MFA and Other Trade Associations Submit Summary of LSOC Issues to CFTC Commissioners

MFA, along with SIFMA AMG, ICI and IAA, submitted a joint trade association summary to the Commissioners of the Commodity Futures Trading Commission (“CFTC”) related to our concerns with some gaps in the customer protections that the CFTC’s legally segregated operationally commingled (“LSOC”) segregation model for cleared swaps provides.  In the summary, the trade associations emphasized that our expectation is that LSOC would protect all customer margin from fellow-customer risk, and that futures commission merchants would be required to report to derivatives clearing organizations the identity, positions and margin of each of their customer.  We also expressed concerns that a customer’s variation margin and excess or unattributed margin could be used to satisfy or secure the obligations of a defaulting customer.  To mitigate such risks, the trade associations made specific recommendations in the summary as to where the CFTC should use rule revisions, interpretative guidance and/or FAQs to address any ambiguities or inconsistencies.