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CFTC proposes stress-testing for derivs clearing houses

Friday 15 October 2010 - by Andrew Hickley

The Commodity Futures Trading Commission has proposed new rules that could see derivatives clearing organisations stress-tested each month.

Alongside these tests, the Commission has recommended that as part of the Dodd-Frank Act, these DCOs will have to calculate the market value of each of their financial resources used to meet their obligations on a monthly basis.

While no US clearing house has gone into administration, the proposal states that because of the growth in clearing of swaps, there are “new risks that the Commission must evaluate” on a regular basis.

The proposal is designed to ensure that a DCO has sufficient financial resources to be able to withstand a potential default by one of its clearing members, while being able to continue obligations to the clearing members that are owed “variation settlement payments”.

The Commission has said that it requests comment on “all aspects of the proposed rules”, while it also calls for feedback on appropriate effective date for final rules, should they be adopted.


Separate proposed regulation also requires a DCO to maintain “sufficient financial resources to cover its operating costs for at least one year” to be calculated on a rolling basis. This will be consistent to established accounting standards.

The regulation put forward also provides six different financial resources that could be used should a clearing member default, include the DCO’s own capital, the margin of the clearing member, and any guaranty deposits of the defaulting clearing member and non-defaulting clearing members.


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