Industry Comments to the CFTC on Rule Proposal Regarding Margin Requirements for Uncleared Swaps
SIFMA and the ISDA published this comment letter to the CFTC regarding the proposed rulemaking and comment request concerning margin requirements for non-cleared swaps. The letter provides recommendations as to the following issues:
- Process
- Implementation
- Scope - Entities
- Margin Calculation
- Collateral
- Treatment of Collateral/Segregation
- Inter-Affiliate Swaps
- Cross-Border Swaps
Lofchie Comment: The substantive points the letter makes as to margin requirements are significant and should be read directly by those with an interest. Beyond those substantive points, what I think most interesting is that the comment letter begins by citing for support of its desired revisions to the CFTC's proposed rules the recent IOSCO study on margin for uncleared derivatives. Link here to the IOSCO study. I do not know if the CFTC is bothered by its international position, but it seems to me that the CFTC is in a somewhat difficult place. On the one hand, the CFTC has indicated its willingness to co-operate with financial regulators from around the world, and, on the other hand, the CFTC's proposals to extend its authority internationally have been criticized by financial regulators from around the world. Now, the U.S. and international financial industries have come back with suggestions that seem reasonable on their face; e.g., that swaps with the U.S. government should not receive special treatment as compared to swaps with other national governments. In order for the CFTC to address the comments of the industry, and more importantly of its fellow financial regulators, the CFTC would have to take a deep breath and rethink (perhaps even ask for amendments to Dodd-Frank). Further, it is not clear that the CFTC would even have the internal expertise to address many of the comments made in the industry letter such as the need to calculate certain capital and margin requirements based on financial models. Accordingly, it might be the case that the inclination of the CFTC will be to go forward without addressing these comments. On the other hand, while the CFTC is obviously able to ignore industry comments, I just don't know how it is possible to ignore the criticisms from non-U.S. regulators. (On page 27 of the IOSCO report, IOSCO lays down the general rules that should apply to the regulation of cross-border transactions--general rules that are wholly inconsistent with the framework that would be established by the CFTC.) Readers that are interested in viewing the comments made by non-U.S. governments as to the CFTC's cross-border regime may search using the tabs at the right: select "one month" and "cross-border"; the relevant news items are dated August 28.
View comment letter here(links externally to SIFMA website).