MFA Blog

MFA Submits Letter to SEC Staff Explaining CFTC’s LSOC Model Related to SEC Proposed Segregation Rules

Posted on June 25, 2013

MFA submitted a letter to staff from the Division of Trading and Markets of the Securities and Exchange Commission (SEC) providing detail on the legal segregation with operational commingling (LSOC) model that the Commodity Futures Trading Commission adopted as the baseline segregation model for cleared swaps.  This letter is a follow up to MFA’s February 22, 2013 letter on the SEC’s proposed capital, margin and segregation rules, where MFA recommended that the SEC adopt LSOC as the default segregation model for cleared security-based swaps.  In the letter, MFA explains: (1) the general requirements of LSOC, (2) the requirements for location and naming of the LSOC accounts, (3) the information flows under LSOC, (4) the mechanics of LSOC in the event of both an FCM independent default or a customer default leading to an FCM default, and (5) the operational costs of LSOC.