Meeting Date:
Thursday, December 1, 2011
CFTC Staff:
David Aron
Lee Ann Duffy
Julian Hammar
Steve Kane
Organization(s):
Mayer Brown
Deutsche Bank
Morgan Stanley
ISDA
External Attendees:
Josh Cohn (Mayer Brown)
Robert Lee (Deutsche Bank)
Maria Douvas (Morgan Stanley)
Anthony Cicia (Morgan Stanley)
Mary Johannes (ISDA)
Amy Starr (SEC)
Leah Drennan (SEC)
Donna Chambers (SEC)
Additional Information:
Participants discussed the Commissions' proposed guidance with respect to fixed rate resets and the determination of whether a Title VII Instrument is a swap or a security-based swap. The Commissions had proposed guidance that if the fixed rate is informed by, or quoted based on, the yield of a security, and the floating rate is based on LIBOR, the Title VII instrument would be a swap and not a security-based swap, provided that the fixed rate was set at execution and could not vary over the life of the instrument. ISDA in its comment letter stated that it believes that this guidance is too narrow, because there are reasons why parties may reset a fixed rate other than for risk-shifting based on the yield of a security. ISDA gave an example that parties may adjust the fixed rate because the market has moved in a particular direction, as a result of which the counterparty who receives the fixed rate becomes a greater credit risk to its counterparty, and so the parties agree to reset the rate at a higher level, rather than demand more collateral or terminate the swap. ISDA asserted that in some agreements, a reset provision is included in the terms of the agreement for these purposes when the transaction is entered into.
