On March 6, the Commodity Futures Trading Commission (CFTC) Global Markets Advisory Committee (GMAC) held a public meeting. The meeting covered topics including the Federal Reserve’s (Fed’s) Basel III Endgame Proposal, market stability, and digital assets.
Below is a summary of the meeting prepared by Delta Strategy Group.
KEYNOTE ADDRESS
John Schindler, Secretary General, Financial Stability Board
- Our focus on structural vulnerabilities have primarily centered on non-bank financial intermediation (NBFI), the financial risks from climate change, digital assets, and cross-border payments.
- NBFI has grown considerably since the financial crisis, and we are working to understand the lessons we learned from 2020 pandemic market turmoil.
- We do not believe that climate change currently poses a serious risk to financial stability, but we are continuously studying these risks.
- We need internationally agreed upon minimum standards for digital assets that are implemented globally. These markets are developing constantly, and regulators must always be working on ensuring financial stability.
GLOBAL MARKET STRUCTURE SUBCOMMITTEE
Michael Winnike, Head of U.S. Market Structure, BlackRock
Brad Tully, Global Co-Head, Corporate Derivatives & Private Side Marketing, J.P. Morgan
- This section focused on recommendations for addressing U.S. Treasury ETFs. The recommendations were to include qualified UST ETFs as eligible IM collateral by aligning with the SEC’s guidance to treat ETF shares as redeemable securities and to work with prudential regulators to acknowledge and align margin rules to ensure consistent collateral standards and acceptance by swap dealers.
TECHNICAL ISSUES SUBCOMMITTEE
Charles DeSimone, Managing Director, SIFMA
- This section discussed resources for the transition to T+1 securities and the impact that will have on a variety of asset classes. The section also covered the ways various technological and policy changes that would be necessary to eventually reach a T+0 system.
BASEL III ENDGAME PROPOSAL – PERSPECTIVES FROM DERIVATIVES MARKETS PARTICIPANTS
Joseph Hwang, FIA and ISDA
- FIA finds that Basel proposals will increase the capital costs associated with client clearing by more than 80 percent. These proposals consider clearing to increase systemic risk and complexity, but policymakers have always believed the opposite.
Reggie Griffith, Global Chief Compliance Officer, Louis Dreyfus Company
- We have already seen FCMs and clearing firms move away from wanting to take the agriculture sector’s clearing business. We are already at a dangerously low level of FCMs taking on commercial business, and if we lose any more large bank FCMs, we are in serious jeopardy of market structure disruptions. The current Basel proposals will only amplify these problems and lead to more systemic risk.
Dan Gallagher, National Association of Rural Electric Cooperatives
- Hedging markets are vital for electric coops to lock in low prices for customers, especially during periods of serious volatility such as extreme weather events. This proposal will increase price risks for market participants.
Elizabeth Kirby, Tradeweb
- Regulators must consider the global landscape and not place significantly higher requirements on U.S. banks relative to their peers in other jurisdictions. These proposals will hinder access to clearing services. These rules will significantly impact Treasury markets that are still absorbing far-reaching SEC rules to Treasury markets that could result in diminishing liquidity. We support properly calibrated capital requirements, but we are concerned that this proposal will seriously impact financial market liquidity, particularly during times of stress.
Joe Nicosia, Louis Dreyfus Company: This proposal is going to limit the amount of clearing services offered by bank FCMs, and the nonbank FCMs simply do not have the capacity to take over the business the banks will leave behind. This will eventually result in self-clearing or simply a lack of clearing, which will greatly heighten the risk in the system.
DIGITAL ASSET MARKETS SUBCOMMITTEE
Caroline Butler, Global Head of Digital Assets, BNY Mellon
Sandy Kaul, Head of Digital and Industry Advisory Services, Franklin Templeton
- The Subcommittee discussed a shared taxonomy document that defines various parts of the digital asset ecosystem. The Subcommittee said that this taxonomy framework allows for categorization and a baseline understanding of different digital assets.
Dave Olson, FIA PTG: Based on the definition of a digital asset you have proposed, it seems like it could capture digital stock assets or digital funds held at the Fed.