CFTC advisory panel adopts recommendations for DCO recovery, urges supervisory stress testing and interagency coordination

Commissioner Johnson opened the Market Risk Advisory Committee meeting and the committee voted to adopt the CCP recovery and resolution recommendations developed by the IMRA subcommittee on DCO resilience.

The subcommitteeworkstream lead, alesandro coko, told members the report "offers recommendations" aimed at informing the CFTC staff's forthcoming final rule on DCO resilience, recovery and orderly winddown. The workstream proposed five core recommendations: require supervisory stress testing of credit and liquidity risks for all DCOs (and consider operational and other non-default risk stress testing), include reverse and scenario-based stress tests, require scenario analysis that covers extreme-but-plausible triggers for recovery or wind-down, include non-default losses (NDLs) in recovery planning under a common definition spanning general business, custody, investment, legal and operational risks, and pursue an interagency task force (including the National Futures Association) to address impediments to porting customer positions and collateral.

Elizabeth King, Global Head of Clearing and Chief Regulatory Officer at Intercontinental Exchange, spoke in support of the recommendations and emphasized coordinated testing across jurisdictions and clearing houses, saying coordinated supervisory exercises "can only enhance the quality of that testing." King also warned that broader regulatory changes, citing the Basel 3 endgame, may affect clearing-member capacity and the practical availability of porting as a tool.

The report recognizes divergent views among stakeholders: end-user, FCM, and academic representatives favored greater interagency coordination and public availability of supervisory stress-test results (at an appropriate level of detail), while DCO representatives urged flexibility and noted some coordination already occurs through existing channels. Subcommittee members recommended that the frequency of routine stress testing be at least annual, with the frequency of reverse stress tests to be determined by Commission staff.

The committee moved and seconded a motion to adopt the subcommittee recommendations and to submit them to the Commission for consideration; the chair announced the motion carried and the recommendations will be transmitted to the CFTC for its rulemaking and staff work.

What happens next: the IMRA package will be sent to the Commission for consideration as part of the CFTC staffs DCO resilience and resolution rulemaking. The report text contains technical provisions the subcommittee referred members to for additional detail; IMRA members are invited to submit additional written feedback to the subcommittee leads or the designated federal officers before transmittal.

(Reporting note: quotes and attributions come from the IMRA meeting transcript; vote counts for this particular motion were recorded in the transcript as "the eyes have it" but an exact numeric tally was not provided on the record.)