Futures Commission Merchant Regulation - Comment Letter - International Swaps and Derivatives Association - January 18, 2011

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Protection of Cleared Swaps Customers Before and After Commodity Broker Bankruptcies
January 18, 2011

ISDA is concerned that in moving from the Baseline Model to one of the three New Models (Individual Segregation Model, LSOC Model and Waterfall Model), three main types of additional cost would occur:

  • Operational and compliance costs;
  • Collateral requirements (increased IM or guarantee fund contributions); and
  • Any systemic costs that may be implied by a New Model (including any potential moral hazard).

In addition, the “ANPR suggests the possibility of customers being offered a choice between different models. If optionality is offered, certain costs could be incurred by FCMs and DCOs in providing any New Model. To give market participants appropriate incentives, the implementation of any requirement on FCMs or DCOs to offer optionality should be carefully considered so that those customers who do not select the option of increased collateral protection do not directly or indirectly bear the cost of offering that protection to other customers.”


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