Derivatives Clearing Organizations Regulation - Definitions, Procedures and Core Principles - Comment Letters

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Dodd-Frank Timeline, DCO Definitions, Procedures and Core Principles, CFTC
Final Rule Issue Effective Date Compliance Date
October 18, 2011 January 9, 2012 May 7, 2012

CME Group - February 7, 2011[edit]

Derivative Clearing Organization Definitions, Procedures and Core Principles
February 7, 2011

CME Group believes "the CFTC should not add further restrictions to the Chief Compliance Officer (CCO) role but should retain an approach that gives DCOs flexibility to determine whether their CCOs may perform certain tasks that are not strictly compliance-related." They provide suggestions regarding the proposed CCO responsibilities of ensuring compliance, enforcing compliance policies and procedures, and resolving conflicts of interest. CME Group comments on the annual compliance report regarding certification requirement and confidentiality as well as insulating CCOs from undue pressure or coercion and the implementation period.

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The Options Clearing Corporation - February 10, 2011[edit]

Derivative Clearing Organization Definitions, Procedures and Core Principles
February 10, 2011

The OCC comments on the procedure for submitting DCO rules to establish a portfolio margining program, arguing that "qualified customers should not continue to be denied the substantial benefits of portfolio margining for longer than is necessary to work through these issues in a responsible manner." They provide "specific comments on the need for coordination of Chief Compliance Officer(CCO)rules with the SEC and the Commission's proposed effective date for the CCO requirements."

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Minneapolis Grain Exchange - February 11, 2011[edit]

Derivative Clearing Organization Definitions, Procedures and Core Principles
February 11, 2011

MGEX comments that the DCO should be allowed more flexibility regarding the choice of the Chief Compliance Officer (CCO) role, arguing that "while having a dedicated CCO might be the best long-term solution, having more flexibility as to who can serve as CCO provides the market with time to implement the requirements." In addition, MGEX presents the following interpretations regarding a combined DCO/DCM role:

  • A DCO/DCM can use its current Audits and Investigations Department to serve as both the compliance and enforcement arm of the entity and should not be required to have multiple compliance and enforcement departments.
  • A DCO/DCM can use its current disciplinary committees and should not be required to have exclusive disciplinary committee for DCO and DCM matters respectively.
  • A DCO/DCM can use combined rules, policies and manuals which may contain unique DCO or DCM specific items as need be. This only seems practical and much more efficient than duplicating paperwork. Of course, the CCO and CRO, and their respective oversight committees should have discretion to make such independent decisions.
  • The DCO/DCM can use one request for approval or certification for trading and clearing new products.
  • The DCO/DCM president and/or CEO can be considered the “senior officer” for both the DCO and DCM.
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Kansas City Board of Trade Clearing Corporation - February 11, 2011[edit]

Derivative Clearing Organization Definitions, Procedures and Core Principles
February 11, 2011

In response to whether additional limitations should be placed on the CCO, the Kansas City Board of Trade Clearing Corporation (KCC) expresses that "the proposed standards of an individual with the background and skills appropriate for fulfilling the responsibilities of the position appears to be sufficient and the CCO choice should be left up to the discretion of the DCO as to the person they designate." The KCC argues that the "scope of the annual report should not go beyond reviewing the DCO core principles and identifying the compliance policies and procedures that are in place to satisfy the core principles."

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International Swaps and Derivatives Association - February 11, 2011[edit]

Derivative Clearing Organization Definitions, Procedures and Core Principles
February 11, 2011

From the comment letter:

The ISDA expresses its concern "that the definitions of 'Initial Margin' and 'Variation Margin' in the Proposed Rules are more appropriate to the futures markets and cleared derivatives and less readily applicable in the uncleared OTC derivatives context. ISDA also believes that, if these terms are to be used in this and other Commission rules that reference cleared transactions (whether futures or swaps), their use will create confusion with the equivalent concepts used in the uncleared OTC derivatives markets." The ISDA further suggests that the definition of 'margin' be replaced with 'uncleared swap collateral,' which means both exposure collateral and independent amount.

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Newedge - February 11, 2011[edit]

Derivative Clearing Organization Definitions, Procedures and Core Principles
February 11, 2011

Newedge stresses the importance of implementing full portfolio margining to US markets and market participants, suggesting this will (among other things) "induce market participants to 'buy into' the centralized clearing of OTC derivatives that Dodd-Frank has mandated, and thereby allow the Agencies to better effectuate Congressional intent." Newedge goes on to emphasize "voluntary buying in, is always better than mandating."

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Metlife - February 11, 2011[edit]

Derivative Clearing Organization Definitions, Procedures and Core Principles
February 11, 2011

  • Regarding definitions,the Commission (should) adopt the well established and commonly understood ISDA definitions of "Independent Amount" in lieu of the term "initial margin."
  • Regarding portfolio margining, MetLife submits that "each DCO that will clear swaps must establish rules permitting both the DCO and its DCMs to accept as collateral in connection with cleared swaps certain corporate notes or bonds, US agency notes and pass through certificates in addition to cash and US treasury obligations..."
  • MetLife concludes with a suggestion that the commission " minimize any unnecessary impairment to existing business models promulgated in accordance with standards set by other prudential regulators, and avoid any undue increase in the costs of legitimate hedging."
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