Derivatives Clearing Organizations Regulation - Comment Letter - Nodal Exchange - March 21, 2011

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Risk Management Requirements for Derivatives Clearing Organizations
March 21, 2011

Nodal is concerned that the Commission is prescribing initial margin methodology requirements based solely on the swap’s execution venue rather than the swap’s inherent risk characteristics. In addition, Nodal argues that “the needs of the evolving energy markets have produced both contracts that settle financially against futures contracts on energy commodities traded on DCMs, and contracts that are listed on both DCMs and ECMs with identical terms including settlement price. These swaps are standardized with the same terms and conditions as the futures contracts traded on the DCM. The proposed rule would unduly discriminate against the SEF traded contracts and potentially create a detrimental arbitrage environment as an unintended consequence.”

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