Comment Text:
Dear ranking members of the CFTC,
I am writing to express my deep concern and strong opposition to the proposed changes to the margin rules by the Commodity Futures Trading Commission (CFTC), which have significant implications for swap dealers (SDs) and major swap participants (MSPs) in swaps not overseen by a regulatory authority. These amendments pose grave risks that demand immediate attention and thorough reconsideration.
Of particular concern is the proposed modification to the "margin affiliate" definition. By excluding certain investment funds (seeded funds) that receive start-up capital from a sponsoring entity, the CFTC risks overlooking critical interconnectedness and exposure to potential risks during times of market volatility. This move could have disastrous consequences for the financial system.
The "Seeded Funds Proposal" exemption for SDs and MSPs to exchange initial margin with qualified seeded funds over a three-year period is concerning, as it incentivizes parties to engage in high-risk transactions with insufficient collateralization. This will undoubtedly elevate systemic risks and destabilize the market.
Additionally, expanding the range of assets deemed acceptable collateral for initial margin purposes is a dangerous decision. Broadening the scope of acceptable collateral could undermine the purpose of margin requirements, which is to protect the financial system from unforeseen risks.
The proposed amendment to correct an oversight in a regulation is also worrisome, as it indicates a lack of attention to detail and disregard for potential consequences. Minor oversights can have catastrophic implications, and it is essential to treat regulatory matters with utmost care.
Considering the grave implications outlined above, and with additional information about rehypothecation chains and embedded leverage throughout the financial system, I strongly urge an immediate halt to these proposed changes. The CFTC must conduct thorough impact assessments and engage in transparent and extensive consultations with industry experts and stakeholders before proceeding with any amendments to the margin rules.
This matter demands urgent action, and I expect the CFTC to act responsibly and in the best interests of the financial system and its participants. Failing to do so would be a dereliction of duty and a grave disservice to the public.
I urgently request a response to address these pressing concerns.
Sincerely,
A concerned citizen
