Futures Commission Merchant Regulation - Comment Letter - Minneapolis Grain Exchange - January 18, 2011

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

In their comment letter, MGEX “recommends the CFTC allow the use of the “baseline model” as described in the Federal Register for the clearing and margining of both futures and swaps. As the Commission notes, the current approach to futures is the baseline model. Therefore, DCOs which already clear futures would not need to alter their approach if the baseline model is permitted whereas the using other models will necessitate adopting changes requiring additional recordkeeping and different risk assessments. The trickledown effect of changing models will likely require the Exchange to create new rules addressing defaults, procedures for calculating intra-day variations, new banking agreements and separate bank accounts. Additionally, instead of mandating use of a specific model, MGEX believes that the CFTC could permit several acceptable models from which a DCO could choose. DCOs could be allowed to set up other margining/default systems and let the marketplace choose what method is most competent and best addresses risk. Over time, the most efficient model will dominate the marketplace.”


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