Comment Letter to the CFTC on its Proposed Rules on Risk Management Requirements for Derivatives Clearing Organizations

March 21, 2011

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Topics: Commodity Futures Trading Commission CFTC, Risk Management Requirements, derivatives clearing organizations, DCO, participant eligibility, eligibility standards, fair and open access, clearing member, DCO concentration risk, diversity of market participants, competition, capital requirements, clearinghouses, swap portfolio size, transaction volume, antitrust considerations, $50 million upper limit, minimum capital requirements, net capital obligation, risk exposure, risk-based methodologies, stress and default scenarios, tiers, threshold guaranty fund contribution, direct clearing members, DCO margin methodologies, guaranty fund scaling methodologies, margin, obligations, cleared trade volumes, scaling requirements, Chicago Board of Trade, committee on payment and settlement systems and technical committee of the International Organization of Securities Commissions, CPSS-IOSCO standards, product eligibility, Designated Contract Market, DCM, Swap Execution Facility, SEF, electronic execution, connectivity, standard two-way protocols, executing counterparty, risk management, margin requirements, market liquidity, initial margin, five-day liquidation horizon, highly liquid instruments, market volatility, on-the-run 10 year interest rate swaps, initial margin requirements, excess margin, default management framework, customer initial margin, direct clearing members' initial margin, credit risk, Columbia University, leverage ratio, investment banks, hedge fund industry, non-hedge positions, product portfolio, swap portfolio, margin methodology, creditworthiness, counterparty credit assessment practices, margin calls, mark-to-market variations, volatility, bilateral trades, greater market concentration, systemic risk mitigation, Bank of America-Merrill Lynch, The Turner Review, global banking crisis, margin calculation utility, effective date, phase-in period, mandatory central clearing, differentiated margining, portfolio margining, cross product margin, swaps, futures, federal register, Federal Reserve Bank of New York, ISDA, SEC, Securities and Exchange Commission,
From: MFA, Stuart Kaswell

To:

David Stawick, CFTC.
Gary Gensler, Michael Dunn, Bart Chilton, Jill Sommers, Scott O'Malia, (all) CTFC.
Mary Schapiro, Kathleen Casey, Elisse Walter, Luis Aguilar, Troy Paredes, (all SEC)

MFA submitted a comment letter to the CFTC on its proposed rules on Risk Management Requirements for Derivatives Clearing Organizations. In our letter, with respect to the proposed Core Principle C rules, MFA supported the CFTCs mandate that DCO participation requirements be objective, risk-based, publicly disclosed and permit fair and open access. We requested that the CFTC require DCOs to provide highly standardized mechanisms for establishing connectivity with SEFs and any other permitted trading venues and mandate that the DCO keep the clearing acceptance process anonymous. With respect to the proposed Core Principle D rules, we urged the CFTC to retain flexibility with regard to the specific margin criteria. We also recommend that the CFTCs final rules mirror margin practices in other cleared markets where each DCO sets initial margin requirements for all cleared transactions and each clearing member determines additional margin necessary for individual customers.

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