Minutes from 3/12/12 OSEC mtg

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CFTC Book Club Day 1
CFTC Letter deadlines:
By Saturday: Everything written  w/footnotes etc.

Caitlin 30.1, 87.1, 168.1 168.2
George 14.1, intro
Alexis 30.2 227.1 296.1 302.1 (find data for 348)
Akshat 64.1
Eric 88.1 218.1 227.1
Corley 348.1, intro/writing
Elizabeth 14.1, 30.1 intro
Forget it 8.1,

FIRM deadline Saturday. Real Serious Firm Deadline Tuesday.
All done by 26 March
SIFI: non-alexis callers
Prelims:

  1. SEC defunding?
    1. Apparently not—bernie wanted to fully fund; people said no.

CFTC questions

  1. Question 8.1. What is the best method for the CFTC and the other regulators to coordinate regarding the allocation of supervisory responsibilities under the proposed CFTC Rule?
    1. Since we like some agencies better than others, we should agitate for those agencies to to supervise more. Kiss their ass a little bit, argue for them to do it.
    2. According to MC chart—sec voted 5-0 for good, seem to be pretty decent—could argue to expand SEC and minimize OCC. If they were to fund it. So: agitate for good stuff. Make sure they fund. We don’t really know much about this question.
    3. Return to this question later.
    4. Dodd-Frank sent powers somewhere
  2. 14.1 Should the CFTC Rule’s proposed definition of trading account include: (i) § ll.3(b)(2)(i)(B), relating to Federal Banking Agencies’ Market Risk Capital Rules; or (ii) §§ ll.3(b)(2)(i)(C)(1),(2) and/or (4), relating to SEC registered dealers and dealers who have filed notice with the appropriate regulatory agency? Please explain the rationale for including or excluding the provisions in the proposed CFTC Rule.
    1. On principle, enforce if at all plausible. Def’n of trading account does include…want it to be as broad as possible, and therefore to include as much as possible.
    2. Additive definitions—include! Non-derivative transactions MRCR and registered dealers
    3. Hooray for additive provisions. Keep em!
  3. 30.1 Should the proposed CFTC Rule include the clarifying exclusion for certain positions taken by clearing agencies that are registered with the SEC under section 17A of the Exchange Act? Please explain the rationale for including or excluding the provision in the proposed CFTC Rule.
    1. NO. Banks should not serve as or own clearing agencies as that leads to too much risk concentration. The purpose behind the VR was to have banks engage in traditional banking activities—clearing is not that.
    2. If the 17A stuff is good then we might be okay with it.
    3. Excluded on the premise that as clearing agency you take counterparty risk and that’s it—no exposure.
    4. Options: 1) remove as already excluded. 2) Look up 17A and see if it’s any good. 3) incidentally, seems redundant but make sure 17A is enforced regularly
  4. 30.2 The CFTC notes that only the actual repurchase or reverse repurchase arrangements would be exempt from the definition of trading account, and not the collateral or position that is being financed by the repurchase or reverse repurchase arrangement. The CFTC further notes that if a banking entity used a repurchase arrangement to finance a purchase of a covered financial position, that covered financial position would be considered in the trading account if it satisfied, at the time of its purchase, one of the three prongs set forth in the definition of trading account. Is this treatment of repurchase and reverse repurchase arrangements appropriate for the proposed CFTC Rule?
    1. As we explained earlier, repos can have inherent proprietary positions even
    2. Call em!
    3. Two interpretations:  first, that if you get money by doing a repo we judge the thing you finance with repo. Alternatively, that if the repo involves an asset the repo will be judged based on that asset’s coveredness
    4. Caitlin write background on repos to coordinate calls for EF, AG, CK.
  5. 64.1 Should the proposed CFTC Rule include the underwriting exemption? Please explain the rationale for including or excluding the provision in the proposed CFTC Rule.
    1. What does the CFTC cover that’s underwritten?
    2. Reading A: nothing has underwriting, should we even bother
    3. Reading B: don’t want people creating new products..
    4. Research on our own: does underwriting exist in the commodities market?
      1. Nowhere in proposed rule is underwriting mentioned—instead rolled into underwriting.
      2. But did ask for underwriting defn
      3. Section 619—why ask if they should remove—has to be in the rule
    5. Let’s just say no and see where it goes?
    6. In the statute—
    7. Whereof I have nothing to say, thereof I shall remain silent
    8. ‘If I have nothing to say, my lips are sealed.’
  6. 87.1 Should the proposed CFTC Rule’s market making exemption include the requirements set forth in §§ ll.4(b)(2)(iv)(A),(C), (D) and (E), relating to SEC registered dealers and dealers who have filed notice with the appropriate regulatory agency? Please explain the rationale for including or excluding the provision in the proposed CFTC Rule.
    1. Reading as ‘should you have to do certain things in order to use the exemption?’
    2. We like having to do certain things to use the exemption.
    3. But—does this stuff need to be in the CFTC rule
    4. Consistency argument!
  7. Question 88.1. Alternatively, to what extent should the CFTC incorporate concepts regarding market making from the Entities Definitions Rulemaking for purposes of section 13 of the BHC Act?
    1. Research on Entities Definition Rulemaking (SEC CFTC joint project to define swap dealer)
  8. 168.1 Should the proposed CFTC Rule include all of the required metrics? In particular, the Commission is interested in which metrics are most relevant for swaps, futures, and their related hedges. Please explain the rationale for including or excluding the provisions in the proposed CFTC Rule.
    1. Use all metrics, consider others w/r/t our original suggestions to SEC
  9. 168.2 Question 168.2. If the CFTC Rule reduces the number of required metrics, should both sets of covered banking entities described in sections III.A.(i) and III.A.(ii) of Appendix A be required to comply with the reduced number of required metrics?
    1. Not applicable for the same reasons we wrote earlier—probably
    2. Caitlin write on market making definition tailored to commodities/futures market
  10. 218.1Question 218.1. The proposed CFTRule defines a ‘‘covered fund’’ to include a commodity pool, as defined in section 1a(10) of the Commodity Exchange Act. Is the use of this definition of ‘‘commodity pools’’ too broad? For example, will this definition potentially pull in additional pools that may be outside the intent of the proposed regulations?
    1. NO. IT”S FINE>
  11. 227.1 Question 227.1. Should the proposed CFTC Rule cover securitization vehicles? Please explain the rationale for including or excluding securitization vehicles in the proposed CFTC Rule.
    1. Should cover but…
    2. Does CFTC regulate securitization? Is this totally irrelevant?
    3. Not trying to dereg securitization; maybe trying to remove extra language
    4. Skin: is it in the game?
    5. No link between securitization and commodities—but question is vehicle
    6. Note to look more…
    7. Either lets come up with something or lets not answer
  12. Question 296.1. Should the proposed CFTC Rule include the securitization exemption in § ll.13(d)? Please explain the rationale for including or excluding the securitization exemption in the proposed CFTC Rule.
    1. Not a lot to say—see original answer to 296
  13. Question 302.1. Should the proposed CFTC Rule include the additional exemptions listed in section 13(d)(1)(J) of the BHC Act in Section ll.14 (e.g., BOLI, certain acquisition vehicles)? Please explain the rationale for including or excluding the exemptions in the proposed CFTC Rule.
    1. No more
  14. Question 348.1 The CFTC seeks comment on the proposed rule’s effects on market-making and liquidity, the costs of borrowing by businesses and consumers, the prices of financial assets, and the competitiveness of the United States financial services sector. The Commission also solicits comment on the benefits that will result from the proposed regulations and how these benefits compare to the costs of complying with the proposed regulations. The Commission also solicits comment on the CFTC’s assessments of the costs and benefits of the regulations proposed herein
    1. Already perfect

VC exemption?

NYU BREAK
–usually not political events but academic events on political topics
–Culture of finance stuff
–possible panels: osec + others, open to audience discussion?
–separate event/workshop/discussion on finreg
–involvement doesn’t mean there’s not a separate NYUvent
–most of scholars relevant to culture of finance stuff rather than technical side
–have not finalized program
–possibly join existing conference—cultures of finance
–Alexis reach out to Robert Wosnitzer

–outside perspective—understand finance
–trying to get big-picture agenda—what are you hoping to achieve?
–great opportunity to deliver a message?
–what’s your one-minute story—powerful communication opportunities

Broad advice:
When they have exemptions—should they be in individually capitalized subsidiaries—would that be a solution?
AG: Volcker doesn’t care
AT: Chinese walls/conducting through more than one activity
‘Catch-all’—if these exemptions go through, if they end up being allowed—make em put it in the glovebox. a


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