SEF Registration

To: Horne, Stephanie[[email protected]]

Cc: Ritter, Elizabeth L.[[email protected]]

From: Doyle, Nancy

Sent on behalf of: Doyle, Nancy

Sent: Sun 1/20/2013 5:55:47 PM

Importance: Low

Sensitivity: None

Subject: Additional ex parte comment

Reminder Topic: Follow up

Categories: BT=1;II=01CDF7370E8E6C41F40AAE6041CD85AB7293569B237D;FIXUP=1.4751;Version=Version 14.2 (Build 328.0), Stage=H4

Stephanie, the email that follows below should be added to the SEF comment file, Proposed Rule: 76 FR 1214, Core Principles and Other Requirements for Swap Execution Facilities

Begin forwarded message:

From: John Nixon <[email protected]>
Date: January 19, 2013, 2:34:44 PM EST
To: "'[email protected]'" <[email protected]>, "'[email protected]'" <[email protected]>, "'[email protected]'" <[email protected]>, "'[email protected]'" <[email protected]>
Cc: Patrick Mccarty <[email protected]>, Mark Beeston <[email protected]>
Subject: Our risk mitigation meeting


I am sorry we weren't able to meet up while I was visiting the CFTC. I do want to thank your staff, Nancy, Salman and Clay, who all kindly spent time with us.
I would really appreciate your help and support on the issues we potential face around our bulk risk mitigation services Reset and Rematch.

While I understand the issue that the resulting byproduct of a multilateral risk reduction "process" is in fact a number of smaller bilateral trades that can only done as part of a larger set of interconnect transactions all executed for risk reduction purposes, it seems totally at odds with the primary tenant of DF to do away a service that actually reduces systemic risk because we can't find an acceptable solution for a partial exemption from mandatory execution on a CLOB in this unique circumstance. Our Reset and ReMatch businesses, which have eliminated hundreds of trillions in basis risk and could be regulated out of existence in the final SEF Rule if a compromise is not reached. I appreciate how supportive and vocal you have been that DF was not intended to eliminate businesses that have for many years clearly added an important value to the financial services marketplace.

If these Reset and Rematch trades are subject to mandatory execution through a SEF or DCM Central Limit Order Book then basis risk reduction trades produced through the multilateral processes simply won’t be done and the resulting risk will then remain in SD swap portfolios instead of being neutralized. While the Reset and ReMatch processes do result in new trades being entered into by market participants those trades are a byproduct of the multilateral compression “processes” and do not constitute the outright “trading” of risk taking swaps by almost all definitions proposed by the CFTC.

We would support and assist in the reporting of swaps trades coming out of the Reset and ReMatch processes to an SDR and submitting the resulting trades to a DCO for clearing and so will be aligned with many of goals of DF.

We have suggested 3 solutions to the problem: an exemption, a 12 month review period or “block trade like” rule for SEF's and DCM's processing basis risk reduction transactions which are subject to narrow criteria such as being part of a multilateral process, the fact that the trades are non price forming, none of the parties to a trade post bids or offers, all resulting trades are executed on an all or nothing basis and are not subject to any kind of counter party acceptance.

We believe that while any of our three suggestions will allow bulk risk reductions services to survive perhaps by looking at the aggregate notional volume of the trades associated with any particular processing run the CFTC could allow the individual trades, which cannot be done unless all trades are executed together, to fall under a block trade provision.

Icap is committed to finding a way to work with the CFTC while still allowing a valuable service to service of risk mitigation to survive. To allow these risk mitigation services to disappear is simply not what we believe was intended by Congress.

Thank you for your help.

I look forward to speaking again soon.

212 815 9015
203 550 3901

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