The Commodity Futures Trading Commission and Prudential Regulators, including your agency, recently proposed rules that would require US firms to post margin on uncleared swap contracts, with the intention of reducing alleged systemic risk concerns. Longtime industry expert Dr. Sharon Brown-Hruska* and I conducted an independent cost-benefit analysis of the CFTC proposed rule, 79 FR 59898, requiring margin on uncleared swaps, which was not funded by any interested party. We have forwarded our analysis to you because your proposed rule, 79 FR 57348, is similar in many respects to the CFTC’s proposed rule.
Our analysis found that the CFTC’s proposed rule would cost firms hundreds of millions of dollars per year, place US firms at a competitive disadvantage to foreign firms, and threaten thousands of derivatives industry job listings across the US. In addition, pro-cyclical aspects of the proposed rule may actually exacerbate systemic risk in financial markets, meaning that the proposed rule might impose substantial costs on US firms without achieving its regulatory intent as currently written. Our study proposes a number of adjustments to the proposed rule that would mitigate many of the rulemaking’s costs while enhancing its ability to actually reduce potential systemic risk resulting from uncleared swap contracts.
As your agency’s proposed rule is substantially similar to the CFTC’s proposed rule in several respects, we believe you might be interested in reading our report and considering its application to the requirements in your proposed rule, 79 FR 57348. I have attached a copy of our report, which can also be found online here.
If you have any questions, we would be happy to discuss them with you. Thank you for your time and attention on this urgent matter.
Analyst, National Economic Research Associates, Inc.
*Dr. Sharon Brown-Hruska
Vice President, National Economic Research Associates, Inc.
Former Commissioner and Acting Chairman, Commodity Futures Trading Commission
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