TO: Comment File - RIN 3038-AC98 

76 FR 3698 (Jan. 20, 2011) 

76 FR 13101 (Mar. 10,2011) 

Comment File - RIN 3038-ADOO 

75 FR 67277 (Nov. 2,2010) 

Comment File - RIN 3038 AD-99 

75 FR 75162 (Dec. 2,2010) 

FROM: Phyllis Dietz, Division of Clearing and Intermediary Oversight 

RE: Comments on Proposed Risk Management Requirements for Derivatives Clearing 

Organizations; Processing, Clearing, and Transfer of Customer Positions; and 

Implementation and Sequencing of Final Rules 

On April 15, 2011, at 1:00 p.m. EDT, Chairman Gensler and Commission staff 

participated in a meeting with representatives of Blue Mountain Capital Management LLC, 

Citadel, D. E. Shaw Group, Delta Strategy Group, DRW Trading Group, and Tudor Investment 

Corporation. Topics discussed included implementation and sequencing of Dodd-Frank final 

rules, open access to derivatives clearing organizations, straight-through processing for cleared 

swaps, margin requirements for cleared swaps, segregation of collateral for cleared swap 

positions, and the process for mandatory clearing determinations. Industry representatives 

provided several documents (attached to this memorandum). 

Present at the meeting: 

David Rubenstein, Blue Mountain Capital Management LLC 

Adam Cooper, Citadel 

Randall Costa, Citadel (by phone) 

Scott Parsons, Delta Strategy Group 

Darcy Bradbury, D. E. Shaw Group (by phone) 

Jeffrey Levoff, DRW Trading Group 

John Macfarlane, III, Tudor Investment Corporation 

CFTC 

Chairman Gary Gensler 

Phyllis Dietz 

Sarah Josephson 

John Lawton 

Amanda Olear 

Kevin Walek 

Robert Wasserman 

Attachments 
MANAGED FtrNDS ASSOCIATION 

The Voice of the Glol)al Ahemative Illvestment Ind\lstry . . 

WASHINGTON. DC I NEWYOHK 

March 24,2011 

The Hon. Gary Gensler 

Chairman of the Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

Dear Chairman Gensler, 

Managed Funds Association wants to thank you for recently meeting with our members to 

discuss our priorities for implementing OTe derivatives market refonns of the Dodd-Frank Act. 

As investors that manage assets for thousands of institutions and longstanding OTe derivatives 

customers, we appreciate your willingness to listen to our perspective. Throughout the 

legislative and regulatory processes, we advocated for reform of the OTe derivatives markets. 

In this spirit, we are following up with our recommendations to facilitate prompt implementation 

and move closer to our shared goal of reduced systemic risk and enhanced efficiency. 

During our m.eeting, we expressed concern with the overall implementation process and 

emphasized that our objective is not to ask you to slow down implementation of these reforms. 

On the contrary, we believe it is possible to modify the process and move expeditiously. We 

believe that by properly ordering priorities, establishing a series of defined milestones and 

implementing reforms in a practical manner that focuses on the ultimate goal (i. e., reducing'the 

risk to the global financial system), the OTe derivatives market could achieve substantial 

progress towards key regulatory reforms, including central clearing, sooner rather than later. 

The reform process currently underway runs the risk ofstalling because many ofthe proposed 

regulations are too focused on achieving 100% refOlm, and because there is no clear blueprint of 

interim milestones for industry participants to meet the key reform objectives. Let's start 

working on things that can be achieved now, in 2011. With the infrastructure and industry 

efforts in place, we are certain there is a way forward that is consistent with broad, timely 

implementation ofthe Dodd-Frank Act. 

To that end, we believe the first two priorities should be: (i) expanding the use of central clearing 

for liquid ("clearable") contracts; and (ii) having trade repositories receive data on both cleared 

and bilateral swaps. These chahges would provide substantial benefits to the markets by 

enhancing price transparency and competition for the most liquid swap transactions. Tn addition, 

reforms, such as broad industry clearing and trade repository data, will lay the groundwork for 

future reforms (e.g., electronic trading and trade transparency) that will provide regulators the 

data they need (e.g., regarding liquidity and pricing) to promulgate effective rules, oversee the 

markets and monitor for market risks. 

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Page 2 of2 

What steps are necessary to implement key reform objectives, including central clearing? 

Attached to this letter are two documents that serve as a roadmap. 

The first is the "Framework for the Open Items List from Buy-Side Participants ofActions 

Required for Buy-Side Access to Clearing", which was sent to all regulators, including the 

Commission, in March of2010 as part ofthe New York Fed-sponsored ISDA Industry 

Oovernance Committee ("HOC") proce'ss. This document provides a list of key impediments to 

buy-side clearing. Sadly, in our opinion, with the exception ofitem #4, little or no progress has 

been made on these commitments over the past year. The HOC working group, which achieved 

notable progress several years ago in standardizing contracts and trade compression, stopped 

functioning effectively and was not held accountable for achieving the goals stated in the letter. 

As we hope;to have made clear to you in our meeting, we are prepared to reengage, whether 

through the HOC process or a new set of industry and regulatory initiatives, to restart progress. 

Indeed, we have submitted comments to HOC in the hope of agreeing on a new commitment 

letter. 

The second is a summary of MFA's recommended timeVne for adoption and implementation of 

all rules related to OTC derivatives reform as well as a timeline that articulates clear, practical, 

measurable milestones for all stakeholders to move clearing forward decisively. Our approach is 

to establish milestones for clearing access and voluntary clearing with a phase-in period before 

clearing becomes mandatory. We recommend regular meetings that include buy-side firms, sellside firms, clearinghouses and regulators to ensure that timely progress is being made. 

Most ofour members are ready, willing and able to clear both current and future "clearable" 

swaps once certain basic impediments are addressed. However, as described in the first 

attachment, there are currently~ubstantial structural and economic barriers to full buy-side 

participation in central clearing. If implemented effectively, recently proposed Dodd-Frank 

rulemakings promise to address many of these barriers. In addition, if all parties work together, 

we believe that within a matter ofmonths, voluntary clearing by buy-sides firms could expand 

substantially in both the broad-based index credit default swaps ("CDS") and interest rate 

markets. With that beginning, we believe that clearing of single-name CDS that are index 

constituents would follow shortly thereafter and other single names would follow subsequently. 

During the voluntary phase, progressively higher targets for all buy-side firms could be met as 

traditional asset managers and other end-users resolve their unique implementation issues, and 

over time, all remaining assets classes could also move towards increased central clearing. 

We look forward to work,ing with the Commission and other industry participants. 

Sincerely, 

/s/ Richard H. Baker 

Richard H. Baker 

President & ChiefExecutive Officer 

Attachments (2) 

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MANAGED FUNDS ASSOCIATION 

'1'11\: \,'oi,o,. o!"t!Jt (:kokd,\llcnLlIil(' 111\''"''1"1'''°111 IndIlQI)' ( WASf-lINGTOt'i. nc I NEW YORK 

MFA RECOMMENDED TIMELINE FOR ADOPTION AND IMPLEMENTATION
 

OF FINAL RULES PURSUANT TO TITLE VII OF THE DODD-FRANK ACT
 

March 24, 2011
 

This document memorializes the views of Managed Funds Association ("MFA") with 

respect to the appropriate timeline for adoption and implementation of final rules related to Title 

VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank 

Act"). As investors, customers and longstanding market paliicipants, we strongly support the 

strengthening of our nation's financial regulatory system as envisioned, including implementing 

changes in the derivatives markets to reduce systemic risk, increase transparency, implement 

mandatory central clearing and promote open and competitive markets. Moreover, our members 

uniformly agree that rule adoption and implementation should move forward as soon as possible 

and in a logical, thoughtful manner. 

I. Timeline and Sequencing for Adopting Rules 

MFA believes that it is important to ensure that the adoption of Title VII rulemakings 

proceeds in a manner that strengthens the derivatives markets and does not impair market 

participants' ability to mitigate risk through swaps. In our view, the solution is for regulators to 

proceed with rules for which the infrastructure already exists (e.g., mandatory central clearing) 

and to consider delaying certain rules in favor of obtaining market data or allowing time for the 

build out of necessary systems prior to adoption (e.g., position limits and real-time reporting). 

Annex A sets forth our recommended ordering of priorities for all rulemakings that reflects these 

principles and Annex B sets forth our recommended timetable for achieving specific industry 

milestones necessary for compliance with the Dodd-Frank Act clearing requirements. We 

believe that regulators should adopt and implement the first and second tier rules set forth in 

Annex A before adopting rules for the third and fourth tier priorities in order to leverage systems 

or obtain data that will result from implementation of the first and second tier rules. 

II. Timeline and Sequencing for Implementing Rules 

As a general matter, we do not support a "big bang" approach to implementation where 

all rules go into effect simultaneously and almost immediately after adopted as final. We think 

this approach could greatly strain the structure and resources of the financial markets, might 

overwhelm the staff and financial resources of regulators and could become a batTier to overall 

progress on reform. We are mindful of ensuring that regulation proceeds without resulting in 

market participants or regulators (especially given regulators' limited resources) incurring 

Ulmecessary, excess costs. Thus, we would hope that regulators would implement rules in the 

order of our enumerated priorities using a phase-in approach. For example, with respect to 

central clearing, we would expect derivatives clearing organizations to make the most liquid and 

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March 24,2011 

Page 2 of 10 

standardized classes of products available for clearing first. 1 At the time that a class of products 

is ready for clearing, all market participants (including buy-side participants) should be permitted 

(but not required) to clear those products, while confirming that they intend to be operationally 

ready to comply with the mandate when it comes into force. Then, there should be a phase-in 

period before clearing of that product becomes mandatory to give sufficient time for market 

participants to resolve outstanding documentation or structural issues and for the infrastructure to 

prove that it is ready for clearing at scale. 

**************************** 

Please do not hesitate to call Stuart J. Kaswell or Carlotta King at (202) 730-2600 with 

any questions on the foregoing or the Annexes below. 

We would expect that, with respect to each category of rulemaking, the markets for more liquid and 

standardized classes of products (e. g., interest rate swaps and the most liquid credit default swaps instruments) will 

develop faster than illiquid classes of products. We would expect this staggered development to be the case for 

clearing, exchange trading and reporting and we emphasize that there will need to be a phase-in period for each class 

of products. 

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Page 3 of 10 

ANNEXA 

TITLE VII RULEMAKING AND IMPLEMENTATION PRIORITIES 

Priority I Rulemaking Area I Rationale 

First I DefInitions'" I DefInitions are key to many different rules and must be addressed fIrst in order to, among other things: (i) 

understand who and which products will be subject to mandatory clearing; (ii) allow time for hedge funds to 

conduct calculations to determine if they are MSPs; and (iii) eliminate market uncertainty. 

Barriers to effective buy-side pmiicipation in clearing must be eliminated to enable buy-side participants to 

clear voluntarily at the same time as dealers (i. e., not dealer-to-dealer clearing fIrst), but with a phase-in 

period before clearing is mandatory. Clearing (1) is a pre-condition to, or (2) at the very least would 

contribute to a more effIcient/effective formulation ofrules related to SEF trading, real-time reporting, etc. 

In fact, once participants begin widespread clearing their swaps, comparatively lower barriers to entry for 

execution platforms and the publication ofprices by CCPs may result in achievement of some transparency 

goals. Implementation of clearing will require a sequenced phase-in period for preparedness, onboarding 

and testing (i.e., negotiations of legal documentation, build out oftechnology and operational infrastructure, 

etc.) because ofthe industry's need to fIrst accomplish certain material pre-clearing milestones (see Annex 

B). Phase-in for clearing by product and sub-product type would be the preferred implementation plan. 

MSP/SD 

Requirements4 

SD and MSP registration and business conduct rules will likely need a phase-in period before full 

implementation because of the need for operational infrastructure, policies, procedures, etc. Within this 

group ofrules, registration will need to take place fIrst, followed by business conduct rules and 

2 The defInitions include defmitions of swap, mixed swap, major swap participant, swap dealer and eligible contract participant. However, it is not 

necessary to have full defInitions for "swaps" prior to proceeding with the second priority rules. 

3 Clearing rules include, without limitation, the following: (i) DCO governance, (ii) DCO registration, core principles and fInancial resources; (iii) 

DCO/DCMlSEF conflicts of interest; (iv) documentation; (v) process for mandatory clearing; (vi) segregation of collateral for cleared swaps; and (vii) clearing, 

processing and transfer of customer positions. 

4 MSP/SD requirements include, without limitation, MSP/SD registration, internal business conduct requirements, business conduct standards with 

counterparties, capital and margin requirements and MSP/SD recordkeeping requirements. 

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Page 4 of 10 

Priority I Rulemaking Area 

Reporting to SDRs 

and Regulators5 

(excludes real-time/ 

public reporting) 

(including block 

trade definition) 

Segregation for 

Uncleared Swaps 

Rationale 

capital/margin requirements. 

Prior to adopting many rules that are intended to increase transparency, regulators need to have more market 

data (e.g., reporting of swaps data to SDRs and regulators should commence prior to SEF implementation in 

order to allow regulators to monitor the system for risk) and complete extensive discussions with the 

industry. These steps are necessary to ensure that rules related to transparency are calibrated to achieve their 

goals without impairing liquidity. Comprehensive reporting to SDRs and regulators will not only support 

this process, but also will allow regulators to monitor systemic risk and individual risk concentrations much 

more effectively, and intervene specifically as necessary. 

Rules requiring use of SEFs should come before real-time reporting because SEFs will assist regulators with 

crafting real-time reporting rules that are optimal for the marketplace. In addition, SEFs can be an efficient 

mechanism to facilitate real-time reporting. Block trade levels should initially be set low, until regulators 

have data to determine what levels are appropriate. 

Segregation of uncleared swap initial margin should be prioritized in order to reduce risk in the system for 

products that remain in the bilateral market and to line up with the changes in the cleared market. 

Fourth Real-TimelPublic 

Reporting7 

Real-time reporting is dependent upon the establishment and proper functioning of SEFs and more extensive 

analysis ofthe impact ofreporting on liquidity for the generally less liquid trades that would be the subject 

ofthis requirement. 

5 Reporting to regulators and SDRs include, without limitation, registration of SDRs, SDR core principles, recordkeeping, SD/MSP reporting and nonSDIMSP reporting. 

6 SEF-related rulemakings include the definition of "block trade" as well as the SEF defmition, core principles and registration. 

7 Real-time and public reporting includes, without limitation, a study to define "block trade", post-trade and pre-trade reporting to SDRs, interdealer 

reporting, public dissemination ofreported data, etc. 

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Page 5 of 10 

Priority Rulemaking Area Rationale 

Other Rulemakingsl; These rules either depend on regulators first collecting market data or are not as crucial in order to address 

systemic risk and transparency concerns. Where the rules include thresholds, regulators should initially set 

the thresholds to have the least impact, until they have data to determine what threshold level is appropriate, 

at which point regulators could progressively adjust thresholds to be more restrictive. 

Other rulemakings include, without limitation, anti-fraud and market manipulation, position limits, algorithmic/computer readable data, confirmation, 

portfolio reconciliation and portfolio compression. 

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March 24,2011 

Page 6 of 10 

ANNEXB 

TIMETABLE OF MILESTONES AND COMMITMENTS FOR 

INDUSTRY COMPLIANCE WITH THE DODD-FRANK ACT CLEARING REQUIREMENTS 

Milestone Responsible 

Party 

Milestone Date Industry Commitment Needed to Reach Milestone 

1. Complete industry II Buy-side June 1,2011 Buy-side / Dealers / CCPs / DCOs : 

documentation 

templates for: 

II Dealers 

II Clearing 

II Work in good faith to standardize and streamline documentation to reduce 

balTiers to entry and operational complexities in moving to a cleared model. 

- Clearing Agreement 

Addendum 

members 

IIFIA 

II Current indications are that the date for final rules with clearing relevance 

will possibly be June 1,2011 but no later than July 15, 2011, and the 

- Execution documentation process is already well underway. Ifthat date is delayed, 

Agreement and there are any aspects to the rules that would affect documentation, this 

date might need to move 

II We recognize that templates may evolve over time, but this should not 

impact the completion ofthis milestone. 

2. CFTC and SEC rules IICFTC No later than Final Dodd-Frank rule promulgation date is July 15,2011, but current 

related to clearing are III SEC July 15,2011 indications are that the date for fInal rules with clearing relevance will 

fInalized possibly be June 1,2011 (e.g., (i) CCP risk management, (ii) clearing, 

processing and transfer of customer positions, (iii) customer segregation, (iv) 

Publication ofthe margining, (v) end-user exemptions, and (vi) governance). 

Mandatory Clearing 

Date [indicatively 

March l/July 1, 

depending on the 

Also allows time for fInalization ofrules with aspects that could impact the 

clearing model and trade flows (e.g., swaps data repository rules and rules on 

portfolio commingling and margining). 

product set] Dates for promulgation could be sooner or later, which would shift overall 

timetable forward. 

3. CCP Implementation 

Period - end goal: CCPs 

II CCPs July 15,2011 ­

December 1, 

CCPs: 

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Page 7 of 10 

Milestone Responsible 

Party 

Milestone Date Industry Commitment Needed to Reach Milestone 

III fully compliant with 2011 ISO-day maximum timeframe for implementation of clearing rules and any 

CFTC/SEC rules, and required trade flow/process changes from promulgation under current draft 

ready to clear in CCP risk rules. Some CCPs are already largely in compliance, most have 

compliant model indicated intention to comply much more quickly. 

III Completion of risk committee steps required to implement rules. 

4. Publication ofthe Phase 

I Mandatory Cleared 

Products for the 

Mandatory Clearing 

Date - additional 

products may be added 

as they are certifIed 

IIICFTC 

III SEC 

September 1, 

2011 

Buy-side / Dealers / DCOs / CCPs: 

III Work in good faith with each regulator to assist in defIning the Phase 1 

mandatory cleared product set, with the end goal ofmaximizing the product 

set and reducing systemic and counterparty risk in OTC derivatives. 

III September is outside date. CCPs are expected to certify products with the 

SEC and CFTC as soon as rules relating to clearing are formally effective, 

with approval under the Dodd-Frank Act of 90 days from application. 

5. Preparation for III Buy-side June 1,2011­ Buy-side:

Mandatory Clearing ­

end goal: 

III Dealers December 31, 

2011 III Identify at least 1 approved clearing member 

comprehensive III Clearing III Entered into all required legal document with clearing members and CCPs 

readiness for production members III Work with clearing members and CCPs in becoming 100% ready to clear 

clearing, all buy-side III CCPs product participants Dealers / clearing members: 

III Entered into all required legal document with clients 

III Work with clients and CCPs in proving readiness to clear product (in scale) 

For many participants, particularly larger ones, this process is already 

underway and will advance rapidly as clearing members establish their 

offerings. June 1, 2011 is indicated as start date to allow completion of 

standardized documentation, but this need not delay a wide range of 

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Page 8 of 10 

Milestone Responsible 

Party 

Milestone Date Industry Commitment Needed to Reach Milestone 

onboardrng workstreams. 

This timetable allows 6 months for the industry as a whole to be connected 

and tested. 

6. Voluntary Period ­ 11II Buy-side December 31, Buy-side / Dealers / clearing members: 

objective: at least one 

production trade by 

direct and indirect 

11II Dealers 

11II Clearing 

2011 (date for 

relevant 

participants to 

Each direct and indirect clearing participant (buy-side and sell-side) complete 

at least one trade in production 

clearing participants, members clear one trade) Buy-side / Dealers / clearing members: 

plus phased voluntary 11II CCPs 11II Ramp-up % of cleared volume in mandatory products through 

targets to confirm scale 

readiness for conversion 

to mandatory clearing 

January t 

2012-March 

1/July 1, 2012 

(phase-in 

period) 

achievement ofvolume targets- commitment format TBD (see notes 

below). 

Phase-in period should reflect the complexity ofthe product, with the 

voluntary period for the simpler instruments running through March 1, 2012 

and the voluntary period for more complex instruments (e.g., credit) extending 

until July 1,2012. 

7. Mandatory Clearing for 11II Buy-side No earlier than 100% of trades subject to mandatory clearing and are cleared going forward. 

fIrst phase of products III Dealers March 1/July 1, 

2012 III Clearing The alternative deadlines would reflect and follow on the heels of the two 

members phase-in periods. 

11II CCPs 

8. Voluntary Backloading 11II Buy-side Begin Progressive industry targets to backload eligible trades, to achieve further 

Phase 11II Dealers immediately compression and to reduce systemic counterparty risk. 

following onset III Clearing of mandatory 

members requirement 

with goal to be 

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Page 9 oflO 

Milestone Responsible 

Party 

Milestone Date Industry Commitment Needed to Reach Milestone 

. 

III CCPs completed 

within 3 

months. 

NOTES 

•	 Milestone dates are indicative, keyed particularly off fmalization ofrelevant SEC and CFTC rules. 

•	 Timetable applies only to eligible interest rate swaps and appropriate, liquid credit default swaps that are subject to the fIrst phase 

mandatory clearing requirements. 

•	 Timetable is not exclusive, meaning that new products or other products not yet identifIed as subject to mandatory clearing could 

be made available for clearing at any time. A timetable for a second phase of products subject to mandatory clearing may overlap 

with this timetable or additional products subject to mandatory clearing could potentially be added to the Phase 1 product set. 

•	 For each milestone, particularly milestones 6 and 7, there should also be industry-level metrics for completing the steps identifIed, 

compiled each month to chart progress. 

o	 Metrics for an increased volume of current trades could be set by looking at DTCC data, which would measure open 

interest and number of trades by product segment and market participant. Milestones would scale up over time, with 

initial targets phasing in small, medium and large buy-side fIrms as a percentage of their overall activity in a given 

product and/or with a given dealer. All dealers must be included in the metrics, both due to their responsibilities as 

clearing members and as part oftheir preparation to comply with the mandate as direct derivatives market participants. 

o	 Economic considerations could play a factor in the willingness of market participants to accept targets during the 

voluntary period. As the time approaches, broader industry discussion of these considerations should explore ways to 

mitigate these considerations. On the other hand, the interests of clearing members and CCPs in attracting utilization, 

especially in the voluntary period, will potentially lead to competition and incentives and will help offset the 

differential in cost between cleared and uncleared settlement. 

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March 24,2011 

Page 10 of 10 

o	 Compression and tear-ups would not count toward relevant targets. Treatment of backloading toward targets to be 

determined. 

o	 CCPs will also playa key role in measuring build-up of volume and fulfIllment of target commitments. CCPs could 

defIne, monitor and report metrics against aggregate metrics accessed by the regulatory agencies via swap data 

repositories. 

o	 For long-only, asset manager, investor accounts, such as municipal accounts, with extensive approval requirements that 

cannot be completed by certain of the milestone dates set out in the chart, exceptions may be established such that the 

timetable for target commitments and effectiveness of the mandate is adjusted to allow for completion of these 

approval steps. 

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Framework for the Open Items List from Buy-side Participants of Actions Required for Buy-side 

Access to Clearing - March 1 Industry Letter - Annex C, Section 3(a): 

The initiation of buy-side CDS clearing access on December 15, 2009 represented an imp011ant 

milestone, but buy-side clearing remains in a preliminary test phase. There is further substantial work 

required to reach full buy-side clearing access, to be accomplished jointly by the CCPs, CMs, buy-side 

firms, and regulators. Full buy-side clearing access is defined to include: 

1.	 Each dealer that provides customer clearing services in the ordinary course ofits business is 

prepared to onboard buy-side market participants who seek access to clearing, provided that such 

clients are deemed suitable on the basis of reasonable objective criteria which that dealer uses in 

evaluating customer creditworthiness generally. Each dealer is further prepm'ed to provide 

clearing services to its onboarded customers on reasonable commercial terms which shall include 

but not be limited to the option to clear at each CCP where such dealer is a clearing member. 

2.	 Open interest caps at CCPs are removed and there is a reasonable cohort of initial products 

available for clearing and a detailed cleared product roll-out schedule, agreed to by CCPs and 

CMs, including firm date commitments on the roll-out of each specific product set. Each product 

offered by each CCP to dealers should also concurrently be made available by CCPs and CMs to 

buy-side firms. . 

3.	 CCPs that are clearing buy-side transactions have a robust, transparent, and efficient margin 

mechanism, well defined and understood default waterfalls, efficient and robust trade processing 

and reporting that can handle block trading and allocations, effective and efficient risk 

compression, proven segregation of customer funds and pre- and post-default portability of 

positions, clear legal documentation of give-up agreements and trade confirmations, and 

appropriate buy-side representation on governance boards. 

4.	 Regulatory uncertainty is removed relating to U.S. and non-U.S. bankruptcy treatment of cleared 

OTC derivatives, the 4d and 17f6 orders, and the SEC and FINRA exemptions. 

The completion ofthese items, and the prerequisite steps to the completion ofthese items, should be 

included in the open items lists submitted by the dealer signatories and the CCPs in respect ofAnnex C, 

Section 3(a) ofthe March 1 commitment letter. 

We look forward to worldng with the dealer signatories and the CCPs to 1) prepare a unified list of open 

items, 2) confirm together with the CCPs, dealer signatories and supervisors that appropriate responsible 

parties and target resolution dates for each impediment have been established; and 3) on an ongoing basis, 

track progress on closure ofthe tasks required to eliminate impediments, and work collaboratively to 

resolve impediments where the buy-side is a pm1 of the relevant workstream. 

We further set out in the tables below, in respect of each CCP, impediments to full buy-side clearing 

access as described above that are of particular concern to the buy-side, and indicate where we believe the 

buy-side has a collaborative role to play in the resolution ofthese impediments.! 

1 The tables relate to buy-side clearing ofCDS on North American reference entities only for each CCP cun'ently clearing North 

American reference entities. 
LIST OF IMPEDIMENTS
 

CME: Open items 

Category Open item Buy-Side 

Has a Role 

Risk Finalize margin methodology for currently cleared products to remove 

open interest caps 

Finalize CME Rules and related CME governance documents to remove 

open interest caps 

Finalize margin methodology for yet to be cleared products, completed 

in stages, focusing on resolving open items for most liquid and highest 

volume CDS first - tie to CME product roll-out schedule 

Operational Establish connectivity to and complete testing of front-end trade entry 

vendors (e.g., Clearport, Migration, TBF, Bloomberg, MarkitWire, 

ICELink) 

COlmectivity and testing is needed between CCP and vendor, CM and 

vendor, buy-side firm and vendor, and buy-side firm and CM 

X 

CMs and buy-side firms to complete end-to-end production testing of 

front-, middle-, and back-of:Q.ce processing to enable streamlined 

processing of trade information, cash flows, and reports -tie to 

overarching operations roll-out plan 

X 

End-to-end testing of backloading facility X 

End-to-end systems flow, including fallback processing X 

Clarification ofpost default portability rules pertaining to risk waterfall 

process, including outline of process, timeline, coverage and description 

of scenario where all clients except one have been able to port their 

positions (Le. is the Net Client Omnibus Margin Amount calculation 

based on client list at time of default or after some clients have ported 

their positions) 

Outline of process for price challenges protocol on a daily basis for the 

CM and their clients, including price challenge protocol in cases where 

different CCPs price same swap differently. 

Clarification and outline of the credit event process 

Outline and define Financial Disclosure Requirements for buy-side firms X 

Define the clearing and commission fee processing at the trade level to 

confirm inclusion in the trade cost basis 

X 

Legal Finalization and standardization oftrading annex and default rules X 

Clarification of trade confirmation protocol X 

Clarification of operation of give up process, including timing, 

description oflegal relationship of buy-side firms to other parties at each 

step, trade rejection rights and protocol at CCPs and CMs and rights of 

executing broker to break non-accepted trades 

X 

Increased transparency of default waterfall in the event of customer and 

CM defaults for futures and CDS books 

Buy-side representation on governance boards to ensure market 

participant balance and properly reflect actual or potential risk to 

buyside participants as a whole 

X 

. I 

I 

2
 
Margin segregation issues related to registered investment companies 

and other regulated entities required by law or regulation to segregate 

collateral at its own custodian 

Regulatory Approved 4d order 

Approved 17f6 order 

I 

Clarified treatment of cleared CME CDS for Basel I capital requirements 

for banks, and for bank holding companies within FCMs acting as CDS 

CMs 

Increased certainty ofthe treatment of CDS as "commodity contracts" 

under CFTC rules through modification ofthe bankruptcy code 

Permanent SEC exemption 

Permanent FINRA margin exemption 

3 
ICE: Open items 

Category Open item Buy-Side 

Has a Role 

Risk Finalize margin methodology for yet to be cleared products, completed 

in stages, focusing on resolving open items for most liquid and highest 

volume CDS first - tie to ICE product roll-out schedule 

Increase transparency ofmargin regime to enable 3rd parties to replicate 

margin requirements 

Operational Establish connectivity to and complete testing of front-end trade entry 

vendors (e.g., Bloomberg, MarkitWire, ICELink) 

Connectivity and testing is needed between CCP and vendor, CM and 

vendor, buy-side firm and vendor, and buy-side firm and CM 

X 

CMs and buy-side firms to complete end-to-end production testing of 

front-, middle-, and back-office processing to enable streamlined 

processing of trade information, cash flows, and reports ­ tie to 

overarching operations roll-out plan 

X 

End-to-end testing of backloading facility X 

Enable trade date clearing for trades executed with any party with a 

relationship with a CM (not iust if at least one side is an ICE CM) 

Streamlined netting process for a buy-side firm's CDS book facing 'the 

sameCM 

End-to-end systems flow, including fallback processing X 

Clarification of post default pOliability rules peliaining to risk waterfall 

process, including outline of process, timeline, coverage and description 

of scenario where all clients except one have been able to port their 

positions (i.e. is the Net Client Omnibus Margin Amount calculation 

based on client list at time of default or after some clients have ported 

their positions) 

Outline of process for price challenges protocol on a daily basis for the 

CM and their clients, including price challenge protocol in cases where 

different CCPs price same swap differently., 

Clarification and outline ofthe credit event process 

Outline and define Financial Disclosure Requirements for buy-side firms X 

Define the clearing and commission fee processing at the trade level to 

confirm inclusion in the trade cost basis 

X 

Legal Finalization and standardization oftrading annex and default rules X 

Clarification of trade confirmation protocol X 

Clarification of operation of give up process, including timing, 

description oflegal relationship of buy-side firms to other pmiies at each 

step, trade rejection rights and protocol at CCPs and CMs and rights of 

executing broker to break non-accepted trades 

X 

Buy-side representation on governance boards to ensure market 

participant balance and properly reflect actual or potential risk to 

buyside participants as a whole 

X 

Finalization of segregation framework, including consideration of 

alternative margin segregation schemes 

X 

Margin segregation issues related to registered investment companies 

and other regulated entities required by law or regulation to segregate 

collateral at its own custodian 

4 
J 

Compatibility of margin scheme with title transfer regimes (e.g., under 

English law CSAs) 

Regulatory Increased certainty of segregation of customer margin and positions and 

pOliability in the event of a CM default for all applicable CMs 

iurisdictions 

Approved 17f6 order 

Permanent SEC exemption 

Increased certainty regarding role of US banking regulators in 

insolvency of US bank CM 

Legal certainty on enforceability of default rules under non-US 

bankruptcy laws and pOliability ofmargin upon a non-US CM's default 

Legal certainty on enforcement of security interests 

5