Who we are
The Financial Markets Group analyzes public policy issues in financial markets from multiple perspectives. The group applies legal, market practitioner, technological and other expertise to study challenges and risks in financial markets and infrastructures.
By communicating its findings to policymakers, regulators, industry leaders and the public, primarily through published work and conferences, the group contributes to the Federal Reserve’s mission of fostering the stability, integrity, and efficiency of the nation’s monetary, financial, and payment systems. The group has particular expertise in the derivatives markets and clearinghouses in which Chicago is a global leader.
We support a diverse and inclusive work environment where employees and stakeholders are respected, treated fairly, and given equal opportunities to perform to their fullest potential. By valuing diverse experiences, styles, approaches and ideas, we can achieve our goals, serve our stakeholders and become a higher-performing organization.
Publications, conferences, and news
Our staff frequently publishes articles, working papers, conference agendas, and more. You can view them all below, or use the dropdown to select a specific category.
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2022 Financial Markets Group Fall Conference–Recap
February 6, 2023
by Nahimoy Alvarez, Nomaan Chandiwalla and Alessandro Cocco
This blog post summarizes the annual Fall Conference of the Financial Markets Group at the Federal Reserve Bank of Chicago, held on November 16, 2022. The conference featured Commissioners Kristin N. Johnson and Christy Goldsmith Romero from the U.S. Commodity Futures Trading Commission, Lamont Black, professor of finance at DePaul University and former Federal Reserve Board economist, and Klaus Löber from the European Securities and Markets Authority. This year’s event took place a week after the collapse of the cryptocurrency exchange FTX, providing a timely opportunity for discussion of the potential spillover risks into traditional finance, existing opportunities and risks in digital assets, and key regulatory tools in place or under consideration to address systemic risks and strengthen consumer protections going forward.
Distributed Ledger Technology, Carbon Accounting, and Emissions Trading
November 2022
by Alessandro Cocco, Jesse Leigh Maniff, David Rodziewicz, Michael Warner
The reduction of carbon emissions is a critical part of the transition to a more sustainable economy. Reducing carbon emissions is expected to lead to fewer natural disasters, lower energy transitions risk, and a lower impact on financial risks resulting from physical damage caused by climate change.
The Impact of Covid-19 Related Policy Responses on Municipal Debt Markets
September 2021, Revised August 2022
by Robert Bernhardt, Stefania D’Amico, Santiago I. Sordo
Palacios
Municipal (muni) bonds are an important source of funding for state and local governments. During the Covid-19 pandemic, muni debt markets became severely distressed. In response, the Federal Reserve established the Municipal Liquidity Facility (MLF). Meanwhile, Congress enacted extensive fiscal measures that included direct aid to cities and states. To understand whether and how these policies worked, we employ a state-level regression model to estimate the relative efficacy of monetary and fiscal policy interventions for the term structure of muni-Treasury yield spreads. We find that fiscal and monetary policy together reduced those spreads by as much as 225 basis points. Fiscal policy contributed at least twice as much as monetary policy to the notable decline in shorter-term muni-Treasury spreads. At longer maturities, the contribution of fiscal policy was at least three times as large as that of monetary policy, suggesting that it addressed fundamental credit concerns.
The Misleading Notion of Notionals—Why Market Value Might Be a More Meaningful Measure in the Treasury Futures Market
June 2022
by Ketan B. Patel
The world’s communities and economies are already feeling significant effects from global warming and related climate and extreme weather events, as the latest United Nations Intergovernmental Panel on Climate Change (IPCC) world climate report published in August 2021 makes clear. In some industry sectors, such as insurance and energy, financial market tools have been developed specifically to mitigate the risk of financial loss related to climate. Such tools have yet to be developed for the U.S. mortgage market—one of the world’s largest at roughly $11 trillion as of the end of 2020.
The Customer Settlement Risk Externality at US Securities Central Counterparties
May 27, 2022
by Sam Schulhofer-Wohl
The architecture of securities clearing and settlement in the United States creates an externality: investors do not always bear the full cost of settlement risk for their trades and can impose some of this cost on the brokerages where they are customers. When markets are volatile and settlement risk is high, this externality can result in too much or too little trading relative to the efficient level, because investors ignore trading costs, while brokerages may refuse to allow investors to trade. Both effects were evident during the volatility in GameStop stock in 2021. Alternative approaches for clearing customer trades that are used in derivatives markets would eliminate the externality. We examine the potential benefits and costs of different approaches for clearing customer securities trades.
CFTC Roundtable Discussion on Non-intermediation
May 25, 2022
Robert Steigerwald, Senior Policy Advisor, Federal Reserve Bank of Chicago, moderated a roundtable discussion hosted by the Commodity Futures Trading Commission (CFTC) that debated the impact a non-intermediation model could have on derivatives clearing organizations (DCOs), and on derivatives trading and clearing overall. Following are some of the participants who participated in this roundtable discussion: DCOs, future commission merchants (FCMs), FCM customers, end-users academics, proprietary traders, and others.
Market Risk in UST Securities and Futures: How Much Did Volatility Increase in March of 2020 Through the Lens of Filtered Historical Simulation Value-at-Risk Models?
May 2022
by Ketan B. Patel
Market volatility increased substantially in March of 2020 as financial market participants reacted to the risk of Covid-19. Even the market for U.S. Treasury securities, long considered a safe haven and one of the most liquid debt instruments in the world, experienced large swings in volatility. In this policy discussion paper, I demonstrate that as volatility increased, model estimates of the market risk increased as well.
What Will It Take to Remove All Lead Service Lines? Common Barriers to Getting the Lead Out of Drinking Water
May 2022
by Cindy Hull, Nathan Anderson
Despite evidence that there is no safe amount of lead exposure in drinking water, there’s still work to be done to replace lead service lines (LSLs) in many American communities. What holds back progress, and what will it take to remove all LSLs? Staff at the Chicago Fed found two common barriers: the split ownership structure of LSLs and the resulting coordination challenges, and a lack of clear financial benefits for those who have the power to replace LSLs. Cities with full LSL replacement programs (Flint, MI, Benton Harbor, MI, Madison, WI, Galesburg, IL, Newark, NJ) offer lessons on how to overcome these barriers and enable a faster pace of replacement.
Fourth Annual Joint Conference of the Deutsche Bundesbank, European Central Bank and Federal Reserve Bank of Chicago on CCP Risk Management
March 22, 2022
On 22 March 2022 the European Central Bank (ECB) hosted the fourth annual joint conference of the Deutsche Bundesbank, the ECB and the Federal Reserve Bank of Chicago on CCP Risk Management. In light of the ongoing Covid-19 pandemic, this year’s conference was held virtually. The event, by invitation only and held under Chatham House Rules, brought together participants from industry, regulatory bodies and academia to discuss expanding access to central clearing and climate change risk in financial markets. The program and relevant recordings are linked in this summary.
Getting the Lead Out: New Opportunities and Challenges to Scale Up Lead Service Line Replacement
February 2022
by Nathan Anderson, Cindy Hull, Steven Kuehl, Suchi Saxena
An estimated to 12 million lead service lines (LSLs) supply water to homes in the United States, potentially exposing people to lead and endangering their health. For children, the consequences are even worse. Although the only way to eliminate lead exposure from LSLs is to replace them with new pipes, replacement has been slow, sporadic, and typically occurred in response to a lead-contamination crisis. New funding and recent changes to laws may spur proactive rapid replacement, presenting new economic and financial challenges. Given the critical nature of this issue, especially in the Upper Midwest, staff at the Federal Reserve Bank of Chicago are working to advance understanding, as well as analyze potential solutions.
Eighth Annual Central Counterparties Risk Management Conference—A Summary
January 31, 2022
by Nomaan Chandiwalla
On October 19, 2021, the Financial Markets Group of the Federal Reserve Bank of Chicago hosted its eighth annual Central Counterparties (CCP) Risk Management conference. The event featured a panel of experts discussing the U.S. Treasury market structure and a fireside chat with Commissioner Allison Herren Lee of the U.S. Securities and Exchange Commission (SEC). This blog post summarizes the discussions.
Bank Exposure to Commercial Real Estate and the Covid-19 Pandemic
November 2021
by Kyle Binder, Emily Greenwald, Sam Schulhofer-Wohl, Alejandro H. Drexler
The Covid-19 pandemic had an immediate and substantial impact on the commercial real estate (CRE) market—emptying workplaces, shopping centers, and hotels, thus affecting the cash flows of businesses occupying commercial space and in turn the ability of commercial space owners to meet their debt obligations.
Managing Climate Risk in Mortgage Markets: A Role for Derivatives
October 2021
by Ketan B. Patel
The world’s communities and economies are already feeling significant effects from global warming and related climate and extreme weather events, as the latest United Nations Intergovernmental Panel on Climate Change (IPCC) world climate report published in August 2021 makes clear. In some industry sectors, such as insurance and energy, financial market tools have been developed specifically to mitigate the risk of financial loss related to climate. Such tools have yet to be developed for the U.S. mortgage market—one of the world’s largest at roughly $11 trillion as of the end of 2020.
Fireside Chat with SEC Commissioner Allison Herren Lee and Maggie Sklar
October 2021
Securities and Exchange Commissioner Allison Herren Lee shares her views on a wide-ranging set of market structure issues with Maggie Sklar, Senior Policy Advisor and Director of International Engagement, Federal Reserve Bank of Chicago.
What’s the Potential Impact of Force Majeure Claims on Financial Stability?
September 2021
by Alessandro Cocco
This article examines the potential aggregate impact on financial stability of several bilateral force majeure claims filed at approximately the same time in one or more markets. One and a half years after the pandemic started, I take stock of the developments involving force majeure claims thus far, and conclude that the likelihood of these claims creating a systemic threat to financial stability is low.
Is a Treasury Clearing Mandate the Path to Increased Central Clearing?
June 2021
by Marta Chaffee and Sam Schulhofer-Wohl
Following stresses in the market for U.S. Treasury securities in March 2020, several observers suggested that increased central clearing of Treasury transactions could help the market function better and called for investigating the costs and benefits of a clearing mandate. This post argues that the effectiveness of a clearing mandate is unclear absent broad changes in the design of the Treasury market. Additionally, the changes in market design necessary to facilitate a clearing mandate could increase clearing even without a mandate. Analysis of the costs and benefits of expanded clearing therefore needs to consider the specific costs and benefits of these broader changes.
Clearing: Perspectives on Industry Developments and Learnings From the Covid Crisis
June 2021
by Ketan B. Patel
LaSalle Street hosts a discussion with executives representing exchanges, swap dealers, clearinghouses and asset managers on the impact of the Covid crisis and what to watch for as the pandemic eases.
Third Annual Joint Conference of the Deutsche Bundesbank, European Central Bank and Federal Reserve Bank of Chicago on CCP Risk Management
March 2021
Financial leaders from around the world gathered for the Third Annual Joint Conference on CCP Risk Management organized by the Deutsche Bundesbank, the European Central Bank, and the Federal Reserve Bank of Chicago. Over the course of the day, speeches, fireside chats, and panel debates grappled with the pressing issues facing the financial sector. They addressed the industry’s response to COVID-19, climate change risk in financial markets, and ongoing structural changes in clearing.
Externalities in Securities Clearing and Settlement: Should Securities CCPs Clear Trades for Everyone?
March 2021
by Sam Schulhofer-Wohl
The architecture of securities clearing and settlement in the United States creates an externality: Investors do not always bear the full cost of settlement risk for their trades and can impose some of these costs on the brokerages where they are customers. When markets are volatile and settlement risk is high, this externality can result in too much or too little trading relative to the efficient level, because investors ignore trading costs but brokerages may refuse to allow investors to trade. Both effects were evident during the recent volatility in GameStop stock. Alternative approaches for clearing customer trades that are used in derivatives markets would eliminate the externality. I examine the potential benefits and costs of different approaches for clearing customer securities trades as well as implications for the U.S. Treasury market, where there have been calls to investigate the costs and benefits of expanded clearing of customer trades, and the relationship to faster equities settlement.
“YOLOing the Market”: Market Manipulation? Implications for Markets and Financial Stability
March 2021
by Maggie Sklar
Since the start of the Covid-19 pandemic in 2020, retail investors have increasingly participated at higher rates in the U.S. equities markets, particularly in day trading and short-term trading. In January 2021, amid a surge of online postings and interest by retail investors who use free trading apps, GameStop stock began moving up and down by billions of dollars a day—resulting in big gains for some investors and billions in losses for others. To the extent the proliferation of free trading democratizes the market, increases the diversity of participants able to participate in the market, and contributes to vibrant and healthy markets, this activity has positive benefits. These recent developments pose new questions for policymakers, such as whether the ability for users to gather together on social media and move the price of a financial product—for reasons unrelated to market news or market fundamentals—is a larger vulnerability, whether this activity fits into tools to prevent or stop market manipulation or not, and if there is a gap in regulatory ways to address such activity.
Climate Change Risk in Financial Markets: Advancing the Conversation in 2021
January 2021
The Federal Reserve Bank of Chicago’s Financial Markets Group opened 2021 with a conversation on climate change risk in financial markets. Panelists representing diverse perspectives discussed the following: How has climate change risk impacted global financial markets to date, and what can we expect moving forward? What are some of the key developments to watch out for—in terms of technology, investing practices, new guidance, etc.? What role can financial markets and the public sector play in better managing this risk moving forward? What are some of the strengths of and opportunities for existing efforts?
Treasury Market Structure Podcast
January 2021
By Alessandro Cocco and Sam Schulhofer-Wohl
In this episode, experts from industry, academia, and government discuss the operations of and recent stresses in the U.S. Treasury market. This market has a huge impact across the financial system—from determining the borrowing costs for governments to serving as a key benchmark within the financial system to helping to keep credit flowing to people who need it.
Can Central Counterparties (CCPs) Use Improved Buffers to Reduce Cyclical Funding Demands on the Market?
November 2020
By Ketan B. Patel
In this blog post, Ketan B. Patel investigates changes in margin at central counterparties (CCPs) during the market stress of 2020:Q1 to show how reactive CCP funding demands were to the increase in market volatility. He examines whether rainy day funding in the form of buffers might be useful in supporting the broader resilience of the clearing ecosystem.
A New Framework for Assessing Climate Change Risk in Financial Markets
November 2020
By Nahiomy Alvarez, Alessandro Cocco, and Ketan B. Patel
While there is growing recognition that climate change poses a new risk for the economy, more research is needed to understand how climate change risk affects global financial markets. We establish a new framework for this research by merging the climate change risk categories of physical risk, transition risk, and liability risk with the risk categories commonly assessed in the financial markets: market risk, credit risk, liquidity risk, and operational risk. We then factor in market structure and market regulation as we seek to assess the overall impact of these variables on systemic risk. Our framework shows that climate change affects each of the risk-management categories commonly assessed in the financial markets as well as the ways that they interact to generate broader systemic risk.
7th Annual Conference on CCP Risk Management
November 2020
Ketan B. Patel will moderate a panel discussion on Resilience and Lessons Learned in Central Clearing in 2020. Senior policymakers, central bankers, market regulators, industry leaders and others are invited to participate in the conference. The CCP Risk Management Conference is by invitation only. To encourage candid discussion among invited participants, the conference is conducted under the Chatham House rule and is not open to the press. This conference has been very well attended in the past.
Diversity in Financial Markets
October 2020
The Chicago Fed and FIA teamed up with a group of expert panelists to explore past and present experiences, as well as the outlook for diversity in financial markets. The panelists explored why diversity is important, how to achieve it, and what metrics could be used to determine progress. During this interactive webinar, panelists also shared their experiences and answer audience questions on impactful changes and how to move your organization and the broader industry forward.
What Are the Financial Systemic Implications of Access and Non-Access to Federal Reserve Deposit Accounts for Central Counterparties?
October 2020
By Maggie Sklar
In this working paper, I examine the interconnections between designated derivatives central counterparties (CCPs) with Federal Reserve deposit accounts and non-designated CCPs and the potential financial stability implications. This working paper notes the interconnections between the non-designated and designated derivatives CCPs through their clearing members and the commercial custodial banks they utilize to hold and transfer collateral. The paper then identifies additional potential contagion risks and financial stability risks, including liquidity risk, market risk, concentration risk, and loss of confidence more broadly. Although there are a number of research articles addressing these topics with respect to designated CCPs or OTC derivatives, this working paper includes the perspective looking at U.S. futures CCPs and non-designated CCPs.
The Future of Innovation in an Inclusive Chicago
October 2020
Chicago is a global hub for innovation in finance, technology, and other sectors. Yet continued innovation is not a given, and the makeup of the city’s population has not been reflected in its most innovative industries. How can Chicago’s history of innovation continue, and how can it include all residents of the city?
Law & Compliance Division Conference
October 2020
Robert Steigerwald participated in a panel discussion of “CCP Risk” at the Futures Industry Association’s Virtual Law & Compliance Conference. The panel discussed CCP risk management issues, including the CCP risk whitepaper, as well as newly finalized amendments to Part 39 regulations.
What Risk Managers from NASDAQ and Options Clearing Corp Learned From the Covid-19 Crisis: Perspectives on Resilience and Challenges During the Pandemic
September 2020
This episode of LaSalle Street welcomes chief risk officers from Options Clearing Corporation and Nasdaq Inc. to discuss what the pandemic is teaching us about risk management and global financial markets.
Clearinghouse Risk, Reference Rates, and Cryptocurrency with Former CFTC Chair J. Christopher Giancarlo
September 2020
The Honorable J. Christopher Giancarlo was on the frontlines of the biggest issues shaping global financial markets as the 13th chairman of the U.S. Commodity Futures Trading Commission (CFTC). Known by some as "CryptoDad," Giancarlo visits LaSalle Street to discuss his reflections a year after leaving the CFTC, key issues he faced during his tenure, and emerging issues shaping the markets today. The conversation includes discussion of clearinghouse risk and the work of the Financial Stability Board, the risks embedded in reference rates, and why regulators should be investing time in the future of digital currency.
The Influence and Limits of Central Bank Backstops
August 2020
By Sam Schulhofer-Wohl
In this post, I explain how central banks’ “backstop” lending facilities can influence financial conditions even when the facilities see relatively little borrowing. The knowledge that credit is available, even if at a relatively high penalty interest rate, can calm markets and encourage confidence in the economy. The availability of a backstop can also influence interest rates on private-sector transactions. However, backstops aim to support normal market functioning—not to make credit cheaper or more plentiful than what a normally functioning market would deliver.
Chicago Fed Hires Ketan B. Patel as Policy Advisor and Head of Financial Markets Risk Analysis
July 2020
Patel will be responsible for analyzing the public policy implications of risks in financial markets and financial market infrastructures. The group’s research on financial market institutions, technology and infrastructure helps inform and foster stable and efficient national monetary, financial and payments systems.
Second Joint Deutsche Bundesbank - European Central Bank - Federal Reserve Bank of Chicago Conference on CCP Risk Management
February 2020
Conference agenda
Monetary Policy Implementation With an Ample Supply of Reserves
January 2020
By Gara Afonso, Kyungmin Kim, Antoine Martin, Ed Nosal, Simon Potter and Sam
Schulhofer-Wohl
Chicago Fed Hires Maggie Sklar as Senior Policy Advisor and Director of International Engagement
December 2019
Maggie Sklar joined the economic research department as senior policy advisor and director of international engagement in the financial markets group. Sklar reports to Vice President Alessandro Cocco.
Can Broader Access to Direct CCP Clearing Reduce the Concentration of Cleared Derivatives?
December 2019
By Nahiomy Alvarez
Chicago Fed Hires Vice President of Financial Markets Group
October 2019
The Federal Reserve Bank of Chicago announced that Alessandro Cocco will join the economic research department on October 21 as vice president of the financial markets group. Cocco will report to senior vice president Sam Schulhofer-Wohl.
Understanding Recent Fluctuations in Short-Term Interest Rates
October 2019
By Sam Schulhofer-Wohl
6th Annual CCP Risk Management Conference
October 2019
Conference agenda
The Concentration of Cleared Derivatives: Can Access to Direct CCP Clearing for End-Users Address the Challenge?
August 2019
By Nahiomy Alvarez and John W. McPartland
Symposium on OTC Derivatives and Central Clearing
April 2019
Conference agenda
First Joint Deutsche Bundesbank - European Central Bank - Federal Reserve Bank of Chicago Conference on CCP Risk Management
February 2019
Conference agenda
First Joint Deutsche Bundesbank - European Central Bank - Federal Reserve Bank of Chicago Conference on CCP Risk Management
February 2019
Conference summary
Managing Risk in Global Financial Markets: CCP Governance, Supervisory Stress Testing, and Default Management Auctions
December 2018
By Nahiomy Alvarez
International Regulators Conference
October 2018
Conference agenda
Fifth Annual Risk Management Conference: Examining Regulatory Initiatives
October 2018
Conference agenda
A “Principled” Approach to International Guidance for Central Counterparties
July 2018
By Rebecca Lewis
Central Counterparty Risk Management: Beyond Default Risk
December 2017
By Rebecca Lewis
Blockchain and Financial Market Innovation
November 2017
By Rebecca Lewis, John W. McPartland and Rajeev Ranjan
Fourth Annual Conference on CCP Risk Management
October 2017
Conference agenda
Symposium on OTC Derivatives—A Conference Summary
August 2017
By Rebecca Lewis and Ning Yu
Statement on 'Clearing the Next Crisis: Resilience, Recovery and Resolution of Derivatives Clearinghouses'
June 2017
By Robert Steigerwald
Symposium on OTC Derivatives
May 2017
Conference agenda
Symposium on Central Clearing
May 2017
Conference agenda
Non-Default Loss Allocation at CCPs
April 2017
By Rebecca Lewis and John W. McPartland
A CCP Is a CCP Is a CCP
April 2017
By Robert Cox and Robert Steigerwald
The Goldilocks Problem: How to Get Incentives and Default Waterfalls 'Just Right'
March 2017
By John W. McPartland and Rebecca Lewis
Taking a Deep Dive into Margins for Cleared Derivatives
December 2016
By Rebecca Lewis
Third Annual Conference on CCP Risk Management
October 2016
Conference agenda
Resolving Central Counterparties after Dodd-Frank: Are They Eligible for 'Orderly Liquidation'?
September 2016
By Robert Steigerwald and David W. DeCarlo
Conference on CCP Public Quantitative Disclosure
July 2016
Conference agenda
Issues in clearing and settlement
March 2016
Conference agenda
2015 Conference on CCP Risk Management — Central Counterparty Resolution
November 2015
Conference agenda
A New Approach to Stock Market Execution
September 2015
By John W. McPartland and Rebecca Lewis
2015 Symposium on Central Clearing
April 2015
Conference agenda
CCP Recovery and Resolution Conference
November 2014
Conference agenda
2014 Derivatives Symposium
April 2014
Conference agenda
The Role of Time-Critical Liquidity in Financial Markets
July 2013
By Robert Steigerwald and David Marshall
Recommendations for Equitable Allocation of Trades in High Frequency Trading Environments
May 2013
By John W. McPartland
2013 Derivatives Symposium
April 2013
Conference agenda
How Do Clearing Organizations Control the Risks of High Speed Trading?
June 2012
By John W. McPartland and Carol Clark
Public Policy Symposium on Central Clearing of OTC Derivatives
April 2012
Conference agenda
What Tools Do Vendors Provide to Control the Risks of High Speed Trading?
October 2011
By Carol Clark, Richard Heckinger, Rajeev Ranjan and John W. McPartland
What Is Clearing and Why Is It Important?
September 2010
By Robert Steigerwald and Ed Nosal
Clearing and Settlement of Exchange Traded Derivatives
October 2009
By John W. McPartland
Policymakers, Researchers, and Practitioners Discuss the Role of Central Counterparties
November 2006
By Douglas D. Evanoff, Daniela Russo, and Robert Steigerwald
Derivatives Clearing and Settlement: A Comparison of Central Counterparties and Alternative Structures
November 2006
By Robert Steigerwald and Robert R. Bliss
Foreign Exchange Trading and Settlement: Past and Present
February 2006
By John W. McPartland
Featured publication
A CCP Is a CCP Is a CCP
By Robert Cox and Robert Steigerwald
Central counterparties (CCPs) are an important part of contemporary financial market infrastructure. The orderly risk management operations and financial resilience of CCPs and other market infrastructures are essential for financial stability. This paper discusses many differences between CCPs and banks and the significance of those differences, including their business models and risk profiles, with CCPs acting as risk managers that are uniquely subject to the credit and liquidity risk of clearing member default.