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


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.