On March 18, ISDA responded to the US Commodity Futures Trading Commission’s (CFTC) consultation on the protection of clearing member funds held by derivatives clearing organizations (DCOs), including the assets of futures commission merchants (FCMs).

ISDA proposes that the CFTC should finalize the enhanced protection for clearing member assets in connection with an intermediated DCO only, which includes multiple FCMs, unaffiliated with the DCO, as its members. Regarding a DCO providing direct clearing without multiple FCMs unaffiliated with the DCO, ISDA suggests the CFTC should wait to propose enhanced protection for clearing members’ assets, once a full assessment of the risks and complications associated with a DCO providing direct clearing has been completed. At that point it would be appropriate for the CFTC to propose a comprehensive framework to address these risks holistically. Otherwise, the current notice of proposed rulemaking would create a sense of safety for the disintermediated model, which is superficial due to the rule not creating a comprehensive safety regime for disintermediated central counterparties (CCPs), with many risks arising from such models being left unaddressed.

The response covers the positions of ISDA’s buy- and sell-side members, but it does not reflect the views of many CCPs.