SIFMA AMG Submits Comments to the CFTC Requesting Relief from the Minimum Liquidation Time for Non-Commodity Swaps (with Lofchie Comment)
The Asset Management Group ("AMG") of SIFMA submitted comments (linked below) to the CFTC requesting that the Commission take prompt action to provide relief from the terms of the minimum liquidation time of 5 days for the calculation of initial margin requirements on cleared swaps (other than those relating to physical commodities).
In its letter, AMG states that the minimum liquidation time of 5 days for non-commodity swaps:
- is arbitrary and overly conservative;
- is based on a fundamentally flawed assumption as to a difference in liquidity between futures and swaps;
- creates an artificial economic incentive for market participants to use futures rather than swaps; and
- is contrary to Congress's goal of promoting trading of swaps on swap execution facilities.
Lofchie Comment: This is a rule which simply makes it hard to see the CFTC's logic. Why would the CFTC establish a rule that presumes it takes longer to unwind an FX swap than an FX futures contract? It's illogical on its face, and I have not seen any defense of the position.
Click here to view letter in full (links externally to SIFMA website).