On August 5, 2016, MFA and the Asset Management Group of the Securities Industry and Financial Markets Association (“AMG”) submitted a comment letter on the proposed rulemaking by the United States federal banking regulators to implement the Net Stable Funding Ratio (“NSFR”) in the United States. AMG and MFA’s comment letter focused on the impact of the proposed NSFR on asset management firms and their clients, encouraging regulators to amend the asymmetrical treatment of variation margin received and variation margin provided by: (1) permitting variation margin in the form of securities that are high quality, liquid assets to reduce a banking organization’s derivative asset amounts, (2) permitting variation margin denominated in any currency of a jurisdiction in which the banking organization operates to reduce derivative asset amounts, and (3) permitting variation margin to reduce derivative asset amounts even if it is not the full amount necessary to extinguish the banking organization’s current exposure.
We also encouraged regulators to: (1) provide downward adjustments for derivatives with a remaining maturity of one year or less and six months or less; (2) reconsider the proposed add-on cost for derivatives transactions and proposed requirement to gross up settlement payments; (3) provide for symmetrical treatment of repos and reverse repos; (4) treat assets and liabilities associated with client short transactions as requiring zero percent available or required stabling funding; and (5) treat client assets subject to strict SEC or CFTC segregation requirements as the client’s property, requiring no stable funding by the banking organization.
