The Commodity Futures Trading Commission issued new risk management standards for systemically important derivatives clearing organizations (SIDCOs). Pursuant to CFTC Regulation 39.11, a derivatives clearing organization (DCO) is required to maintain sufficient financial resources to meet its financial obligations notwithstanding a default by the clearing member creating the largest financial exposure for the DCO in extreme but plausible market conditions. The newly issued rules heighten this requirement for certain SIDCOs by requiring each SIDCO that is systemically important in multiple jurisdictions or that is involved in activities with a more complex risk profile to maintain sufficient financial resources to meet its financial obligations notwithstanding a default by the two clearing members creating the largest combined financial exposure for the SIDCO in extreme but plausible market conditions. The final rules also prohibit such SIDCOs from using assessments for additional guaranty fund contributions in calculating their available default resources.
SIDCOs must also have a business continuity and disaster recovery plan with a recovery time objective of no later than two hours following a disruption, as compared to a recovery time objective of no later than the next business day for all other DCOs. The final rules also implement the CFTC’s special enforcement authority over SIDCOs, which applies in the same manner and to the same extent a federal banking agency may assert enforcement authority over an insured depository institution pursuant to Section 8 of the Federal Deposit Insurance Act.
The CFTC’s adopting release is available here.