FIA has submitted a comment letter to the US Securities and Exchange Commission in response to the Fixed Income Clearing Corporation’s proposed default management and porting rules for its agent clearing service model.
FIA’s comments focus on ensuring the FICC rules provide for an effective default management methodology for so-called “done-away” trades, which are trades cleared by a FICC clearing member acting as a sponsor or agent on behalf of a different executing party. This is the clearing model that predominates in futures and derivatives.
FIA welcomes the FICC’s efforts in the proposal to provide an effective liquidation mechanism for done-with trades. However, the letter emphasizes that the FICC must similarly provide clear mechanisms to liquidate done-away trades. Without such a mechanism, clearing members will have no clear authority to close out and otherwise manage a done-away customer’s default. The letter notes that this gap in the rules works to the detriment of not only clearing members but also their customers and ultimately the FICC itself. FIA’s letter points the FICC to the default procedures and close-out rules already established by derivatives clearinghouses, which have proved effective over the years, including extraordinary market events.
The letter makes certain other targeted recommendations for improving the proposed rules. The letter is available here.
