Comment Text:
October 15, 2012
David A. Stawick
Secretary
Commodity Futures Trading Commission
Three Lafayette Center
1155 21st Street, N.W.
Washington, DC 20581
Re: Agency Information Collection Activities; Proposed Collection, Comment Request: Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping: Book-out Agreement Confirmation, FR Doc No: 2012-20123
Dear Mr. Stawick:
This letter is submitted in response to the Commodity Futures Trading Commission’s (“CFTC’s”) request for comment on the agency’s proposed collection of information with regard to written or electronic confirmations of oral book-out agreements.
The CFTC’s Adopting Release regarding the definition of “swap” and related terms declares that oral agreements to book-out forward positions (“oral book-out agreements”) are only subject to the Brent Interpretation safe harbor if the agreements are followed up by a written or electronic confirmation within a commercially reasonable timeframe. The Adopting Release exempts from the swaps definition only market activity conducted between parties that operate transparently by reducing their oral agreements to writing or electronic form and disclosing them fully to regulators.
The CFTC’s approach is appropriately concerned with distinguishing between forward contracts, which are intended to end with physical delivery, and speculative market activity. Accordingly, to qualify as a forward exclusion from the swap definition, oral book-out agreements must be reduced to writing or electronic form as soon as commercially feasible and subsequently reported to regulators. This facilitates rigorous oversight by ensuring forward contracts are used for their intended purpose, and not to avoid swaps regulations. The rule also mitigates concerns with regard to dispute resolution and verification of transactions.
Compared to the benefits of increased regulatory supervision and improved certainty between parties, the CFTC estimates that the costs of this provision will be minimal, and the benefit would far outweigh the costs to traders and the markets with regard to eliminating expensive dispute resolution over issues that would doubtless arise over agreement validity and over the true nature of the transactions if there is no written memorialization of oral book-out agreements. Based on the information above, the CFTC’s proposed collection of information has practical use and allows proper performance of the CFTC’s functions.
Sincerely,
I. Michael Greenberger
Law School Professor
University of Maryland
Francis King Carey School of Law
500 W. Baltimore Street
Baltimore, MD 21201
410-706-3846
Brandy L. Bruyere, J.D.
Law & Policy Analyst
University of Maryland
Center for Health and Homeland Security
