Statement of Concurrence by CFTC Commissioner Rostin Behnam on Segregation of Assets Held as Collateral in Uncleared Swap Transactions; Amendments

March 28, 2019

I respectfully concur with the Commodity Futures Trading Commission’s (the “Commission” or “CFTC”) approval of amendments to subpart L of the Commission’s Regulations (“Segregation of Assets Held as Collateral in Uncleared Swap Transactions” consisting of Regulations 23.700 through 23.704), which implement Section 4s(l) of the Commodity Exchange Act (“CEA” or the “Act”).  The amendments to subpart L respond to ongoing concerns and confusion created by the finalization of the CFTC and Prudential Regulator Margin Rules and CFTC interpretive guidance.   I voted for the proposal of the subpart L amendments.  However, I expressed reservations about the Commission’s proposal to extend its prior interpretation of CEA section 4s(l) concerning the timing and frequency of required notifications of swap counterparties regarding their right to segregate initial margin for uncleared swaps.[1]  I continue to believe that the Commission’s rationale in support of interpreting CEA section 4s(l) to require a single, one-time notification to a counterparty of their right to require segregation of any initial margin may be based on an incomplete record; it is nevertheless based on the record before us.  The Commission sought comment from the public on the appropriateness of the proposed amendments and received just four comment letters.  However, none of the letters addressed whether and how requiring the notice to be provided annually has actually impacted or effected decision making by counterparties.

I am disappointed that the Commission is declining to specify what constitutes the beginning of the first swap transaction or to proscribe when trading may commence following the initial notification.[2]  In an effort to remain flexible, the Commission is creating uncertainty that may ultimately lead to additional rulemaking.  Where the record suggests that need for the current amendment to the notification requirement in CFTC regulation 23.701(a)(i) may be a consequence of a stakeholder-led compliance effort, I believe the Commission ought not to risk making the same mistake twice.