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The Commodity Futures Trading Commission’s Division of Clearing and Risk and Division of Market Oversight today issued a staff advisory reminding designated contract markets (DCMs) and derivatives clearing organizations (DCOs) of certain Core Principle and regulatory obligations under the Commodity Exchange Act and CFTC regulations related to controls designed to address market volatility.
Market volatility controls can play an important role in mitigating market disruptions while supporting continued price discovery in stressed or volatile market conditions. Best practices developed by DCMs, industry groups, CFTC advisory committees, and others can help to guide the derivatives industry towards effective volatility controls. In cases where volatility controls may be in effect at times critical to DCO decisions, DCOs should exercise careful discretion and informed judgment in making those decisions in light of the economic factors relevant to the underlying market. DCOs should provide transparency to both clearing members and end users about possible impacts on, e.g., settlement prices.
Today’s staff advisory addresses a recommendation by the CFTC’s Global Markets Advisory Committee.
