SIFMA AMG Calls for Changes in MAT Process (with Lofchie Comment)

SIFMA's Asset Management Group ("SIFMA AMG") recommended amendments to CFTC regulations on Made-Available-to-Trade ("MAT") determinations. The amendments are intended to fix "serious flaws" that could cause disruptions in liquidity and increase operational risk.

SIFMA AMG recommended that (i) Commission Regulation 37.10 be amended to require all Six MAT Factors to be satisfied as part of any MAT submission; (ii) the Commission consider certain additional factors when assessing any MAT application; (iii) new MAT applications be treated as novel and complex and, accordingly, be subject to a full 90-day review period by the Commission, a concurrent 30-day public comment period, and feedback from a swap execution facility advisory committee composed of market participants; (iv) MAT determinations have phased-in compliance; and (v) package transactions be reviewed for MAT consideration as single integrated units rather than solely "broken into their component parts" as swap component(s).

SIFMA AMG requested no-action relief for package transactions, and expressed hope that "the Commission [will make] these changes now, in order to avoid further negative impacts upon swaps trading."

Lofchie Comment: One of the most questionable policy choices made by the CFTC was its decision to allow an individual exchange to determine when trading in a particular swap could be forced to occur on exchanges rather than in the OTC market. By granting this power to an individual exchange (which has an economic motive to force exchange trading even when that might not be best for the economy or the markets), the CFTC left itself and the market vulnerable to the possibility that some exchange (perhaps on the verge of going out of business) would force exchange trading on the entire market. The CFTC is fortunate that this has not happened (yet). While it is possible that such a scenario will never happen, it would be a mistake to continue to leave the financial markets open to such a risk. The CFTC would do a better job of protecting the markets if it amended the MAT rules to make itself (and not an individual exchange) the ultimate arbiter of whether all trades in a particular swap should be forced out of the OTC markets and onto the exchange markets.

See: SIFMA Comment Letter Regarding the MAT and Request for Further Relief from Trade Execution Requirements for Package Transactions.
Related news: CFTC Holds Roundtable Discussion on the MAT Process (with Cadwalader Memorandum) (July 16, 2015) CFTC Commissioner Giancarlo Challenges Restrictive Swap Trading Procedures (with Zwirb Comment) (July 14, 2015); CFTC to Host Public Roundtable Regarding MAT Process (with Lofchie Comment) (June 22, 2015).