MFA Submits Accompanying Portfolio Margining Letter

November 26, 2012

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Topics: Office of the Comptroller of the Currency Federal Housing Finance Agency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, FDIC, Farm Credit Administration, capital requirements, margin, covered swap entities, prudential regulators, swap dealer, Major Swap Participant, Security-Based Swap Dealer, Major Security-Based Swap Participant, Dodd-Frank Act, portfolio margining, cross-margining, futures, options, swaps, security-based swaps, Commodity Futures Trading Commission, CFTC, futures commission merchant, FCM, broker-dealer, initial margin, collateral, Securities and Exchange Commission, SEC, regulatory regime, market participants, Options Clearing Corporation, Chicago mercantile exchange, New York Portfolio Clearing LLC, LCH.Clearnet Ltd., capital markets, over-the-counter derivatives, OTC derivatives, master netting agreements, affiliate-held collateral, Dealer, derivatives clearing organization, segmentation, market liquidity, liquidity, end-users, hedging, mandatory clearing, credit default swap, CDS, index CDS, redundant margin, swaptions, caps, floors, cross-currency swaps, inflation swaps, Cleared Products, risk, CME Group, CME Clearport, ICE Clear Credit, ICE Clear Europe, central counterparties, CCP, buy-side, debt obligation, systemic risk, posted margin, Collecting Futures Commission Merchant, Depositing Futures Commission Merchant, triangular setoff, uncleared swaps, bankruptcy, commodity broker, In re Lehman Brothers Holdings Inc et al, Chevron Products Co. v. SemCrude L.P., covered swap entity, eligible collateral, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Banks, Federal Agricultural Mortgage Corporation, insured obligation, Farm Credit System,
From: MFA, Stuart Kaswell


Office of the Comptroller of the Currency; Jennifer Johnson, Board of Governors of the Federal Reserve System; Robert Feldman, Federal Deposit Insurance Corporation; Alfred Pollard, Federal Housing Finance Agency; Gary Van Meter, Farm Credit Administration

MFA submitted a supplemental comment letter to the U.S. prudential regulators during the reopened comment period for their proposed rulemaking on “Margin and Capital Requirements for Covered Swap Entities” and an accompanying portfolio margining advocacy letter.  In the supplemental comment letter, MFA set forth the following positions:

First, MFA reinforced our position for uniform margin requirements.  We appended MFA’s filed comment letter in response to the Basel-IOSCO Consultation Paper on Margining Requirements for Non-Centrally-Cleared Derivatives as reference.  Second, MFA recommended a single compliance date for the final margin rules that is simple and predictable for all market participants.

Third, MFA reiterated our position to require the mandatory bilateral exchange of variation margin.  Fourth, MFA appended our accompanying portfolio margining letter to advocate for the continued use of portfolio margining arrangements across suitably correlated cleared products and non-cleared swaps in a buy-side firm’s portfolio that are subject to a cross-product master netting agreement.

Fifth, MFA reiterated our support for transparent and equitable methods for determining initial margin amounts that both covered swap entities and their counterparties can use independently.  Lastly, MFA urged the prudential regulators to adopt risk-based margin requirements that are appropriately tailored to address the risks posed by the relevant non-cleared swap transaction.