External Meetings: Meeting with Jackson National Life Insurance

Participants discussed Jackson’s use of swaps and Jackson’s concern that certain requirements under the Dodd Frank Act may reduce liquidity in the swap market.  In general, Jackson said that requirements that swaps be cleared and publicly reported may discourage dealers and swap users from entering into swaps, especially those with large notional values.  For example, Jackson is concerned that if swap clearinghouses are able to unilaterally change margin requirements, such changes at times of market stress could reduce swap availability when they are most needed.  Also, margin segregation requirements for cleared swaps could increase capital costs for swap dealers and indirectly reduce liquidity.~~~Jackson expressed concern regarding the proposed block trade minimum sizes and time delays.  Specifically, is concerned that the 15 minute time delay for block trades may not be enough time for a dealer to hedge its risk and therefore could lead dealers to charge Jackson more to enter into a swap or may choose not to offer the swap at all.  When asked about the appropriate minimum block trade size for interest rates, Jackson stated that the Commission should not concentrate on a specific number, but instead should concentrate on the amount of risk (i.e., DV01) for each swap in order to determine the block size.  Jackson said that most of the interest rate swaps that they enter into would be around $500 million which they would consider to be a block trade.  However, Jackson indicated that a $500 million plain vanilla interest rate swap with a 30 year tenor would be considered a very large swap whereas the $500 million plain vanilla interest rate swap with a 3-month tenor would not be considered a very large swap.