September 29, 2017

Mr. Christopher Kirkpatrick
Secretary
U.S. Commodity Futures Trading Commission
1155 21st Street, NW
Washington, DC 20581

Re: Commodity Futures Trading Commission Request for Public Input on Simplifying Rules (Project KISS); External Business Conduct Requirements (RIN 3038–AE55)

Dear Mr. Kirkpatrick:

The Securities Industry and Financial Markets Association (“SIFMA”)1 greatly appreciates the continuing efforts of the Commodity Futures Trading Commission (“CFTC” or “Commission”) and its staff to review rules, regulations and practices to identify those areas that can be simplified and made less burdensome and costly, including as part of the Commission’s Project KISS initiative.2 As the CFTC has implemented many important and significant requirements under Title VII of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”), such a review is timely as both the Commission and market participants have a better understanding of the resulting impacts of such efforts, helping to inform where changes are necessary and appropriate.

We believe there are several aspects of the Commission’s final rules regarding external business conduct (“EBC”) standards 3 that would benefit from such review and reconsideration, including those relating to certain disclosure requirements, among others. Many of these requirements are based on rules and standards that have their roots in retail customer protection, whereas swap counterparties are almost all institutional investors who should be allowed to choose, for example, the information they receive and format in which it is provided, rather than through prescriptive regulatory requirements. Additionally, the EBC rules include requirements that go well beyond Title VII of Dodd Frank.

In the years since these requirements became effective, SIFMA members’ (and their counterparties’) experience has confirmed that certain disclosure obligations are not beneficial to, and in many instances are not wanted nor requested by, counterparties – including disclosure of pre-trade mid-market marks (“PTMMMs”), scenario analyses and material economic terms (“METs”), among others.4 Given the significant documentation and infrastructure systems needed to comply with these requirements, it is appropriate for the Commission to review the requirements for providing such disclosures – and in some instances, their necessity – to reduce undue costs and burdens. We note, however, that market participants currently utilize protocols developed by the International Swaps and Derivatives Association aimed at assisting the industry in implementing and complying with the regulatory requirements imposed under Title VII of Dodd-Frank, including for the EBC requirements. Given the significant efforts undertaken to facilitate adherence to the protocols, we stress that any changes that the Commission considers should not require amendments to them. We would be happy to discuss approaches to implementing the recommendations discussed in this letter in ways that would not require amendments to the protocols.

With that in mind, SIFMA believes that certain disclosure obligations in the Commission’s EBC rules should be revised in a manner which is more appropriately tailored to reflect the commercial contexts in which swap transactions occur, and consider the relationships which exist between swap dealers (“SDs”) and their counterparties, avoiding unnecessary processes or requirements which impose undue costs and burdens, while still serving to provide the necessary protections intended under Title VII. Standardized disclosures and consideration of trading relationships would serve to facilitate consistency and quality in disclosure practices across the markets, while providing an efficient and cost-effective mechanism to satisfy obligations. In most cases, standardized disclosure materials provided via a web portal (or similar method) regarding material risks, swap characteristics, material incentives and conflicts of interests  should be sufficient to meet the Commission’s goals. Further, in many instances disclosures could be satisfied on a counterparty level rather than transaction-by-transaction, alleviating significant operational and documentation burdens.

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1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2 See Project KISS, 82 FR 21494 (May 9, 2017), available at: https://www.gpo.gov/fdsys/pkg/FR-2017-05-09/pdf/2017-09318.pdf; and Press Release, available at: http://www.cftc.gov/PressRoom/PressReleases/pr7555-17.

3 See Business Conduct Standards for Swap Dealers and Major Swap Participants, 77 Fed. Reg., 9,734, 9,835 (Feb. 17, 2012); available at: http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2012-1244a.pdf.

4 The application of EBC requirements to prime brokerage and post-trade allocation swap transactions has also raised numerous issues. SIFMA plans to address the application of EBC and other requirements to these types of transactions in a separate submission.