CFTC Commissioner Cites NERA Study as Influence on Tie-Breaking Vote on Major Dodd-Frank Regulatory Policy

27 January 2016

On 3 October 2014, the US Commodity Futures Trading Commission (CFTC) published a proposed rule in the Federal Register that would establish initial and variation margin requirements for swap dealers and major swap participants regarding uncleared swaps. The proposed rule would directly affect swap dealers and major swap participants (“covered swap entities”), and indirectly affect the counterparties of covered swap entities. The objective of the proposed rule was to reduce systemic risks potentially associated with uncleared swaps.

NERA Senior Analyst Trevor Wagener and former Vice President Dr. Sharon Brown-Hruska conducted a detailed quantitative impact study to analyze the potential costs and benefits of this proposed rule. NERA’s study concluded that the expansive margin requirements in the proposal did not pass a cost-benefit test and were not in the public interest. The authors recommended adjusting the proposed rule to limit its impact to the entities and transactions substantially contributing to systemic risk, ensure that all aspects of the rule are harmonized with international standards, and add flexibility to provisions that may contribute to pro-cyclicality in the market, which would undermine the rule’s primary objective of reducing systemic risk.

On 16 December 2015, the CFTC approved the Final Rule on Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, incorporating numerous recommendations from NERA’s study. The CFTC final rule repeatedly cited NERA’s study, noting that NERA was the only commenter to “provide data or other information that would be useful in estimation of the quantifiable costs and benefits” of the proposed rulemaking. Moreover, the final rule specifically attributed the CFTC’s decision to remove a “cash only variation margin requirement” to NERA’s study, which identified the requirement as potentially pro-cyclical, particularly in times of market stress.

In his statement following the ruling, CFTC Commissioner J. Christopher Giancarlo emphasized the impact of NERA’s quantitative impact study on the final rule by stating, “[S]ince issuing the proposed rule for notice and comment, an independent cost-benefit analysis of the rule recommended, among other things, exempting inter-affiliate swaps from initial margin requirements as a means to reduce the ‘excessively onerous’ impact of the rule on competition, price discovery and overall market efficiency without allowing additional systemic risk. I concur with that recommendation.”

About NERA

NERA Economic Consulting ( is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.