Comment Text:
Mr. Christopher Kirkpatrick
Secretary
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581
Re: De Minimis Exception to the Swap Dealer Definition;
Notice of Proposed Rulemaking
Dear Mr. Kirkpatrick:
360 Trading Networks Inc. (360T SEF) appreciates the opportunity to submit these comments on the above referenced Notice of Proposed Rulemaking, specifically as it relates to proposed exclusions for Exchange-Traded and/or Cleared Swaps and Non-Deliverable Forwards.
As a CFTC registered SEF, 360T SEF offers trading in foreign exchange derivatives including FX options, FX non-deliverable forwards (NDF) and FX non-deliverable swaps (NDS). Our services provide clients with greater transparency and enhanced control at every stage of the trading lifecycle, while enabling clients to comply with their own regulatory obligations.
360T SEF supports the Commission’s policy goals underlying Swap Dealer (SD) registration as well as regulation reducing systemic risk, increasing counterparty protections and increasing market efficiency, orderliness and transparency. Recognizing that the policy objectives underlying the de minimus exception are designed to encourage participation and competition, we agree with the Commissions understanding that they must be appropriately calibrated.
I. Exchange Traded and/or Cleared Swaps De Minimus Provision
We concur with the Commission’s belief that excepting Exchange Traded and/or Cleared Swaps from the de minimus calculation could improve utilization of exchange trading, and in particular, swap execution facilities (SEF). The Commission is correct in thinking that certain client profiles that would otherwise have interest in transacting in FX derivatives, have not done so out of concern for being subject to SD registration.
Without a de minimus exception, SD regulation is a barrier to entry for smaller and non-traditional market participants unwilling to incur the costs associated with SD registration and regulation before validating the market opportunity. We believe an appropriately calibrated de minimus exception could allow these participants to gradually expand their business until the scope and scale of their activity warrants regulation and supports the burden of the associated costs. Allowing these additional client profiles to participate in the market could have the added benefit of increasing liquidity while supporting the Commission’s transparency goals.
However, when considering an Exchange Traded and/or Cleared Swaps exception, we ask that the Commission also consider it within the context of Prime Broker (PB) intermediated SEF transactions, as many non-traditional clients rely on PB services for credit intermediation. We believe the exception should apply to any trade initiated on SEF and extend to both the “on-facility” PB to executing dealer and “off-facility” PB to PB client legs. Limiting the exception to the “on-facility” leg will not result in the desired outcome of introducing additional participants into the market given that PBs and executing dealers tend to already be registered Swaps Dealers. By extending the exception to the SEF initiated “off-facility” leg, we believe the Commission can achieve the goal of allowing new participants to enter the market without having to incur the costs associated with SD registration and regulation until such time as the scope and scale warrants so.
II. Non-Deliverable Forwards De Minimus Provision
The Commissions is correct in its understanding that Non-Deliverable Forwards (NDF) provide an important market function because they are used to hedge exposures to restricted currencies when the exposure is held by someone outside the home jurisdiction and are economically and functionally similar to deliverable forwards.
We support a Commission determination that excepts NDFs from consideration when calculating the Aggregate Gross Notional Amount (AGNA) of swap dealing activity for the purpose of calculating the de minimus threshold. Under such an exception, NDF transactions would, in fact, be subject to more comparable regulatory treatment when compared with foreign exchange swaps and foreign exchange forwards pursuant to the Treasury Determination.
III. Conclusion
We appreciate the opportunity to submit our comments on this Notice of Proposed Rulemaking. We fully support the Commission’s efforts to appropriately calibrate the de minimus exception designed to encourage participation and competition, while remaining consistent with regulation reducing systemic risk, increasing counterparty protections and increasing market efficiency, orderliness and transparency. We hope that the Commission will consider our suggestions.
Please feel free to contact me should you have any questions.
Sincerely,
Ian Hawes
