Comment Letter to CFTC on Proposed Rules Governing Protection of Cleared Swap Customer Contracts and Collateral

MFA submitted a comment letter to the CFTC in response to its notice of proposed rulemaking on Protection of Cleared Swap Customer Contracts and Collateral; Conforming Amendments to the Commodity Broker Bankruptcy Provisions. In our letter, MFA supported the CFTCs proposed Complete Legal Segregation Model. We emphasized that models strong protections against fellow customer risk as well the increased portability of customer positions and collateral as compared to both the Legal Segregation with Recourse Model and the Futures Model. We also we expressed concern with the part of the proposed rules that would limit the ability of parties to place liens on cleared swap customer collateral, and thus, would limit the ability of parties to net margin across many different exposures and assets. In response to these netting concerns, we recommended that the CFTC either: (1) modify the language to limit its application to prohibiting a futures commission merchants creditors from obtaining a lien on the cleared swap customer collateral; or (2) clarify that nothing limits the ability of a customer to grant liens as contemplated in Article 9 of the Uniform Commercial Code.

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