Like many, the attempted assassination of former US President Donald Trump shocked me. Sadly, it did not surprise me.
The extreme rhetoric in politics today, in the US and around the world, has reached peak divisiveness. Individuals and political parties take great pains to vilify differences of opinion and drive wedges between neighbors despite the existence of reasonable, common ground. We must do better.
As I shared in my column following the 6 January 2021 insurrection at the US Capitol Building, our system of government comes with the inevitability of losing an election or debate on an issue. A healthy democracy requires you to lick your wounds, learn from your mistakes, sharpen your game and get back in the arena. That is a lesson of resilience in politics, markets and life.
Our members understand this. We are always competing, evolving and innovating with vigor. But we respect our competitors, and when we end up on the losing side, our perseverance allows us to regroup, go back to the drawing board and start anew. This innovation and resilience cycle is one of the reasons our industry has survived for nearly 175 years and continues to grow at exponential rates.
FIA is proud to be the voice of our markets to tell this good news story. We educate policymakers about the power of our markets to help farmers and main street companies hedge risk in their businesses. We strongly advocate for smart regulations. We evangelize about the value of efficient, transparent and open markets. And we unite the industry through standards of conduct that demonstrate our commitment to the stability of global financial markets.
Last week, members of the FIA board of directors visited Washington, DC, to hold meetings and explain the details of our efforts with leadership on Capitol Hill and several US federal agencies – the Treasury Department, the Commodity Futures Trading Commission (and the Securities and Exchange Commission.
This annual fly-in, as we call it, provides the platform to share our industry priorities and present a united front with policymakers. We demonstrate the reach of our industry with the decision makers who control our fate.
During two productive days of meetings, we discussed the state of our markets and highlighted areas in which policymakers can strengthen the cleared derivatives marketplace. Of note, we met with Treasury Undersecretary Nellie Liang, CFTC Chair Russ Behnam, SEC Chair Gary Gensler, CFTC Commissioners Summer Mersinger and Caroline Pham and leadership from the House and Senate Agriculture Committees.
Looking back, I believe the visits saw progress on several issues of importance for our markets.
Given the SEC’s final rule last December mandating the clearing of certain treasury securities and repo transactions by June 2026, we shared our perspective and explained how the rule has set off a flurry of activity and jockeying among clearinghouses, dealers, buyside and clearing firms on the best way to accomplish this goal.
The SEC’s clearing mandate may seem familiar for those who experienced the OTC derivatives clearing mandate after Dodd-Frank. Both efforts aimed to move these bilateral, trillion-dollar markets to a client, all-to-all cleared market. In other words, the futures market model. That our markets act as the model for reform demonstrates the importance of our efficient, transparent business practices as an industry.
The incumbent, DTCC’s FICC, has made the most progress to date, having filed several rules with the SEC to build the framework for its clearing model with more rules to come in the fall. CME and ICE also have publicly announced an interest in providing cash treasury clearing.
FIA finds this competition healthy because it will sharpen the discussions with the end users in mind. We believe we have the expertise and experience to offer in how these “done away” client clearing models will work, given their similarity to the agency give-up clearing model of the futures markets.
Our board discussed with policymakers the challenges ahead. The first: the timeline. Several workstreams need to be addressed before the first deadlines come into place, including capital, accounting, cross-margining, risk and credit controls and netting.
Implementing this mandate before June 2026 will be a heavy lift, especially considering the importance of the treasury and repo markets to the funding of the government and financial markets. Regulators will need to be flexible and aligned with industry to ensure realistic timetables.
The second challenge: the economics of the mandate. The treatment of agency clearing in the Basel capital rules and the lack of client cross-margining agreements for repos and treasury futures stick out as unknown variables. These two matters factor heavily on the economic viability of the client clearing models, and we do not expect resolution on these issues in the near term.
Policymakers were eager to listen and learn about these challenges. They seemed interested in an open dialogue as the workstreams advance. That’s a positive development because everyone wants this implementation to go smoothly for these vitally important markets. There’s a long road ahead but our industry seems well positioned to help with this important development.
The other discussions with policymakers centered on the normal machinations of Washington: rulemakings, nominations and legislation. We learned the CFTC anticipates advancing many of Chair Behnam’s priorities in the third and fourth quarters of this year, including modernizing the acceptable investments of FCMs, codifying the treatment of separate accounts, and proposing a rule on conflicts of interest for affiliated registrants.
The latter is needed as new and incumbent exchanges and clearinghouses are approved to form or buy FCMs within their broader legal umbrella. There are apparent conflicts within these structures that need to be addressed, which are heightened by the self-regulatory responsibilities of exchanges and CCPs over FCMs. FIA strongly encourages the CFTC to move forward with this important rulemaking.
As the FIA board left Washington, so did Congress. Both political parties left town to visit constituents and attend their respective conventions. These partisan platforms offer both parties an opportunity to turn down the vitriol and negative attacks and present their vision for leading the entire nation forward. At least that’s my hope.
It’s going to be an interesting fall, and one thing is for sure: our markets will be ready to manage the risk and uncertainty of the election season.
