April 16, 2019

Brent J. Fields
Secretary
U.S. Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090

Re: Risk Mitigation Techniques for Uncleared Security-Based Swaps; Proposed Rule – RIN 3235-AL83

Dear Mr. Fields:

The International Swaps and Derivatives Association, Inc. (“ISDA”)1 and the Securities Industry and Financial Markets Association (“SIFMA”)2(together the “Associations”) appreciate the opportunity to submit these comments on the proposed rules for risk mitigation techniques for uncleared security-based swaps (“Proposal”) published by the U.S. Securities and Exchange Commission (“SEC” or “Commission”) on February 15, 2019.3

We support the Commission’s efforts to finalize its Dodd-Frank Title VII rules related to security-based swaps (“SBSs”) and Security-Based Swap Dealers (“SBSDs”). The Associations’ members are users of SBSs, many of whom are currently provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as Swap Dealers (“SDs”). Thus, the Associations’ comments are informed by several years of experience complying with the CFTC’s rules, specifically the CFTC’s risk management and documentation rules.

Overall, we commend the Commission for aligning—to a large degree—the Proposal with existing CFTC risk mitigation requirements. However, if the Commission finalizes its SBS rules as currently drafted, in a few instances, the same firms and economically indistinguishable products will be subject to similar, but not identical regulatory regimes. Disparities between the SEC and CFTC rulesets, even if minor, will lead to significant costs—particularly as it pertains to building new or modifying existing compliance systems that conform to both rulesets as well as amending existing documentation. Our comments below point to a few areas where further consistency would help mitigate unnecessary costs and related compliance burdens.

Alternatively, the SEC could consider establishing a “regulatory safe harbor,” between CFTC and SEC rules, in line with its statutory exemptive authority. A regulatory safe harbor would allow firms to rely on their compliance with one agency’s rules to satisfy comparable requirements set by the other agency. This approach would preserve each agency’s regulatory oversight authority, while also enabling market participants to reduce the complexity and cost of complying with divergent regulatory regimes.4 We are encouraged that, last year, the SEC adopted this approach with respect to certain external business conduct requirements for SBSDs.5

While a regulatory safe harbor or substituted compliance approach are available options, we strongly believe further harmonization of the SEC’s rules to the existing CFTC rules is the preferred pathway forward. In this letter, we discuss how the SEC can better align its ruleset with the CFTC’s rules.

Based on the foregoing, this letter addresses the topics listed below with a particular focus on areas where additional convergence could mitigate the cost and burden associated with implementing similar, but not identical rules.

• Proposed Rule 15Fi-3 (Portfolio Reconciliation)
• Proposed Rule 15Fi-4 (Portfolio Compression)
• Proposed Rule 15Fi-5 (Trading Relationship Documentation)
• Cross-Border Application of Proposed Rules 15Fi-3 through 15Fi-5; Geographic and Agency-Based Substituted Compliance
  Discussion

In presenting the Proposal, the SEC notes, “divergence from [established CFTC requirements] could lead to additional costs and other inefficiencies for SBS Entities that are also registered with the CFTC as Swap Entities.”6 Not only do the Associations agree with such a statement, but we believe that avoiding such divergence should be the guiding force for the entire risk mitigation rulemaking.

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1 Since 1985, ISDA has worked to make the global derivatives markets safer and more efficient. Today, ISDA has more than 900 member institutions from 70 countries. These members comprise a broad range of derivatives market participants, including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure, such as exchanges, intermediaries, clearing houses and depositories, as well as law firms, accounting firms and other service providers. Additional information on ISDA is available at http://www.isda.org.
2 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
3 Risk Mitigation Techniques for Uncleared Security-Based Swaps; Proposed Rule, 84 Fed. Reg. 4614 (Feb. 15, 2019), available at https://www.govinfo.gov/content/pkg/FR-2019-02-15/pdf/2018-27979.pdf.
4 ISDA, along with the US Chamber of Commerce Center for Capital Markets Competitiveness, has outlined how such an approach would work in, A Regulatory Safe Harbor for Derivatives: Ensuring a Comprehensive and Consistent US Derivatives Regulatory Framework (Sept. 20, 2018), available at https://www.isda.org/a/cpREE/A-Regulatory-Safe-Harbor-for-Derivatives.pdf. (“Regulatory Safe Harbor Paper”).
5 Commission Statement on Certain Provisions of Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, 83 Fed. Reg. 55,486 (Nov. 6, 2018), available at https://www.govinfo.gov/content/pkg/FR-2018-11-06/pdf/2018-24213.pdf.
6 Proposal at 4619.