Comment Text:
Subject: Urgent Concerns Regarding the Proposed CFTC Margin Rule Changes
Dear CFTC,
I am writing to express my utmost concern and firm opposition to the proposed changes to the margin rules by the Commodity Futures Trading Commission (CFTC), which will 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.
The proposed modification to the "margin affiliate" definition is deeply troubling. By excluding certain investment funds (seeded funds) that receive start-up capital from a sponsoring entity from being considered margin affiliates, the CFTC risks overlooking critical interconnectedness and exposure to potential risks during times of market volatility. Such a careless move could result in disastrous consequences for the financial system.
The "Seeded Funds Proposal" exemption for SDs and MSPs to exchange initial margin with qualified seeded funds for uncleared swaps over a three-year period is nothing short of reckless. This ill-conceived exemption incentivizes parties to engage in high-risk transactions with insufficient collateralization, which will undoubtedly elevate systemic risks and wreak havoc on market stability.
Furthermore, the proposal to expand the range of assets deemed acceptable collateral for initial margin purposes is a dangerous gamble. By broadening the scope of acceptable collateral, the CFTC risks undermining the very purpose of margin requirements, which is to protect the financial system from unforeseen risks. Such a cavalier approach to collateral selection is inexcusable and threatens the stability of the entire financial ecosystem.
I must emphasize that the proposed amendment to correct an oversight in a regulation is indicative of a lack of attention to detail and disregard for the potential consequences of hasty decision-making. Minor oversights can have catastrophic implications, and it is utterly unacceptable to treat regulatory matters so carelessly.
Given the grave implications outlined above and the additional information about rehypothecation chains and embedded leverage throughout the financial system, I demand 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 will be a dereliction of duty and a grave disservice to the public.
I urgently request a response to address these pressing concerns.
Sincerely,
Jason St. James
