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); Segregation of Independent Amount 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 Commission 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.

One such area we believe would benefit from review and reconsideration are segregation of initial margin (“Seg IA”)3 requirements included in the Commission’s final rules regarding the segregation of assets held as collateral in uncleared swap transactions. 4 These requirements create unnecessarily burdensome obligations, which in many instances are duplicative or create confusion due to parallel mandatory collateral segregation requirements found within the final CFTC 5 and U.S. Prudential Regulator (“PR”)6 rules on margin requirements for non centrally cleared swaps, and similar requirements in foreign jurisdictions. Further, certain Seg IA requirements are overly prescriptive, removing the opportunity for bilateral negotiations between sophisticated market participants who should be allowed to determine what collateral arrangements are most appropriate for their circumstances.

Specifically, the CFTC should streamline the requirements around the segregation requirements for uncleared swaps in CEA Section 4s(l) in light of the parallel requirements in its final margin rules for uncleared swaps, as well the industry’s experience regarding the limited number of segregation arrangements that have been requested by counterparties under CFTC Rules 23.702 and 23.703. The Commission should also explicitly recognize the mandatory margin segregation requirements under other regimes (including U.S. PR rules) as the basis for not requiring Seg IA notices under Rule 23.701. Currently, the Seg IA rule allows a swap dealer (“SD”) to not provide the Seg IA notice to those counterparties that post mandatory initial margin under the CFTC’s uncleared margin rule, but does not explicitly provide the same for counterparties subject to mandatory margin segregation under U.S. PR uncleared margin rules.

The attached appendix identifies specific aspects of the Commission’s Seg IA requirements that SIFMA believes would benefit from reevaluation and clarification or revision, as appropriate, to reduce unnecessary burdens for market participants.

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Please feel free to reach out to the undersigned should you have any questions.

Sincerely,

Kyle Brandon
Managing Director, Head of Derivatives
SIFMA

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 While the CFTC regulation refers to “initial margin,” market participants commonly refer to this as “independent amount.” Thus, reference to Seg IA is used in this comment.

4 See Protection of Collateral of Counterparties to Uncleared Swaps; Treatment of Securities in a Portfolio Margining Account in a Commodity Broker Bankruptcy, 78 FR 66621 (Nov. 6, 2013) available at: http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2013-26479a.pdf.

5 See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 636 (Jan. 6, 2016) available at: http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2015-32320a.pdf.

6 See Margin and Capital Requirements for Covered Swap Entities, 80 FR 74840 (Nov. 30, 2015) available at: https://www.gpo.gov/fdsys/pkg/FR-2015-11-30/pdf/2015-28671.pdf.