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The letter, sent to the Commodity Futures Trading Commission by the Asset Management Group of the Securities Industry Financial Markets Association, the Investment Adviser Association and the Investment Company Institute, requests a delay to rules that require buyside firms to clear swaps. Most US buyside firms are required to start clearing swaps on June 10, but the letter asks for a delay to September 9, when all firms covered by the rules will have to clear them.
The letter said: “This request does not reflect a lack of will or commitment regarding clearing but, rather, one of inadequate time for clearing houses and banks and brokers to implement the necessary technological infrastructure to provide critical protection to their customers".
Clearing requires asset management firms to post collateral at clearing houses to mitigate the risk of counterparty default. This collateral is largely managed on behalf of the asset managers by their brokers.
SIFMA, the IAA and the ICI said measures to protect excess collateral – defined as collateral that is above the amount required by the clearing house – have not been fully implemented. The associations are concerned that hold-ups in how collateral is moved between brokers and clearing houses means any excess buyside collateral will be held at banks – rather than clearing houses. They argue in the letter that it is therefore subject to “heightened fraud risk”. The rules say the collateral needs to be held at the clearing house, but there are technical delays to doing so.
Letter, signed by