Futures Commission Merchant Regulation - Comment Letter - Investment Company Institute - August 8, 2011

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Dodd-Frank Timeline, Protection of Cleared Swaps Customer Contracts and Collateral, Commodity Broker Bankruptcy Provisions
Final Rule Issue Effective Date Compliance Date
February 7, 2012 April 9, 2012 November 13, 2012

Protection of Cleared Swaps Customer Contracts and Collateral; Conforming Amendments to the Commodity Broker Bankruptcy Provisions
August 8, 2011

From the comment letter:

"...we recommend that the Commission move forward with [Legal Segregation with Commingling] ("LSOC") at this time rather than the alternatives it is continuing to consider, namely,

  1. a modified LSOC model under which a DCO would be permitted to access the collateral of the non-defaulting cleared swaps customers of a defaulting member FCM, after it applies its own capital to cure the default and also the guaranty fund contributions of its non-defaulting FCM members and
  2. a model permitting each DCO to choose the level of protection that it would provide cleared swap customer collateral of its FCM members.

We agree with the Commission that LSOC, subject to addressing the concerns discussed below, strikes the best balance between benefits and costs in order to protect cleared swaps customers’ collateral because it would mitigate the risk that a DCO would access the collateral of non-defaulting cleared swap customers to cure an FCM default, also referred to as “Fellow-Customer Risk.”



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