SIFMA AMG Submits Comments to the CFTC Requesting Relief from External Business Conduct Rules (with Lofchie Comment)
The Asset Management Group ("AMG") submitted a number of requests to the CFTC asking that the CFTC extend compliance dates, preferably by interim rule or CFTC Interpretative Guidance, but, failing that, by no-action letter, and that it suspend or disapply certain of its rules as to FX and cleared block transactions.
Delay in Business Conduct and Information Collection Rules. First, AMG requested that the effectiveness of the business conduct rules be suspended until November 1, 2013. According to AMG, firms simply will not be ready to comply by May 1 and, if the rules come into effect on that date, there will be a significant drop in market liquidity. According to AMG:
Issues range from technical reconciliation problems associated with matching legal names and CICIs, adherence problems related to the ISDA August 2012 Dodd-Frank Protocol (the "ISDA Protocol"), confusion around the scope of FX forward transactions, and the resistance shown by many non-U.S. persons to agreeing to provide such information, representations and agreements for fear of subjecting themselves to U.S. swap jurisdiction. Many end user clients of asset managers are still coming to terms with the scope of the rules and have ongoing uncertainty regarding the cross-border application of the Rules. In addition, there has been confusion among some participants who trade predominantly in foreign exchange transactions as to the applicability of the Rules to foreign exchange swaps and forwards which have been excluded from the definition of swap for other purposes.
Treatment of FX Transactions Settling in 7 Days or Less. AMG asked that, at least until November 1, 2013, market participants be permitted to treat all FX forwards as FX spot transactions.
Ongoing Relief from Business Conduct Rules and Information Collection Rules. AMG asked that these rules not be applied to cleared block trades for the same reason that many of these rules should not be applied to prime brokerage trades, as set out below.
Prime Brokerage Relief. AMG supported a request that the CFTC provide no-action relief as to the application of its rules to prime brokerage trades. (This prime brokerage no-action relief was granted on April 30, albeit subject to numerous conditions, as described in the attached story: Relief (Conditional and Time-Limited) for Swaps Prime Brokerage (CFTC Letter 13-11) (with Lofchie Comments); the date of the AMG letter is April 29.)
Lofchie Comment: In yesterday's news, we printed a story in which CFTC Commissioner O'Malia highlighted all of the problems with the implementation of Dodd-Frank, including rules that don't work, that don't make sense, or that have an unrealistic timetables. (See story here: CFTC Commissioner O'Malia Gets Frank on Dodd-Frank Regulatory Framework (with Lofchie Comment).) This is evidence of the problems experienced by end users. One of the more troubling lines in the AMG letter was the following: there is substantial "resistance shown by many non-U.S. persons to agreeing to provide such information, representations and agreements for fear of subject themselves to U.S. swap jurisdiction." Many non-U.S. market participants will simply walk away from doing business with U.S. financial institutions rather than subjecting themselves to Dodd-Frank, even as end users. Here is at least some confirmation of that view. This view can be empirically verified or rejected; the CFTC should go out and talk to non-U.S. end users to see what they think of Dodd-Frank. If these non-U.S. end users believe that Dodd-Frank makes the United States market safer, that is great; if they believe that the implementing rules make doing business in the United States dangerous and unattractive, it follows that we are injuring the United States as a global financial center.
Click here to view letter in full (links externally to SIFMA website).