MINUTES OF THE

U.S. COMMODITY FUTURES TRADING COMMISSION’S

GLOBAL MARKETS ADVISORY COMMITTEE

SEPTEMBER 24, 2019

The Global Markets Advisory Committee (“GMAC”) convened for a public meeting on 

Tuesday, September 24, 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 St., NW, Washington, DC. The meeting consisted offive panels. 

Panel 1 included an update on the implementation ofuncleared swaps margin rules. Panel 2

discussed the buy-side perspective on the implementation ofuncleared swaps margin rules.

Panel 3 discussed the custody bank perspective on the implementation ofuncleared swaps

margin rules. Panel 4 discussed the cross-jurisdictional issues involved in the implementation of

the uncleared margin rules. Panel 5 examined EMIR 2.2 and the ESMA consultation.

GMAC Members in Attendance

Angie Kama (GMAC Chair), Managing Director, Legal Department and Head ofLegal for 

Global Markets, Americas, Nomura Securities International, Inc.

Chris Allen, General Counsel, Clients & Products, Standard Chartered Bank

Ashley Belich, Head of Global OTC Derivatives & Dodd-Frank Advisory, RBC Capital Markets

Darcy Bradbury, Managing Director, D.E. Shaw & Co., L.P.

Clive Christison (Via Telephone), Senior Vice President Pipelines, Supply & Optimization for 

Fuels North America, BP

Joseph Cisewski, Consultant, Better Markets

Jim Colby, Representative, Coalition for Derivatives End-Users

Gerry Corcoran (Via Telephone), Chairman ofthe Board and ChiefExecutive Officer, R.J.

O’Brien & Associates, LLC

Sunil Cutinho, President, CME Clearing

David Goone, ChiefStrategy Officer, Intercontinental Exchange, Inc.

Alexandra Guest, ChiefCompliance Officer, Cargill Risk Management 

Paul Hamill, Global Head ofFixed Income, Currencies and Commodities, Citadel Securities 

Amy Hong (Via Telephone), Head ofMarket Structure Strategy, Goldman Sachs

John Horkan, Group ChiefOperating Officer and Head ofNorth America, LCH Group

Adam Kansler, President- Financial Services, IHS Markit 

Robert Klein, Managing Director & General Counsel, Citigroup Global Markets 

Ben MacDonald, Global Head ofEnterprise Products & President ofBloomberg’s SEF,

Bloomberg LP

Erik Tim Muller, ChiefExecutive Officer, Eurex Clearing AG

Joseph Nicosia (Via Telephone), Global Platform Head ofCotton, Louis Dreyfus Company 

Thomas Sexton, President & ChiefExecutive Officer, National Futures Association 

Jessica Sohl (Via Telephone), Partner & President, HC Technologies

Supuma VedBrat, Managing Director & Global Head ofTrading, BlackRock 

Mark Wetjen, Managing Director, Head ofGlobal Public Policy, Depository Trast & Clearing 

Corporation

Masahiro Yamada, Managing Director & Head ofAmerica’s Cross Asset Structuring, JP Morgan 

Securities LLC
Invited Speakers and Panelists in Attendance

Michael Gibson, Director, Division of Supervision and Regulation, Board ofGovernors ofthe

Federal Reserve System (Panel 1)

Rafael Martinez, Senior Financial Risk Analyst, Division of Swap Dealer and Intermediary 

Oversight (“DSIO”), CFTC (Panel 1)

Richard Grant, Global Head ofRegulatory and Government Affairs, Associate General Counsel,

AQR Capital Management, LLC (Panel 2)

Wendy Yun, Managing Director & Associate General Counsel, Goldman Sachs Asset 

Management (Panel 2)

Judson Baker, Head ofProduct Development for Derivatives and Collateral Services, Northern

Trust (Panel 3)

Dominick Falco, Managing Director, Head ofSegregation, BNY Mellon (Panel 3)

Tara Kruse, Global Head ofInfrastructure, Data and Non-Cleared Margin, International and

Derivatives Association (“ISDA”) (Panel 4)

Sean Downey, Executive Director, Global Clearing & Risk Policy, CME Group (Panel 5)

Jacqueline Mesa, ChiefOperating Officer & Senior Vice President ofGlobal Policy, Futures 

Industry Association (“FIA”) (Panel 5)

Carolyn Van den Daelen, Head ofRegulation & Compliance, ICE Clear Europe (Panel 5)

CFTC Commissioners and CFTC Staffin Attendance

Heath P. Tarbert, Chairman, CFTC

Dawn D. Stump, Commissioner and GMAC Sponsor

Rostin Behnam, Commissioner

Dan Berkovitz, Commissioner (via teleconference)

Brian D. Quintenz, Commissioner

Andree Goldsmith, Special Counsel, CFTC, Division ofClearing and Risk, GMAC Designated 

Federal Officer

I. Opening Remarks

Ms. Goldsmith, the Designated Federal Officer for GMAC, called the meeting to order.

In her opening statement, Commissioner Stump welcomed Chairman Tarbert to the second

GMAC meeting of2019. Turning to the agenda, she noted that the presentations oftoday’s

meeting will delve deeper into two specific topics touched upon at the first GMAC meeting held

in April ofthis year: first, the global process applied to implementing initial margin for noncentrally cleared derivatives and how phasing ofsuch has progressed; and second, how clearing 

through central counterparties has evolved since the crisis. She then gave an overview ofthe 

scheduled presentations for the meeting.

Chairman Tarbert made his opening remarks and noted that the meeting will address the

implementation ofthe uncleared swaps margin rules (including cross-jurisdictional issues) and

the potential effects ofEMIR 2.2. He also noted the operational difficulties ofthe upcoming

Phase 5 implementation ofthe uncleared margin rules, in which the number ofcovered entities is

expected to increase from 40 to 700 with approximately 7,000 relationships institutionalized. He

also stated that because ofthe potential for congestion at or near the deadline for Phase 5, federal

banking regulators have extended the compliance period for one year. Chairman Tarbert ended 

his remarks noting that the Commission has been meeting with European regulators and expects

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to engage in continuing talks relating to European oversight ofnon-European Union (“EU”)

Central Counterparties (“CCPs”). Commissioner Quintenz remarked that in connection with

uncleared margin requirements, there is a potential issue that risks are not properly calibrated 

through the use ofnotional values. Commissioner Benham noted that he looks forward to the 

deliberations and recommendations ofthe GMAC.

II. Panel 1: Status Update on Implementation ofUncleared Margin Rules

Mr. Gibson opened the panel with a presentation on the status ofthe Phase 5

implementation ofuncleared swaps margin, noting that the Phase 5 implementation is focused on 

compliance ofsmaller entities. He explained the proposed rulemaking by the prudential 

regulators would amend the uncleared margin rules in several respects. First, the proposal would

repeal the requirement for a covered swap entity to collect initial margin from its affiliates, but

would retain the requirement that variation margin be exchanged for affiliate transactions. 

Second, an additional initial margin compliance period for certain smaller counterparties (“CPs”)

would be added. Third, the proposal would clarify that small entities are not required to have 

documentation/arrangements in place before reaching the $50 million initial margin threshold. 

Fourth, the proposal would permit legacy swaps to retain their status if amended to replace

existing interest rate provisions based on certain interbank offered rates (“IBORs”) and other 

interest rate benchmarks. Fifth, the proposal would permit legacy swaps to retain their status

when swap amendments occur that are caused by certain routine life-cycle activities. Mr. Gibson 

noted that the Federal Deposit Insurance Corporation has approved the proposal but that it is still

in process at the Federal Reserve Board and the Office ofthe Comptroller ofthe Currency.

Mr. Martinez presented next and set forth the various initiatives the Commission and

other regulators are currently engaged in. In particular, Mr. Martinez noted that the 

Commission’s recent actions in connection with uncleared swaps margin are intended to coincide 

with prudential regulators so that regulations are harmonized. Mr. Martinez referenced a July

2019 DSIO Advisory explaining the potential for phase-in congestion and the clarification that

smaller CPs are not required to have documentation/arrangements in place before reaching the

$50 million threshold. He also noted that substituted compliance has been a focus ofregulators 

referencing the recent U.S. Securities and Exchange Commission uncleared margin rule and

various initiatives that have been completed with the other majorjurisdictions.

The panel then turned to a discussion session. Mr. Cisewski inquired about the reasons 

for proposing the inter-affiliate exemption for initial margin. Mr. Gibson explained that in a 

consolidated group there are going to be many legal entities facing different customers, and

within the group, transactions among affiliates are often redistributing the risk around the group,

which is sometimes centrally managed in one place. In addition, sometimes a customer wants to

face a legal entity in a particularjurisdiction, and the firm might prefer to have the risk managed

out ofLondon or New York. Mr. Cisewski also asked about margin period ofrisk and how that

relates to initial margin and the potential exposure calculation. Mr. Gibson noted that this is the 

time period right before a counterparty defaults, or stops making margin payments because it is

about to default, and the non-defaulting counterparty is going to be exposed to the risk ofmarket

moves. Mr. Cisewski then followed up with questions regarding how the five-day margin period

ofrisk was established for inter-affiliate transactions. Mr. Martinez noted that the starting point

was a ten-day period, however, this period was shortened to five days because ofthe superior 

knowledge of affiliates within a consolidated group. Mr. Cisewski then asked how to address 

inter-affiliate risk exposure without initial margin. Mr. Gibson responded that Regulation W

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applies to affiliate transactions to protect the depository institution. Mr. Klein asserted that a 

centralized risk management function in consolidated corporate groups manages risks for the

purpose ofrisk reduction. He stated that Regulation W limits the ability ofinstitutions to take on 

certain risks. Mr. Colby noted that central risk management is used to efficiently manage risk

through inter-affiliate transactions, which in turn reduces direct facing trades with swap dealers.

Ms. Bradbury stated that there are several implementation challenges that investment

management firms are facing with respect to the initial margin requirements, and encouraged 

regulators to address these challenges before the asset managers come into scope.

HI. Panel 2: Buy-Side Perspective on Implementation of Uncleared Margin Rules

Mr. Grant gave a presentation on the buy-side perspective in connection with the 

implementation ofthe uncleared swaps margin rules. In particular, Mr. Grant detailed the

tremendous operational challenges that exist for firms to calculate and transfer initial margin

resulting from a host oftechnology and systems issues. He also noted the legal challenges that

occur due to a host ofnew agreements required with each CP. Mr. Grant further stated that 

“congestion” is likely to occur as numerous firms rush to complete their necessary requirements 

near the final deadline for the uncleared margin rules. He then explained that in order to ease the 

potential for congestion, regulators should provide an initial margin threshold extension, address

forex transaction impacts, and focus on meaningful swaps exposure rather than notional 

amounts.

Ms. Yun presented next and stated that her firm supported regulators’ efforts to provide

an extension to the implementation phase-in schedule, and noted the need for harmonization 

acrossjurisdictions. She stated that firms are finding it challenging to implement the margin

rules as a result ofdifficulties in calculating average annual notional amounts (“ANNA”) and the 

initial margin threshold. Ms. Yun also noted that the ability to use money market funds as cash

collateral to avoid settlement issues is very important for firms, but that current limitations in the 

rule prohibiting the use ofmoney market funds ifthey invest in repurchase or reverse repurchase

transactions are impeding their use. Ms. Yun thus noted that regulators need to eliminate the 

restrictions on the use ofmoney market funds as cash collateral. Lastly, Ms. Yun indicated that

end-user clients find developing and implementing their own uncleared margin models to be too

costly and burdensome, and therefore, look to third party vendors to manage the process.

Following the presentations by Mr. Grant and Ms. Yun, there was a discussion among 

the members. Ms. Guest stated that her firm shares the same challenges and especially noted the 

data challenges that exist due to differing transaction booking systems. Ms. Bradbury noted that

the frequency ofthe AANA calculation depends on the jurisdiction so that it may be preferable

to have clients collect the data and perform the calculation. Ms. Bradbury also questioned 

whether dealers will stop trading swaps for a particular client due to compliance burdens. Both 

Mr. Grant and Ms. Yun stated that dealers may re-evaluate the effort necessary to service smaller 

buy-side firms.

(Break)

IV. Panel 3: Custody Bank Perspective on Implementation of Uncleared Margin Rules

Following the break, Chairwomen Kama introduced the third panel.

Mr. Falco presented that the number of accounts set up to comply with the uncleared

swaps margin rule has steadily increased from 2016 through 2019. He explained that the process

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is focused on two documents: (1) the Account Control Agreement (“ACA”) and (2) the ISDA 

Credit Support Annex (“CSA”). Mr. Falco also stated that the current focus ofcustodians is to

reduce bespoke negotiations through automation such as the ISDA Doc Create platform. Mr.

Falco expects 2020 to be a busy client on-boarding phase due to the margin rule implementation 

phase-in deadline.

Mr. Baker presented next and explained that his firm provides collateral management and

collateral segregation services for the buy-side. He indicated that the ACA is the starting point

for negotiation with clients and that the ISDA legal review will help to make the process more

efficient. Mr. Baker also noted that the documentation relieffor CPs not meeting the $50 million

threshold exposure level is very helpful. He explained that the work flow is still heavily paperbased but expects the process to become increasingly automated in the near term.

Following the presentations, Chairwoman Kama asked members for any comments and

questions. There being none, the Chairwoman then introduced the fourth panel.

V. Panel 4: Cross-Jurisdictional Issues in Implementation of Uncleared Margin Rules

Ms. Kruse opened the fourth panel by explaining that differences among jurisdictions in 

uncleared margin regulations is causing challenges for the industry due to increased complexities 

and cost. She detailed that these complexities include: (1) AANA calculation, (2) product

scope, (3) settlement timing, (4) eligible collateral, (5) inter-affiliate initial margin and (6) initial 

margin model governance. Ms. Kruse also stated that substituted compliance will be a key

concept for regulators to address for efficiently implementing the margin rales across

jurisdictions.

Chairwoman Kama opened the discussion portion ofthe panel by asking the Committee 

members to identify the challenging aspects ofthe uncleared margin requirements across

jurisdictions and whether they have any suggestions for regulators. Ms. Guest indicated that

settlement timing is challenging for firms. Mr. Yamada stated that implementation is very

challenging acrossjurisdictions and would like to see increased harmonization globally through a 

risk-based priority approach. Ms. Bradbury asked Ms. Kruse how the ISDA SIMM model was 

developed. Ms. Kruse stated that when the rales were being developed it became clear that

having multiple models was not tenable. Therefore, the industry got together and came to ISDA 

to find a workable solution for calculating initial margin. She emphasized that the model should 

not be too complex. And to date, the model is being used across the board by almost all market

participants that have phased in. Ms. Belich questioned the potential for regulatory arbitrage due

to the product scope ofthe model. Ms. Kruse responded that when ISDA seeks information from 

parties regarding disputes about the IM amounts, the issue often arises from the trades that each

party has put into the portfolio to do the IM calculation. She also stated that ISDA provides 

guidance where appropriate. She further noted that at the end ofthe day, there are

inconsistencies, and ISDA encourages people to prepare ahead oftime and test with

counterparties before going live to identify product differences when calculating the initial 

margin.

(Lunch)

Following lunch, Chairwoman Kama asked Committee members whether a

subcommittee consisting ofGMAC members and nonmembers should be established for 

uncleared margin issues. Following a discussion among Committee members in support of

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establishing a new subcommittee, Ms. Bradbury moved that the Committee recommend to the

CFTC the establishment ofa subcommittee ofthe GMAC relating to uncleared margin issues.

Ms. Guest seconded the motion. The motion was then approved unanimously by the Committee.

VI. Panel 5: EMIR 2.2 and ESMA Consultation

After the motion was passed. Chairwoman Kama introduced the fifth panel.

The presenters ofthis panel provided information on this topic both individually and

collectively.

Mr. Downey began his presentation by explaining the focus and intent ofEMIR 2.2 and

the process ofimplementation for EMIR 2.2. In particular, Mr. Downey detailed the concept of

Tier 1 and Tier 2 firms, whereby Tier 1 firms would be subject to current requirements for nonEU CCPs, while a Tier 2 firm would be directly subject to EU laws because they are

systemically important to the EU. Ms. Van den Daelen discussed the criteria/indictors for 

determining whether a firm is Tier 1 or Tier 2. She stated that the indicators are overly broad, 

and therefore, left to the discretion ofregulators. She also indicated that the indicators need to

have a nexus to systemic risk in the EU, an element that several ofthe indicators are currently 

missing. Ms. Mesa then noted that the EU should prioritize the indicators for Tier 1 and Tier 2

status, indicating that examples from ESMA would help the industry. Mr. Downey then stated 

that he went through each ofthe 14 indicators in EMIR 2.2, and found language that did not have 

an EU nexus and was not a true test or relevant to determining whether a non-EU CCP is of

systemic importance in Europe.

Ms. Mesa then detailed how comparable compliance is expected to work under EMIR 

2.2. Both Mr. Downey and Ms. Van den Daelen explained that the EU approach for comparable 

compliance for non-US CCPs that require home country regulation equal or greater than EMIR

2.2 essentially removes comparable compliance from the regulatory regime. Depending on the 

timing and scope ofBrexit, the panelists indicated that U.S. CCPs could be the only ones subject 

to comparable compliance determinations under EMIR 2.2 in the short term.

Following the presentations. Chairwoman Kama opened the floor for comments and

questions. Mr. Cutinho noted that the spirit ofEMIR 2.2 is not consistent with comparable or

substituted compliance. Mr. Horkan noted that the industry requires clarity related to the tiering

requirements and that the comparable compliance requirements in EMIR 2.2 are outcome-based 

rather than hue requirements for comparable compliance by non-US CCPs. Mr. Wetjen also

questioned the role of central banks, stating that central banks in EMIR 2.2 have not been

thoroughly addressed. Mr. Muller noted that the CCP business is global so that regulators must

cooperate noting that there are ways to navigate differences in regulatory regimes. Ms. Van den 

Daelen noted that the G-20 directive focuses on OTC derivatives and indicated deference to local 

laws; however, EMIR includes exchange-traded products and does not fully support comparable 

compliance.

Commissioner Stump asked the panel how a U.S.-based CFTC registered derivatives 

clearing organization (“DCO") offering commodities would be impacted ifit is labeled a Tier 2

firm. Mr. Downey stated that it might impact a firm’s ability to use letters ofcredit as collateral 

in addition to increasing costs and access.

Chairwoman Kama asked the panel what feedback they have received from clients

regarding these proposals. According to Mr. Downey, CME’s engagement has been at the

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association level, primarily FIA and ISDA. The recognition is that regulatory cooperation and

reciprocal deference is important to a CCP and to the market from a risk and efficiency 

perspective. Ms. Mesa added that FIA does not want duplicative regulation anywhere. Ifit is

comparable, that should be enough.

V. Closing Remarks

In closing. Commissioner Stump noted that the reason uncleared margin was initiated 

was to ensure that the interconnectedness ofinstitutions was addressed outside ofthe clearing 

space in the event that clearing was not appropriate or sought after. With regard to

clearinghouses and the utility they provide, she emphasized that one ofthe key reforms was to

encourage more clearing without creating a situation where regulatory impediments would make

that challenging.

Ms. Goldsmith adjourned the meeting at 3:00 p.m.

I hereby certify that the foregoing minutes are accurate.

Angie Karma

Chair, Glooal Markets Advisory Committee

Date

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