Comment Letter on Proposed Rules for Margin Requirements for Uncleared Swaps and Capital Requirements for Swap Dealers and Major Swap Participants

July 11, 2011

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Topics: Commodity Futures Trading Commission CFTC, "Proposed Capital Rules, " "Proposed Margin Rules, margin, liquidity, swap markets, prudential regulator, CSE, buy-side firms, central clearing, uncleared swaps, customized transactions, unsecured counterparty credit risk, transparency, margin practices, two-way exchange of variation margin, netting, safeguards. designated clearing organization, DCO, Timothy Geithner, Gary Gensler, counterparties, trading costs, adverse pricing, funding costs, variation margin, collateral management practices, financial entities, non-cash collateral, Office of the Currency, Office of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Farm Credit Administration, Federal Housing Finance Agency, systemic risk, shielding assets, pension plans, university endowments, bilateral variation margin exchange, unsecured obligations, one-sided variation margin arrangements, SEC, "too big to fail, " uncollateralized swap positions, margin exchange, swap portfolio, counterparty credit quality, Hon. Ben S. Bernanke, risk management, asset classes, interest rate swaps, commodity swaps, equity swaps, referenced bond, Eurodollar futures, physically-settling forwards, repurchase agreements, security lending agreements, liened account assets, initial margin model, portfolio offsets, Alternative Method, net counterparty exposure, out-of-the-money swap, in-the-money swap, initial and variation margin transfers, futures commission merchant, asset class, multi-lateral agreements, cross-product netting agreements, non-cleared commodity options, liquidation value, paired products, trading contracts, capital planning, multiplier of 2.0, multiplier of 4.4, reference cleared swap, grid-based method, proprietary models, ten-day liquidation time horizon, five-day time horizon, segregation of customer assets, custodian, Capital Rules, capital requirements, Mr. Eric Chern, Chicago Trading Company, Joint Commission-SEC Staff Roundtable on Proposed Dealer and major Participant Definitions Under the Dodd-Frank Act, tailored products, Reporting of Capital Requirements, collateral delivery, counterparty exposure, Capital Relief for Cleared Swaps,
From: MFA, Stuart J. Kaswell

To:

David A. Stawick, Commodity Futures Trading Commission, CFTC; Hon. Gary Gensler, Hon. Michael Dunn, Hon. Bart Chilton, Hon, Jill E. Sommers, Hon. Scott D. O'Malia

MFA submitted a comment letter to the CFTC in response to both their notice of proposed rulemaking on Capital Requirements of Swap Dealers and Major Swap Participants and on Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants. In our letter, we expressed our belief that it is critical that the CFTC permit require swap dealers and major swap participants without a prudential regulator (CSEs) and financial entities to net across many different exposures and assets. With respect to the proposed margin rules, we urged the CFTC to: (i) issue margin requirements that promote a fair and stable market for uncleared swaps; (ii) coordinate their margin rules with the SEC and Prudential Regulators; and (iii) require CSEs to post and collect variation margin. With respect to the proposed capital rules, we: (i) recommended that the CFTC ensure that the proposed rules are not overly burdensome such that only the largest financial firms can or are willing to be swap dealers; (ii) supported the CFTC providing the public with certain financial information about CSEs and their compliance with the capital requirements; and (iii) requested that the CFTC ensure that the capital charge for a CSEs cleared swap exposures is lower than any capital charge for equivalent uncleared swap exposures.

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