Segregation of Assets Held as Collateral in Uncleared Swap Transactions
ISDA
Summary
SIFMA and ISDA appreciate the opportunity to provide the Commodity Futures Trading Commission (“CFTC” or “the Commission”) with comments on its proposed rule regarding the segregation of assets held as collateral in uncleared swap transactions. As well as the continued efforts of the Commission and its staff to review rules, regulations and practices, including those covered by the Proposal, to identify areas that can be simplified and made less burdensome and costly, as part of the Commission’s Project KISS, and other similar initiatives.
See also: CFTC Requests Public Input on Simplifying Rules
Excerpt
Mr. Christopher Kirkpatrick
Secretary
U.S. Commodity Futures Trading Commission
1155 21st Street, NW
Washington, DC 20581
Re: Segregation of Assets Held as Collateral in Uncleared Swap Transactions (RIN 3038–AE78)
Dear Mr. Kirkpatrick:
The International Swaps and Derivatives Associate (“ISDA”)1 and Securities Industry and Financial Markets Association (“SIFMA”)2 (together, “the Associations”) greatly appreciate the opportunity to provide the Commodity Futures Trading Commission (“CFTC” or “the Commission”) with comments on its proposed rule regarding the segregation of assets held as collateral in uncleared swap transactions (the “Proposal”). 3 We further appreciate the continued efforts of the Commission and its staff to review rules, regulations and practices, including those covered by the Proposal, to identify areas that can be simplified and made less burdensome and costly, as part of the Commission’s Project KISS, and other similar initiatives. 4 As the CFTC has implemented many important and significant requirements under Title VII of the Dodd-Frank Act, such a review is timely as both the Commission and market participants have a better understanding of the inter-relationship and resulting impacts of such efforts, helping to inform where changes are necessary and appropriate. We welcome the Commission’s decision to seek further input regarding the important issues covered in this Proposal. The Commission previously finalized rules regarding the segregation of initial margin (“Seg IA”)5 held as collateral in connection with uncleared swap transactions. 6 We believe the Proposal takes much-needed steps to address many of the concerns raised in SIFMA’s previous Project KISS comments regarding Seg IA requirements. 7 In large part, the Proposal meaningfully streamlines rules regarding these segregation requirements for uncleared swaps in a manner that is consistent with CEA Section 4s(l) and appropriately informed by parallel requirements contained in its final margin rules for uncleared swaps. 8 The Proposal also considers the industry’s practical experience regarding the limited number of segregation arrangements that have been requested by counterparties under CFTC Rules 23.702 and 23.703. We commend the Commission for taking into consideration this feedback from
market participants regarding their implementation experience with the Seg IA requirements to date, as well as observations from the National Futures Association (NFA) regarding its experience with the requirements as ascertained during member examinations. We encourage the Commission to continue to work with market participants and the NFA to identify other opportunities to review and streamline requirements where market experience indicates appropriate.
The Proposal will amend the current Seg IA requirements to eliminate unnecessarily burdensome obligations, which in many instances are duplicative or create confusion due to parallel mandatory collateral segregation requirements found within the final uncleared margin rules of the CFTC, the U.S. Prudential Regulators 9 and similar requirements imposed by foreign regulatory authorities. Requirements that annual notifications be sent to counterparties informing them of their right to elect segregation, and the corresponding requirements for confirmation of receipt of such notices and affirmative elections, are more burdensome than necessary. This is especially true considering these markets are limited to sophisticated entities that qualify as eligible contract participants. Further, as noted in the Proposal, per the NFA’s examinations of swap dealers (“SDs”) the NFA found that for nearly every SD examined, fewer than 5 swap counterparties elected segregation