Comment Text:
Definitions (MSP) Meeting with SIFMA AMG
Tuesday, March 22, 2011
Memo from
Fajfar, Mark
CFTC Staff :
Mark Fajfar
Rose Troia
Stephen Kane
External Attendees :
Matt Nevins (Fidelity)
William Thum (Vanguard)
Christine Ayotte-Brennan (Fidelity)
Charles Mulhern (Wellington)
Wendy Yun (Goldman Sachs Asset Management)
Nevis Bregasi (MFS)
Peter Ryan (SIFMA)
Tim Cameron (SIFMA)
Additional Information :
The Asset Management Group of the Securities Industry Financial Markets Association (SIFMA AMG) restated their request for an exemption from the definition of major swap participant (MSP) for registered investment companies, due to the fact that they are already regulated by the SEC. SIFMA generally made the point that the MSP test is complex and time-intensive. The principal comments SIFMA made are the following:.
The appropriate level to apply MSP test is at the fund level (where the counterparty risk exists) rather than to the asset managers.
SIFMA is in favor of an anti-evasion rule.
SIFMA would like a clarification of the impact of netting on the calculation of current exposure for the MSP test.
The reference in the potential future exposure (PFE) test to collateral thresholds and minimum transfer amounts should specify that the amount added to PFE in those respects will be no more than the party’s actual exposure.
Unless there are safe harbors from the MSP tests, parties will feel compelled to perform the MSP calculation tests even if it is very unlikely that the test would indicate that the parties are MSPs.
The MSP test is cumbersome because it would be difficult to allocate collateral shortfalls across dealers as well as products. There are many accounts and it is difficult to break them out on a per swap basis.
How to calculate the effective notional vs. actual notional amount for the PFE test appears to be a problem.
It appears the calculations would require a lot of manpower resources even if dealer daily margin reports are checked for netting and margining; currently the dealers do not provide reports at the individual swap level of detail.
The rule should clarify whether the test should be applied on a fiscal quarter or calendar basis.
SIFMA believes the management information systems and algorithm to do the MSP test would take time (years) to implement and verify.
As to suggestions other than the proposed MSP test, SIFMA did not support a VAR test since it would only be more complicated, but reiterated the need for a safe harbor from the need to perform the test for persons with a swap position below a certain level.
