CFTC Staff Releases Request for Comment on the Impact of Affiliations of Certain CFTC-Regulated Entities

The staff of the Divisions of Market Oversight, Clearing and Risk, and Market Participants at the Commodity Futures Trading Commission (CFTC) have issued a request for comment to gather insights into potential issues arising from affiliations between CFTC-registered entities and market participants. This request focuses on the affiliations between derivatives clearing organizations (DCOs), designated contract markets (DCMs), or swap execution facilities (SEFs) with intermediaries like futures commission merchants (FCMs) or other market participants.
According to the Commodity Exchange Act and CFTC regulations, DCOs, DCMs, and SEFs bear the responsibility of supervising their participants. However, when there is an affiliation between these entities and an intermediary or market participant, it raises concerns about how these supervisory obligations will be fulfilled, not least in view of potential conflicts of interest. The purpose of this request for comment, which consists of 37 questions, is to enhance the staff’s understanding of these issues and gather input on potential measures to mitigate them.
Some of the key issues addressed in the request for comment include the following:
– risk management practices to prevent conflicts of interest;
– management of contagion risk in case of default of an affiliate;
– resource sharing (e.g. staff members) among affiliates or prevention thereof;
– IT-system setups in the context of „information sharing“; or
– the maintenance of market integrity considering the supervisory obligations of regulated entities.
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Interested parties and stakeholders are encouraged to provide their comments within a 60-day period following the publication of the request on CFTC.gov. This feedback will assist the CFTC staff in gaining valuable insights to address the challenges associated with affiliations between CFTC-registered entities and market participants.