Establishing Margin Requirements for Transactions in Credit Default Swaps

The Capital Steering Committee of SIFMA provides comments to the Financial Industry Regulatory Authority (FINRA) on Regulatory Notice 09-30 establishing a new FINRA Rule 4240, in conjunction with an interim pilot program establishing margin requirements for transactions in credit default swaps (CDS).  SIFMA notes that a number of aspects of the registered, full purpose broker-dealer regulatory framework preclude it from being a commercially viable vehicle for over-the-counter (OTC) derivatives, including CDS.  Additionally, Rule 4240 provides a special status to CDS transactions that are cleared through the facilities of the Chicago Mercantile Exchange (CME) as compared to transactions that are cleared via some other central clearing counterparty or that are cleared on a bilateral basis. SIFMA believes that an explanation for this aspect of the Rule should be provided and would be of interest to the industry.