April 6, 2018

Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

Office of the Comptroller of the Currency
400 7th Street SW, Suite 3E-218, Mail Stop 9W-11
Washington, DC 20219

Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429

Re: Request for Alignment of Applicability Dates with Phased-In Compliance
Schedule under Final QFC Stay Rules1

Dear Sirs and Madams:

The undersigned associations (the “Associations”)2 write to raise concerns on behalf of pension funds, regulated investment funds, private funds, and other clients of asset managers that enter into qualified financial contracts (QFCs) with entities that are subject to the final rules on stays in QFCs recently issued by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (together, the “U.S. Banking Agencies”). For the reasons set forth below, we believe that the U.S. Banking Agencies should align the applicability dates under the QFC Stay Rules with the phased-in compliance dates applicable to QFCs executed between Covered Entities3 and financial counterparties that are not Covered Entities. Although the QFC Stay Rules provide for a phased-in compliance schedule to allow an orderly transition,4 the rules require that a Covered Entity conform its QFCs to the final rules beginning on the earliest compliance date.5 As a result, Covered Entities will expect their nonbank counterparties to conform their QFCs, including pre-existing QFCs, to the QFC Stay Rules as of the earliest compliance date, thus effectively depriving non-bank counterparties of the benefit of the phased-in compliance schedule. To allow for an orderly process for compliance with the QFC Stay Rules, the Associations request that the U.S. Banking Agencies instead align the applicability of the rules with each phased-in compliance date.

The QFC Stay Rules establish three compliance dates based on entity type. For example, the Board of Governors of the Federal Reserve System’s (the “Board”) QFC Stay Rules provide for the following dates:

(i) January 1, 2019, if each party to the covered QFC is a covered entity or an excluded bank [(the “First Compliance Date”)];

(ii) July 1, 2019, if each party to the covered QFC (other than the covered entity) is a financial counterparty that is not a covered entity or excluded bank [(the “Second Compliance Date”)]; and

(iii) January 1, 2020, if a party to the covered QFC (other than the covered entity) is not described in paragraph (f)(1)(i) or (f)(1)(ii) of this section or if, notwithstanding paragraph (f)(1)(ii), a party to the covered QFC (other than the covered entity) is a small financial institution. [(the “Third Compliance Date”)].6

However, the QFC Stay Rules apply, as of January 1, 2019 (the “Application Date”), to new QFCs a Covered Entity executes with its counterparties, as well as pre-existing QFCs, if the Covered Entity enters into a new QFC with that counterparty after January 1, 2019.7 Because all QFCs entered on or after the Application Date between a Covered Entity and counterparty must be compliant with the QFC Rules notwithstanding a later compliance date, Covered Entities that enter into QFCs with counterparties subject to the Second Compliance Date or Third Compliance Date will be unlikely to take the risk of entering into contracts to which the QFC Rules apply without the certainty that those QFCs will be amended to conform to the rules. At the same time, Covered Entities and their counterparties need the additional time provided by the phased-in compliance schedule, as intended by the QFC Rules, to amend their contracts.

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1 Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S. Operations of Systemically Important Foreign Banking Organizations; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions, 82 Fed. Reg. 42882 (Sept. 12, 2017); Restrictions on Qualified Financial Contracts of Certain FDIC-Supervised Institutions; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions, 82 Fed. Reg. 50228 (Oct. 30, 2017); Mandatory Contractual Stay Requirements for Qualified Financial Contracts, 82 Fed. Reg. 56630 (Nov. 29, 2017) (collectively, the “QFC Stay Rules”); and related rulemakings, e.g., Margin and Capital Requirements for Covered Swap Entities; Proposed Rule, 83 Fed. Reg. 7413 (Feb. 21, 2018).

2 See end of letter for descriptions of the Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG”) and the Investment Company Institute.

3 We use “Covered Entities” herein to refer to covered entities, covered banks and covered FSIs, as applicable, under each of the QFC Stay Rules.

4 See, e.g., 12 CFR § 252.82 (compliance schedule under the final rules of the Board of Governors of the Federal Reserve). A substantially similar phased-in compliance schedule was included in the final rules issued by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

5 This requirement also applies to pre-existing QFCs, which must be amended to conform to the QFC Stay Rules if a Covered Entity enters into a new QFC with that counterparty or a “consolidated affiliate” after the earliest compliance date.

6 See, e.g., 12 CFR § 252.82(f).

7 See, e.g., 12 CFR § 252.82(c)(1)(ii)