Federal Register: Financial Resources Requirements for Derivatives Clearing Organizations

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Gavel.png FINAL RULE: This page refers to the proposed rulemaking on financial resource requirements for DCOs. The CFTC final rule was issued at its October 18, 2011 open meeting.
Dodd-Frank Timeline, Financial Resources Requirements for Derivatives Clearing Organizations
Proposal Date Final Rule Issue Effective Date
December 13, 2010 October 18, 2011 January 9, 2012

On October 1, 2010, the Commodity Futures Trading Commission (CFTC) held the first of a series of open meetings to consider the issuance of proposed rulemakings under the Dodd-Frank Act. One of the agenda items was a proposed rule regarding financial resource requirements for derivatives clearing organizations (DCOs) and "systemically important" derivatives clearing organizations (SIDCOs).<ref>Open Meeting on First Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on March 3, 2011.</ref>

The Dodd-Frank Act requires, among other things, that derivatives clearing organizations maintain sufficient financial resources to maintain solvency under "extreme but plausible" market conditions. In addition, the DCO's resources must enable the entity to cover its operating costs for one year, as calculated on a rolling basis. In order to calculate the largest financial exposure, the DCO is required to aggregate each clearing member's individual maximum exposure.

In order to meet its reserve obligations, a DCO may use the following sources in the calculation:

  • margin of a defaulting clearing member;
  • the DCO’s own capital;
  • guaranty fund deposits;
  • default insurance; and
  • potential assessments for additional guaranty fund contributions.

The value of assessments would be subject to a 30 percent haircut, and a DCO would only be permitted to count the value of assessments, after the haircut, to meet up to 20 percent of the requirement. The DCO must, on a regular interval, but no less than quarterly, perform the calculations, apply any haircuts, and report results to the commission.

For DCOs large enough to be categorized as "systemically important," additional reserves will be required. The financial reserves for SIDCOs must be high enough to cover a default of two clearing members.

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