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MFA Submits Letter to the SEC with Essential Fixes for the Treasury Clearing Proposal

Bryan Corbett: “Growing central clearing has the potential to assist enhance market resiliency, however you will need to improve entry to central clearing previous to mandating its use.”


WASHINGTON, DC – In the present day, Managed Funds Affiliation (MFA), the commerce affiliation for the worldwide various asset administration business, submitted a remark letter to the U.S. Securities and Change Fee (SEC) in response to its Treasury clearing proposal. MFA welcomes the proposal however gives a number of suggestions to assist higher calibrate the proposal to keep away from damaging, unintended penalties on the U.S. Treasury market.

MFA’s letter commends the SEC for taking steps to enhance the resiliency of the U.S. Treasury market. Sustaining a sturdy and liquid marketplace for U.S. Treasuries is essential to the right functioning of monetary markets, in addition to to U.S. and international monetary stability. The letter argues that increasing central clearing may assist promote larger participation, improve effectivity, and enhance entry to market-wide protections. Nevertheless, MFA stresses that the SEC must take a phased strategy and broaden the provision of central clearing earlier than imposing a mandate.

“It’s encouraging that the SEC is working to modernize U.S. Treasury markets as the quantity of U.S. authorities debt continues to develop,” stated MFA President and CEO Bryan Corbett. “Various asset managers depend on environment friendly, truthful, and liquid Treasury markets to ship dependable returns for institutional traders, together with pensions, foundations, and endowments. Growing central clearing has the potential to assist enhance market resiliency, however you will need to improve entry to central clearing previous to mandating its use.”

Additional, MFA underscores that central clearing necessities ought to deal with bilateral repo and reverse repo transactions moderately than triparty repo transactions and money market transactions. The advantages of central clearing are essentially the most vital and current market infrastructure is greatest capable of help central clearing for these transactions. Extra particulars from the letter are beneath.

MFA highlights that increasing central clearing may also help guarantee larger market participation regardless of the elevated dimension of the market, notably during times of elevated market stress and volatility. From the letter:

“Increasing central clearing may probably partially deal with these points by selling participation by a bigger and extra numerous group of market contributors, permitting market contributors to deploy sources and capital extra effectively by netting offsetting transactions, and increasing entry to market-wide protections supplied by a clearing company’s default administration framework. Whereas the U.S. Treasury market differs from the swaps market in essential respects, we’ve seen related advantages take root within the swaps market because the post-Dodd-Frank implementation of clearing necessities for sure kinds of swaps.”

MFA emphasizes that with a view to obtain these advantages, it’s crucial the SEC first prioritize and strengthen the measures to broaden the provision of central clearing earlier than mandating central clearing. From the letter:

“[T]he Fee ought to: undertake extra strong and direct measures to make sure truthful and open entry; work with the Commodity Futures Buying and selling Fee (“CFTC”), FICC, and related derivatives clearing organizations to allow cross-margining throughout the Treasury securities and associated cleared derivatives markets; and improve transparency round FICC’s margining and default administration practices. These necessities ought to take impact some affordable time frame earlier than any central clearing mandates take impact.”

MFA notes that the proposal will probably be most helpful for bilateral repo market transactions however the prices outweigh the beneficial properties for tripartite and money transactions. From the letter:

“We count on the advantages of central clearing to be vital within the bilateral repo market. Increasing netting of repo transactions by extra central clearing may improve market capability by lowering the stability sheet and capital prices of repo transactions to liquidity suppliers. As well as, repo transactions contain extra credit score danger than money market transactions, which may be mitigated by central clearing by way of a clearing company’s margining and default administration practices.”

“In our view, the prices of requiring central clearing of triparty repo transactions and money market transactions are more likely to outweigh any potential advantages. Relative to bilateral repos, triparty repo transactions already present for added danger mitigants and protections as a result of function of the triparty agent and associated regulatory oversight of the market. As well as, there may be considerably much less expertise and monitor document with respect to central clearing of triparty repo transactions than there may be for bilateral repo. Money transactions, in flip, don’t current the identical extent of credit score danger as repo transactions, which implies that a principal advantage of central clearing—danger mitigation—is considerably much less evident in these markets.”

MFA additionally stresses that singling out hedge funds for the cash-clearing mandate would create aggressive disparities. From the letter:

“[T]he Proposed Rule would impose central clearing necessities on hedge funds and sure prime brokerage accounts, which appears more likely to end in undesirable aggressive disparities and alternatives for regulatory arbitrage vis-à-vis different institutional traders. The Proposed Rule additionally would impose central clearing necessities on sure transactions involving nameless buying and selling amenities, which may arbitrarily profit sure platforms and discourage the event of all-to-all buying and selling.”

MFA’s full feedback on the SEC’s proposed rule may be discovered right here.

In regards to the World Hedge Fund and Various Asset Administration Business

The worldwide hedge fund and various asset administration business, together with hedge funds, credit score, managed futures, and hybrid funds that spend money on non-public firms, has belongings underneath administration of $4.3 trillion (Q3 2021). The business serves 1000’s of private and non-private pension funds, charitable endowments, foundations, sovereign governments, and different international institutional traders by offering portfolio diversification and risk-adjusted returns to assist meet their funding obligations and return targets.

In regards to the Managed Funds Affiliation

Managed Funds Affiliation (MFA), primarily based in Washington, DC, New York, and Brussels, represents the worldwide various asset administration business. MFA’s mission is to advance the flexibility of different asset managers to lift capital, make investments, and generate returns for his or her beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to deal with international regulatory, operational, and enterprise points. MFA has greater than 150 member companies, together with conventional hedge funds, crossover funds, and personal credit score funds, that collectively handle practically $2.6 trillion throughout a various group of funding methods. Member companies assist pension plans, college endowments, charitable foundations, and different institutional traders to diversify their investments, handle danger, and generate engaging returns over time.



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