Not surprisingly, CFTC commissioner Wetjen today suggested that swaps clearinghouse should be subjected to similar oversight to financial institutions. At Direct Swap, we've long anticipated this, as swaps risk has been increasingly shifted out of financial institutions and into clearinghouses. Arguably the clearinghouses have or will soon become too big to fail themselves.
Clearinghouses meant to reduce swaps market risk must face greater oversight to ensure they don’t threaten the financial system, according to a member of the U.S. Commodity Futures Trading Commission. Regulators should weigh having clearinghouses put up more of their own capital in the event of a default and requiring them to undergo standardized stress tests, Commissioner Mark P. Wetjen said in remarks prepared for a Futures Industry Association conference in Singapore today. Today’s comments show Wetjen aligned with a growing number of regulators and traders encouraging heightened scrutiny of clearinghouses. CFTC Chairman Timothy Massad, Federal Reserve Governor Jerome Powell and executives at JPMorgan Chase & Co. (JPM), the largest U.S. holder of swaps, have urged more oversight as clearinghouses play a bigger role in the market.