 

Core Principle O.

1. DCO Core Principle Q requires a DCO to ensure that the composition of its governing board or committee includes ‘‘market participants.’’

2. DCO Core Principle O requires a DCO:

i. To establish governance arrangements that are transparent to fulfil public interest requirements and to permit the consideration of the views of owners

and participants; and,

ii. To establish and enforce appropriate fitness standards for directors, members of any disciplinary committee, members of the DCO, any other individual or

entity with direct access to the settlement or clearing activities of the DCO, and any other party affiliated with any of the foregoing individuals or entities.
Part 39 of the CFTC’s regulations implement the DCO Core Principles, including in particular Rules 39.24 (Governance), 39.25 (Conflicts of interest), and 39.26 (Composition 

of governing boards). In addition, the CFTC’s Part 40 Rules set-out the requirements for DCO’s rules filings. 
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
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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