MFA Letter to CFTC Chairman Heath Tarbert

July 25, 2019

From: MFA

To:

CFTC Chairman Heath Tarbert

On June 25, MFA submitted a letter to new CFTC Chairman Heath Tarbert on MFA’s recommendations for CFTC regulatory rulemaking and initiatives.  In our letter, we make the following recommendations:

  • Adopt a harmonized approach to CFTC and SEC regulation of investment managers.  MFA recommends that the Commission prioritize adopting with the SEC a harmonized approach to regulation of CPOs or CTAs and investment advisers that would decrease duplicative regulation, allow for substituted compliance, joint or coordinated exams and the submission of a single systemic risk report to the CFTC, SEC and National Futures Association.  Importantly, our proposal would not change the oversight of registrants’ market activities in either the derivatives or securities markets by either Commission.
  • Streamline systemic risk reporting.  With the benefit of seven years of experience with systemic risk filings, we urge the Commission to consider whether the forms can be simplified, harmonized with the SEC, and improved to enhance the usefulness of the information provided to regulators and to reduce the regulatory burden for filers.  Streamlining the forms and eliminating duplicative submissions would provide clear and quantifiable benefits to the CFTC, NFA and SEC, registrants and the investing public, as well as conserve government resources.
  • Enhance data security and treatment of confidential information.  MFA believes that the high risk and threat of cyber-intrusions at regulatory agencies calls for a fundamental re-examination of the kinds of information collected by regulators and how it is handled, and the security of its systems.  MFA commends the Commission for continuing to use the subpoena process for requesting confidential, commercially valuable intellectual property, and recommends that the Commission enhance its policies and procedures for protecting such information.  MFA also commends Commissioner Stump’s data protection initiative and recommends that the Commission address subsequent findings.
  • Ensure that position limits do not hinder economic growth.  If the Commission intends to issue a new proposal, MFA believes that it needs to identify a clear standard of “excessive speculation” and incorporate that standard in its required necessity findings prior to adopting position limits.  Additionally, MFA does not believe that position limits outside of the spot month are an effective measure to deter market manipulation, and that the exchanges are best positioned to manage limits.
  • Ensure sensible marketplace risk controls.  MFA believes the Commission has implemented a robust derivatives market regulatory framework that rigorously addresses risk controls and system safeguards for automated trading environments.  To the extent the Commission believes that additional risk controls are necessary for today’s electronic markets, MFA believes the focus should remain on trading platforms’ and clearing members’ risk control mechanisms.
  • Preserve swaps trading framework with targeted improvements.  MFA recommends that the Commission codify the existing impartial access guidance and straight-through-processing standards with respect to swap execution facilities (“SEFs”) and prohibit the practice of post-trade name disclosure by SEFs.  MFA also recommends prompt no-action relief to streamline the error correction process on “dealer-to-client” SEFs. More broadly, MFA respectfully urges the Commission to provide derivatives market participants with an opportunity to comment on equivalence/comparability assessments with other jurisdictions’ rule frameworks before the Commission finalizes them.
  • Promote risk-adjusted metrics to assess potential systemic risks from the use of leverage.  In light of the Commission’s role in overseeing derivatives markets and as a member of the International Organization of Securities Commissions and the Financial Stability Oversight Council, MFA encourages the Commission to support risk-adjusted metrics to assess leverage from derivatives use and to establish guiding principles that do not conflate systemic risks and market or counterparty risks.

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