MFA submitted a comment letter to the Securities and Exchange Commission (SEC) on its proposed rules on “Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers.” In the letter, MFA expressed support for measures aimed at reducing risk in the security-based swaps (SBS) market, including the imposition of appropriate risk-based margin and capital requirements, and the implementation of segregation requirements that increase protection of customer collateral. To assist the SEC with balancing those goals with the need to protect customers, liquidity and the overall functioning of the SBS market, MFA made a number of important comments in the letter. In particular, MFA strongly recommended that the SEC:
(1) with respect to its proposed margin requirements:
(2) with respect to its proposed capital requirements, eliminate the capital charge on nonbank SBSDs in the event that their non-commercial end-user counterparties elect to have their initial margin segregated in an account at an independent third-party custodian;
(3) with respect to its proposed rules for segregation of collateral for cleared SBS,
(4) with respect to its proposed rules for segregation of collateral for non-cleared SBS, mandate that the customer have the right to elect that such segregation be pursuant to a tri-party agreement.