Joint Trade Associations' Comment Letter on Proposed Amendments to Margin and Capital Requirements for Covered Swap Entities

The American Bankers Association, the ABA Securities Association, the Bank Policy Institute, the Center for Capital Markets Competitiveness of the U.S. Chamber of Commerce, the Financial Services Forum, the Institute of International Bankers, and the Securities Industry and Financial Markets Association (together, the “Associations”) appreciate the opportunity to provide comments to the Board of Governors of the Federal Reserve (the “Board”), the Farm Credit Administration (the “FCA”), the Federal Deposit Insurance Corporation (the “FDIC”), the Federal Housing Finance Agency (the “FHFA”), and the Office of the Comptroller of theCurrency (the “OCC” and, together with the Board, FCA, FDIC, and FHFA, the “Prudential Regulators”) on their proposals (the “Proposal”) regarding amendments to margin requirements for uncleared swaps and security-based swaps (together with swaps, “swaps”) entered into by swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants regulated by the Prudential Regulators (“Swap Entities”) under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

We support the efforts by the Prudential Regulators to provide relief to legacy swaps that are amended to replace discontinued or unreliable interest rate provisions, reflect logistical or technical changes to the parties’ circumstances, or manage the risk of a swap portfolio. Such changes are necessary to minimize future market disruptions and incentivize systemic risk management practices by Swap Entities.

We also support the efforts by the Prudential Regulators to foster international harmonization, as well as harmonization with other U.S. regulators, of margin requirements for swaps. Specifically, we support the proposal to exempt swaps between affiliates (“inter-affiliate swaps”) from initial margin (“IM”) requirements, which would more closely align the Prudential Regulators’ requirements with those of the Commodity Futures Trading Commission (“CFTC”) and many other G20 regulators. Additionally, we support the addition of a sixth compliance phase for IM requirements for counterparties with average daily aggregate notional amounts(“AANA”) from $8 billion to $50 billion. This addition would align with the international margin framework, as recently amended by the Basel Committee on Banking Supervision (“BCBS”) and the International Organization of Securities Commissions (“IOSCO”). Such harmonization efforts will decrease opportunities for regulatory arbitrage, while also reducing the competitive disadvantages currently faced by Swap Entities vis-à-vis firms not subject to the Prudential Regulators’ margin regulations. Adding a sixth compliance phase also will provide the Prudential Regulators with more time to consider possible further actions to address concerns that the last compliance phase will encompass many counterparties that do not pose systemic risk because, for example, their swap portfolios do not give rise to exposure exceeding the $50 million IM threshold.