MFA Submits Comments to SEC on Cross-Margining of Single-Name and Index CDS Swaps (with Lofchie Comment)

The MFA has submitted comments to the SEC in response to the latter's "Order Granting Conditional Exemptions under the Securities and Exchange Act of 1934 in Connection with Portfolio Margining of Swaps and Security-Based Swaps". The MFA expressed its concern that it is taking too long for the the SEC and FINRA to review and approve each individual margin methodology of each broker-dealer and FCM that plans to cross-margin single name CDS (regulated by the SEC) and index CDS (regulated by the CFTC).

The worry that the MFA raises is that its member organizations will be required to clear CDS index swaps, but will not be able to be cross-margin them with CDS single-name swaps because the SEC will not have approved individual firms' margin requirements. Accordingly, the MFA recommends that the SEC should provide "expedited, temporary approval under its Order of all BD/FCMs' margin methodology submissions prior to the first CFTC clearing compliance date of March 11, 2013."

Lofchie Comment: Somebody please remind me why there are two non-bank regulators that split jurisdiction over CDS and why that split is a matter of good regulatory policy.

Click here to view letter in full (links externally to MFA website).Related News Story: SEC Issues Order Granting Conditional Exemptions in Connection with Portfolio Margining of Swaps and Security-Based Swaps (Fed. Reg. Version).