August 16, 2012
I support the proposed rules to exempt swaps between certain affiliated entities within a corporate group from the clearing requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
One of the primary benefits of swaps market reform is that standard swaps between financial firms will move into central clearing, which will significantly lower the risks of the highly interconnected financial system.
Transactions between affiliates, however, are of a different nature than transactions between nonaffiliated parties. Though transactions between affiliates pose risk, much of the risk relates to their affiliates rather than external parties.
The proposed rule would allow for an exemption from clearing for swaps between affiliates under the following limitations:
First, the proposed exemption would be for swaps between majority-owned affiliates whose financial statements are reported on a consolidated basis.
Second, the proposed rules would require documentation of such exempted swaps, as well as the payment of variation margin, centralized risk management, and reporting requirements for such swaps.
Third, the exemption would be for swaps between U.S. affiliates or swaps between U.S. affiliates and foreign affiliates located in a jurisdiction where a comparable and comprehensive clearing regime exists.
This approach largely aligns with the Europeans’ approach to an exemption for inter-affiliate clearing.
I look forward to the public’s comments on this proposal.
Last Updated: August 16, 2012