Acceptance of Comments Regarding the Study of Stable Value Contracts; Request for Comment; Reopening of Comment Period (CFTC and SEC; Fed. Reg. Version) (with Lofchie Comment)

Section 719(d) of the Dodd-Frank Act mandates that the SEC and CFTC jointly conduct a study to determine whether stable value contracts ("SVCs") fall within the definition of a "swap". Section 719(d) of the Dodd-Frank Act also requires that the Commissions, in making that determination, jointly consult with the DOL, the Treasury, and the State entities that regulate the issuers of SVCs. Further, Section 719(d) of the Dodd-Frank Act provides that if the Commissions determine that SVCs fall within the definition of a "swap," they jointly shall determine if an exemption for SVCs from the definition of a swap is appropriate and in the public interest. In connection with this study, the Commissions' staff seeks the responses of interested parties to the questions in the attached release.

There are 28 questions beginning on page 6. The essential thrust of the questions: (i) is an SVC a "swap," as such term is defined in Dodd-Frank; and (ii) if so, should an SVC be regulated by the CFTC?

Comments Due: November 1, 2012. Submit comments here; view comments.

Cross-Reference(s): Dodd-Frank Section 719(d) (Studies - Stable Value Contracts).

Lofchie Comment: In reading through the questions, one can get a sense of how (unintentionally?) expansive the Dodd-Frank definition of swap is and the problems that arise given the CFTC's apparent inclination to resist narrowing the definition. See, for example, question 13, where the CFTC asks about the effect of "immunization" transactions on investors and the disclosure of the risks of immunization to such investors.Should we really have a regulatory system in which the permissibility of a product hinges on whether the CFTC is satisfied with the disclosures that are made to investors? Is the CFTC going to make such determinations on an ongoing basis (otherwise, what value would the determination be)? What if the answer varies from state to state?Further, I am made uncomfortable by the notion that the CFTC may determine to allow SVCs to go forward based on an "exemption" from CFTC regulation that the CFTC could rescind at any time. None of this feels like a good way to run a financial system.

View rule release here: 77 FR 60113.See also: 76 FR 53162 (Acceptance of Public Submissions Regarding the Study of Stable Value Contracts; Request for Comment).