Buy-Side Associations Request that CFTC Allow Limited Netting of OTC Swaps for Purposes of Determining Eligibility for Registration Exemptions (with Lofchie Comment)

MFA, the Investment Company Institute, the Investment Adviser Association, the Alternative Investment Management Association, and the Asset Management Group of SIFMA (the "Associations") submitted a letter to the CFTC, following up on a January 2013 letter, requesting relief to permit sponsors of privately offered investment funds and registered investment companies to net certain uncleared swaps held by a fund for compliance with a CPO de minimis trading registration exemption.

The Associations amended the January 2013 letter to request that the CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") grant relief to permit a fund to net uncleared swaps for purposes of the net notional test in amended CFTC Rule 4.5 or Rule 4.13(a)(3), provided that (i) the termination dates of the offsetting swaps are the same, (ii) the reference asset or rate for the offsetting swaps is the same, and (iii) the swaps to be netted are either with the same counterparty, or with different counterparties, but the offsetting swaps are both outstanding for seven business days or fewer.

Lofchie Comment: The exemption being requested seems quite narrow. The CFTC would provide a greater service to funds (and their investors) if it would eliminate (or further liberalize) the requirement that the offsetting position be with the same counterparty since that would allow funds to remove market risk with the dealer that would provide the best price on a trade.

See: Associations Letter to the CFTC; MFA Press Release. Related news: MFA, ICI, SIFMA and IA Assoc. Joint Comment Letter to CFTC on the Netting of Uncleared Swaps for Purposes of Commodity Pool Calculation (January 28, 2013).