MFA-AIMA Letter on Reopened Securities Based Swaps Proposals

On  November 20, MFA and AIM filed a letter in response to the SEC’s proposed rule, reopening of comment period, and request for additional comment on Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers.

In addition to incorporating by reference both MFA’s and AIMA’s prior comments on the original proposed rules, the letter recommended the following modifications in the re-proposal and final rules:

  • Capital Relief for Cleared SBS: Adopt the potential language modifications in the Reopening Release concerning the risk margin amount calculation for cleared SBS to ensure that such amount is determined solely by the total initial margin (“IM”) required for cleared SBS (rather than the greater of that amount or the amount of the haircuts that would apply to cleared SBS positions).
  • Capital Charge for Counterparty Election of Individual IM Segregation with Independent Third-Party Custodian: Eliminate the proposed capital charge or, at the very least, provide for an exception to the capital charge with conditions that would be satisfied by standard provisions of a typical tri-party account control agreement as outlined in our letter. Adopt our proposed rule language for the revised control condition in Annex I to our letter.
  • IM Calculations under Uniform IM Model: Permit SBSDs to use a standard industry model to increase transparency and decrease margin disputes among counterparties.  Coordinate with global regulators to authorize enhanced risk sensitivity of IM models generally.
  • Portfolio Margining of SBS, Swaps, and Related Positions: Coordinate with the CFTC to authorize an expanded scope of portfolio margining that includes both cleared and non-cleared SBS and swaps positions.