Markets ‘operating well,’ no sign of defaults amid extreme volatility

By John McCrank and Katanga Johnson

BOCA RATON, Florida/WASHINGTON (Reuters) -Markets are “operating well” amid extreme volatility sparked by Russia’s invasion of Ukraine, although there are unknown risks, the chair of the U.S. Commodity Futures Trading Commission said on Wednesday.

While there is “certainly” stress on the financial system there are so far no red flags of potential defaults, Rostin Benham told the International Futures Industry Conference.

The agency’s surveillance unit is “surgically focused” on analyzing trading for manipulative, inappropriate or disruptive conduct, but the markets are “reacting and operating well” given the challenging situation.

“There remain unknowns, especially in the derivatives space, as we hit upcoming delivery marks or if we have any number of supply constraints that could affect different products and asset classes,” he added.

A slew of Western retaliatory sanctions on Russia’s financial system and oil exports this month sparked wild swings in the prices of oil, metals and other raw materials and generated more margin calls at clearinghouses and trading firms.

That means some counterparties have to stump up more liquid collateral they must pledge to secure their trades. Sudden, large margin calls can put financial stress on institutions that do not hold sufficiently liquid assets.

The U.S. Securities and Exchange Commission this week issued a rare public warning to broker dealers that they should “remain vigilant” to such counterparty risks.

Benham said U.S. and overseas financial regulators are working together to maintain market resilience and stability, and that the CFTC was also coordinating with the U.S. Treasury to ensure market participants could use sanctions waivers to cover their exposures.