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October 11, 2023


Better Markets filed a comment letter to the Commodity Futures Trading Commission (CFTC) in response to a proposed rule amending margin requirements for uncleared swaps applicable to swap dealers and major swap participants for which there is no prudential regulator.

Why It Matters. Margin, similar to a down payment when buying a house, represents the cornerstone of risk management and systemic stability. The CFTC’s proposed rule, which would allow swap dealers to circumvent the requirement to post and collect initial margin with certain seeded funds, threatens to weaken this essential safeguard, gradually eroding the effectiveness of the Dodd-Frank margin requirements—an approach reminiscent of a ‘death by a thousand cuts.’

What We Said.  In the complex world of financial regulations, it’s crucial to remember that eroding Dodd-Frank is like playing a game of Jenga. Removing a single piece may appear inconsequential at first, but with each successive extraction, the entire structure becomes less stable and more likely to collapse. It is imperative that the CFTC remain steadfast as it implements Dodd-Frank, ensuring that it fortifies our markets against crises and prioritizes the public interest, much like skillfully maintaining the stability of a Jenga tower as it grows taller and more complex

Bottom Line. Better Markets urges the CFTC to reconsider its intention to increase the use of money market funds as eligible non-cash collateral for swap dealers for initial margin. Money market funds are far too susceptible to systemic instability to serve as reliable margin.  At the very least, such an approach would have to wait until the SEC establishes further safeguards against money market fund run risk, including a uniformly floating net asset value and significant capital buffers.

You can find the full comment letter here.


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