On July 8, 2022, MFA submitted a comment letter to the Securities and Exchange Commission in response to its proposed rule, Prohibition Against Fraud, Manipulation, or Deception in Connection with Security-Based Swaps. The letter provides additional comments on the SEC’s re-proposed Rule 9j-1 under the Securities and Exchange Act of 1934.
MFA remains concerned that the overly broad language in Rule 9j-1 will impair the corporate debt market, diminishing access to vital funds for issuers, particularly in instances where the issuer is in financial distress, and reduce investment opportunities for fixed income investors.
MFA provides new market pricing data, which shows that the risk of fraud and manipulation in the CDS market has not been internalized because there is no such perception or decoupling of CDS prices from the credit fundamentals of reference entities. In light of this new data, MFA recommends that the Commission amend Rule 9j-1 to provide meaningful standards for distinguishing appropriate activity in underlying cash markets. If the text of the rule is not changed, we believe market participants will reduce their activity in the CDS or underlying cash markets, or both.
