MFA Coalition Submits Joint Letter to SEC and CFTC on CDS Customer Portfolio Margining

May 10, 2013

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Topics: ACLI American Council of Life Insurers, AIMA, Alternative Investment Management Association, Mary Jo White, Gary Gensler, SEC, CFTC, Securities and Exchange Commission, Commodity Futures Trading Commission, portfolio margining, clearing, ICE Clear Credit LLC, security-based swaps, swaps, credit default swaps, CDS, buy-side participants, sell-side firms, margin, central clearing, Investor Protection, market efficiency, derivatives, hedging, FCM, futures commission merchants, broker-dealer, single-name CDS, economic barriers, systemic risk, counterparty credit risk, credit risk, offsetting position, collateral, price distortion, broad-based indices, narrow-based index credit default swap, initial margin, initial margin requirements, margin requirements, registered clearing agencies, derivatives clearing organization, DCO, clearinghouse, capital, segregation, clearing agency, self-clearing members, dealers, Financial Industry Regulatory Authority, FINRA, end-users, regulatory framework, interconnectedness, ICE Trust, Federal Reserve Bank of New York, settlement, New York State Banking Department, risk management, variation margin, long-short strategies, interest rate swaps, market participants, clearing mandate, master netting agreements, voluntary clearing, backloading, iTraxx Europe, liquidity, liquidity requirements, tri-party segregation arrangements, custody bank, institutional custodian, excess margin, legal segregation with operation commingling, LSOC, LSOC with excess, directional portfolio, insolvency, equity markets, arbitrage, S&P 500, price competition, direct clearing members, DCM, liquidation, proprietary strategies, volatility, net margin, margining, straight-through processing, counterparty risk, speculative position, Options Clearing Corporation, OCC, short straddles, capital formation,
From: MFA, Stuart Kaswell; ACLI, Carl Wilkerson; AIMA, Jiří Krol


Mary Jo White, SEC; Gary Gensler, CFTC
Elisse Walter, Luis Aguilar, Troy Paredes, Daniel Gallagher, SEC; John Ramsay, Jim Burns, Peter Curley, Michael Macchiaroli, SEC
Jill Sommers, Bart Chilton, Scott O'Malia, Mark Wetjen, CFTC; Ananda Radhakrishnan, CFTC

MFA, the American Council of Life Insurers (ACLI), and the Alternative Investment Management Association (AIMA) (collectively, the “Associations”) submitted a joint letter to SEC Chairman White and CFTC Chairman Gensler with a request for action by the two commissions to improve coordination and to facilitate portfolio margining for customers in the cleared credit default swaps (CDS) market.  This letter follows up on recent meetings with representatives at the CFTC and the SEC.  In the letter, the Associations further expressed members’ concerns with the SEC Staff’s imposition of needlessly high initial margin requirements on customers who want to participate in ICE Clear Credit’s (ICC) cleared CDS portfolio margining program for CDS indices and single-name CDS.  SEC Staff is imposing a temporary level for customers at 1.5 or 2 times the level imposed on dealers using the same CDS portfolio margining program.  The Associations believe this disparity has undermined policy goals to encourage clearing to reduce systemic risk, to protect investors, to reduce counterparty exposure and interconnectedness of both customers and dealers, and to establish an integrated and coordinated regulatory framework by the two commissions.  The Associations requested the SEC to issue final approval of the margin methodologies of the seven broker-dealer/futures commission merchants that have applied for evaluation by SEC Staff and FINRA in a coordinated manner, at a level that matches the approved level for dealers, and as soon as possible in advance of the CFTC’s June 10 mandatory clearing deadline for Category 2 entities.  In the interim, the Associations requested the SEC to modify the temporary customer margin levels to the ICC baseline margin level to match the level approved for dealers.