Swap Entities Regulation - Comment Letter - LCH.Clearnet - April 28, 2011

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Dodd-Frank Timeline, Clearing Agency Standards for Operation and Governance, SEC
Proposal Date Final Rule Issue Effective Date Reopened Comment Period Deadline
March 16, 2011 November 2, 2012 January 2, 2013 July 22, 2013
Dodd-Frank Timeline, Ownership Limitations and Governance Requirements for SBS Entities, SEC
Proposal Date Comment Deadline Reopened Comment Period Deadline
October 26, 2010 April 29, 2011 July 22, 2013

Clearing Agency Standards for Operation and Governance
April 28, 2011

From the comment letter:

"The Group believes it is appropriate that the Commission should adopt rules and standards for securitybased swap clearing agencies and important that the Commission establishes a process for the registration of security-based swap clearing agencies. The Group is also supportive of the requirement that systemically important clearing agencies and other financial market utilities be subject to enhanced supervisory and risk control systems."

Further, LCH.Clearnet recommends that:

  • the SEC require clearing agencies to measure its credit exposures "several times each business day;"
  • margin requirements should limit credit exposures to the clients of clearing agency participants, not just the clearing agency alone;
  • the SEC reconsider its two-tiered standards proposal for different types of clearing agencies; and
  • supports membership standards for participation in clearing agencies for risk management purposes, but that these requirements should be set on a "scalable" basis.

Ownership Limitations and Governance Requirements for Security-Based Swap Clearing Agencies, Security-Based Swap Execution Facilities, and National Securities Exchanges With Respect to Security-Based Swaps Under Regulation MC
April 28, 2011

From the comment letter:

  • "Limiting access: The Commission stated that participants could limit access to the SBS clearing agency, either by restricting direct participation in the SBS clearing agency or restricting indirect access by controlling the ability of non-participants to enter into correspondent clearing arrangements;
  • Scope of products: Participants could limit the scope of products eligible for clearing at the SBS clearing agency, particularly if there is a strong economic incentive to keep a product traded in the OTC market for security based swaps; and
  • Risk controls: Participants could use their influence to lower risk management controls of a SBS clearing agency in order to reduce the amount of collateral and liquidity resources they would have to expend as margin or guaranty fund to expend as margin or guaranty fund to the SBS clearing agency."

LCH.Clearnet believes that the first two issues are already addressed by the Commission's proposed rule "Clearing Agency Standards for Operation and Governance" [17 CFR Part 240, RIN 323S-Al13], and that the third issue is resolved to a certain extent by the same proposal.


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