Swap Dealers and Major Swap Participants Regulation - Conflicts of Interest - Comment Letters

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Dodd-Frank Timeline, Conflicts of Interest for Swap Entities, FCMs, IBs
Final Rule Issue Effective Date Compliance Date
April 3, 2012 August 3, 2012 October 12, 2012

Comment Letters addressing conflicts of interest for swap dealers and major swap participants.

FIA, ISDA, and SIFMA - January 18, 2011

Conflicts of Interest for Swap Dealers, Major Swap Participants, Futures Commission Merchants, and Introducing Brokers
January 18, 2011

The associations provide the CFTC with recommendations regarding conflicts related to research, clearing, and customers. Among these recommendations are:

  • Regarding conflicts related to research, they suggest that the Commission "modify the Proposed Rules to permit research management to solicit the views of business trading and clearing unit personnel on analyst compensation and evaluation, provided that research management maintains exclusive authority over final decisions in these areas."
  • As an alternative to the proposed rules regarding clearing, the associations urge the commission instead to "adopt a more targeted rule to address the conduct the Dodd-Frank Act is seeking to address. This alternative rule prohibits the affiliated SD or MSP from obtaining information from the affiliated FCM clearing personnel concerning transactions conducted by FCM clients and requires the FCM clearing unit to have independent management to make the decisions regarding accepting new clearing clients."
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Managed Funds Association - January 18, 2011

Conflicts of Interest for Swap Dealers, Major Swap Participants, Futures Commission Merchants, and Introducing Brokers
Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

From the Comment Letter:

"MFA urges the Commission to adopt rules and guidance that effectively clarify the rights and obligations of market participants. We believe that greater guidance will clarify the lines between permissible and impermissible conduct and allow market participants to develop proper internal controls. To that end, we recommend that with respect to the Proposed Conflicts Rules, the Commission establish a clear separation between the research and trading departments, so that the criteria for clearing membership are objective and risk-based."

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Federal Home Loan Banks - January 18, 2011

Conflicts of Interest for Swap Dealers, Major Swap Participants, Futures Commission Merchants, and Introducing Brokers
Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

The FHLBanks argue that while the internal business conduct proposed rules "constitute prudent business practices and may reduce systemic risk when applied to entities that are not currently regulated, we think that they are highly duplicative and, accordingly, unreasonable for entities that are already subject to extensive prudential regulation." More specifically, the FHLBanks state:

  • Internal business conduct standards should not apply to limited swap dealers that are subject to regulation by a prudential regulator
  • Internal business conduct standards should only apply to the swap dealing activities of limited swap dealers
  • In no event should internal business conduct standards imposed on limited swap dealers duplicate regulations already imposed by prudential regulators for such entities
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Securities Industry and Financial Markets Association - January 18, 2011

Conflicts of Interest for Swap Dealers, Major Swap Participants, Futures Commission Merchants, and Introducing Brokers
Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

Written on behalf of the Asset Management Group (AMG) of SIFMA, this comment letter argues that "the CFTC and SEC should consider different sets of regulations for swap dealers and MSPs, with MSP regulation focused primarily on default risk and swap dealer regulation focused on market-making, pricing and sales practices, as well as default risk." The letter also requests that the "CFTC formally extend the comment periods for the MSP Proposals and not take any action to finalize them until sufficient time has passed after finalization of the Definitions Proposals for the appropriate analyses to be undertaken and completed."

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Swaps and Derivatives Market Association - January 24, 2011

Conflicts of Interest for Swap Dealers, Major Swap Participants, Futures Commission Merchants, and Introducing Brokers
January 24, 2011

From the comment letter:

"The SDMA agrees with the minimal additional cost findings by the CFTC for Regulations 1.71 and 23.605 by FCMs, IBs, SDs and MSPs to implement these structural organizational changes. Evidence is in the agency study and from the experience of SDMA members and other interested parties having being previously employed as OTC derivatives risk managers, line traders and clearing personnel at these institutions. Furthermore, a period of months, not years, is ample time for such a change.

The substantially increased benefits of central clearing, lessened systemic risk, competition in execution and clearing, transparency, liquidity and market integrity are exactly what Congress, the Commissions, international governments and their respective regulatory bodies, as well as the global financial system, are striving to achieve."

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References

Category;Conflicts of Interest

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