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June 02, 2004

Via E-Mail (

Secretariat to the CPSS-IOSCO Task Force
on Securities Settlement Systems
Bank for International Settlements
CH-4002 Basel

Re: Recommendations for CCPs

Dear Mr. Nakajima:

National Futures Association (NFA) appreciates the opportunity to comment on the CPSS-IOSCO Task Force's Consultative Report on Recommendations for Central Counterparties (CCPs). NFA is a registered futures association under the U.S. Commodity Exchange Act and an affiliate member of IOSCO. NFA is the industry-wide self-regulatory body for the U.S. futures industry and regulates the activities of over 4,000 member firms and approximately 50,000 registered account executives who work for those Members. Our mission is to work as a partner with the CFTC to provide the industry with regulation that is both effective and efficient.

NFA is not an exchange or a CCP, although many NFA Members are also members of CCPs. Since NFA is not a CCP and does not regulate CCPs, our comments will be brief.

Overall, we believe the recommendations adequately cover the risks that CCPs face and the elements of those risks. However, the Task Force should consider expanding its discussion in two areas:

  • Recommendation 3 regarding collateral requirements addresses credit exposure and provides a test for setting collateral coverage levels based on price risk. We believe the recommendation should address guidelines for determining the price risk for illiquid instruments when calculating the credit exposure and collateral requirements.
  • Recommendation 14 regarding regulation and oversight appropriately provides for cooperation between regulators but does not provide for cooperation between CCPs. We believe the recommendation should encourage regulators to facilitate cooperation directly between CCPs.

The explanatory text of each recommendation provides an adequate rationale for and clearly explains the implications of the recommendation, and the assessment methodology clearly spells out the differences between the different assessment categories. However, we suggest that the non-observed category under Recommendation 4 regarding financial resources be expanded to include situations where the CCP's financial resources are not even adequate to cover minor defaults. Even if a CCP routinely performs stress tests, those stress tests are useless if the CCP does not increase its financial resources when a stress test indicates that they are inadequate.

Finally, the Task Force requested comments on several specific issues. In our opinion, the recommendations outlined in the report should apply to all clearing participants - including clearing participants that serve as intermediaries - regardless of jurisdiction, although they should be flexibly applied. We also find the distinction between Recommendation 3 (collateral requirements, normal market conditions) and Recommendation 4 (financial resources, extreme market conditions) to be clear and useful. And we believe that U.S. derivative clearing organizations already meet the proposed standards.

If you have any questions concerning this letter, please contact me at

Respectfully submitted,

Karen K. Wuertz
Senior Vice President,
Strategic Planning & Communications

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