Further Definition of Major Swap Participants

The Asset Management Group (AMG) of SIFMA provides comments to the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) on further definition of “swap dealer,” “security-based swap dealer,” “major swap participant,” “major-security-based swap participant” and “eligible contract participant” as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), File No. S7-39-10, RIN 3235-AK65.  AMG believes that: (a) registered investment companies, ERISA and governmental benefit plans and foreign entities subject to comparable foreign regulation should not be regulated as MSPs; (b) the MSP designation should be made at the level where recourse and counterparty risk reside; (c) market participants with relatively small Swap positions should benefit from a safe harbor exclusion from the MSP test calculations and reduced frequency of required testing; (d) the quantitative tests for “substantial position” should be simplified, clarified and more closely aligned with their purposes; (e) a uniform definition of the phrase “hedging or mitigating commercial risk” should be adopted; and (f) the “hedging or mitigating commercial risk” and ERISA position exemptions should be extended to the test for “substantial counterparty exposure.”

AMG took the opportunity to provide the CFTC and the SEC with precomment letters on this topic on September 20, 2010 and November 24, 2010.  In addition, the SIFMA AMG provides supplemental comments on July 8, 2011 on the issue.