Comment Letter to CFTC in Response to Recent MF Global Events, Protection of Cleared Swap Customer Contracts and Collateral

On December 2, MFA submitted a comment letter to the CFTC in response to its proposed rules on Protection of Cleared Swap Customer Contracts and Collateral; Conforming Amendments to the Commodity Broker Bankruptcy Provisions, which supplements MFAs prior letter on the rules dated August 8, 2011. In particular, MFA offered some additional thoughts on customer protection in the swaps and futures markets to assist the CFTC in its consideration of the lessons learned from the MF Global situation. In our letter, among other things, MFA expressed that while we still believe that the Complete Legal Segregation Model has more robust segregation protections and may facilitate portability better than the Legal Segregation with Recourse Model and the Futures Model, in light of the emerging facts surrounding MF Global, we intend to reexamine this model as well as other alternatives, including the full physical segregation model, for the protection of customer assets for cleared swaps. In addition, MFA strongly urged the CFTC to retain the flexibility to consider each of the following options: (1) adopting the full physical segregation model for cleared swaps; (2) adopting the Complete Legal Segregation Model; or (3) conducting an impartial study of the additional costs and the benefits provided to customers associated with the Complete Legal Segregation Model as compared to the full physical segregation model to determine which model is more suitable. We also made it clear that we feel it is appropriate to re-examine the protections available to participants in the futures market, and we recommended that, once the CFTC has more information about the events that led to the MF Global failure, as the CFTC did when considering segregation rules for swaps, they hold one or more roundtables to ensure full consideration of the lessons learned, and to assess whether further protections of the collateral of futures customers are appropriate.

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