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CFTC's O'Malia releases consultation

Friday 29 July 2011 - by Andrew Hickley

Commodity Futures Trading Commissioner Scott O'Malia has issued his own consultation asking about guidance the agency should provide to swaps clearers.

In a bizarre move, the commissioner takes aim at the fact that a recent rulemaking by the CFTC provides details of the processes, but not the manner in which the agency will determine the type of swaps subject to clearing requirements.

His consultation also complains that the CFTC did not provide guidance on how it will issue a "stay" or temporary extension of a clearing requirement.

"As I stated at the July 19th meeting, market participants, as well as international regulators, have requested more transparency and clarity regarding substantive criteria for mandatory clearing determinations," his letter says.

"I view this request for public comment as a crucial first step towards the development of such criteria. I hope that any comments received will inform a public roundtable, as well as written guidance," Commissioner O'Malia said.

The letter, which is not an official CFTC request for comment, asks whether one of five categories used to determine if a swap must be cleared is awarded higher weight than other groups.

The categories include the effect that clearing would have on mitigating systemic risk, as well as the impact clearing would have on market competition.

He also asks if any of these categories should be weighted higher than another, and the reasons for this.

In addition, he queries whether different asset classes, such as interest rate swaps and credit default swaps, should be considered differently within these five categories.

Finally, he asks about the criteria the commission should use to extend a temporary clearing requirement on a certain class of swaps.

Interested parties are "encouraged" to respond to the consultation by 14 September.

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