October 18, 2011 / 8:40 PM / in 6 years

UPDATE 2-US CFTC backs off on systemically key clearinghouses

* Biggest houses need only cover failure by largest member
    * CFTC had previously proposed coverage of top two members

    Oct 18 (Reuters) - The U.S. Commodity Futures Trading
Commission backed away, at least for now, from a plan that
imposed heightened financial resource requirements on
systemically important clearinghouses whose failure could
imperil the market.
    As part of its Dodd-Frank financial oversight law
rulemaking, the CFTC had initially proposed requiring
systemically important clearinghouses to maintain enough funds
to cover the default of their two largest members.
    Any other clearinghouse, by contrast, would need only
enough money to cover the default of its largest member.
    But in the final rules on Tuesday, the CFTC will require
clearinghouses only to have enough funds to cover a default by
their largest member, regardless of whether they are dubbed
systemically important.
    The CFTC's announcement on Tuesday was part of a broader
rule the agency passed in a 3-2 vote that outlined guidelines
for clearinghouses -- the middle man between buyers and sellers
of exchange-traded derivatives. Commissioners Jill Sommers and
Scott O'Malia, both Republicans, cast the dissenting votes.
    The regulator's rule outlined requirements for
clearinghouses including financial resources, default rules,
settlement procedures, treatment of funds and reporting and
record keeping.
    "I think this is one of the most important regulations to
lower risk in financial markets," Gary Gensler, the CFTC's
chairman, said at a rulemaking meeting.
    The CFTC rule included a requirement of $50 million minimum
net capital for firms to become clearinghouse members.
    For now, the CFTC said it would not move forward on a
measure to heighten financial resource requirements on
systemically important clearinghouses.
    The capital requirement comes in below ICE Clear Credit,
the world's top clearer of credit default swaps (CDS), which
requires $100 million of adjusted net capital from members. In
July, parent IntercontinentalExchange Inc lowered the
requirement from $5 billion.
    "In the absence of a rulemaking from CFTC at the time that
Dodd-Frank deemed ICE Clear Credit a derivatives clearing
organization, ICE put in place membership requirements for CDS
that are more open than those of any other clearinghouse," ICE
said in an email, adding it would work with the CFTC to protect
the clearinghouse from the risks of participants.
    Rival CME Group Inc requires $500 million in
capital from CDS clearing members.
    Under Dodd-Frank, any clearinghouse dubbed "systemically
important" by the Financial Stability Oversight Council (FSOC)
could gain access to some of the Federal Reserve's loan
programs, including the discount window.
    A CFTC staffer who spoke with reporters late on Monday said
the CFTC backed off its original plan pending negotiations with
the FSOC and international regulations.
    "It was just premature at this time to do it," he said.
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