February 7, 2011

Mr. David A. Stawick

Secretary
U.S. Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581

Via agency website

Re: Notice of Proposed Rulemaking, RIN number 3038–AD08, Real-Time

Public Reporting of Swap Transaction Data, 17 CFR Part 43

The Coalition for Derivatives End-Users (the “Coalition”) is pleased to respond to the request for
comments by the U.S. Commodity Futures Trading Commission (“CFTC” or the “Commission”)
regarding its Notice of Proposed Rulemaking (“NPR”) pertaining to Real-Time Public Reporting
of Swap Transaction Data (“real-time reporting”) under the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act” or the “Act”).

Introduction

The Coalition represents thousands of companies across the United States that employ
derivatives to manage risks they face in connection with their day-to-day businesses.
Throughout the legislative process to reform the nation’s financial regulatory systems, the
Coalition advocated for a strong derivatives title that reduces systemic risk, increases
transparency in the over-the-counter (“OTC”) derivatives market, imposes thoughtful new
regulatory standards, and provides a strong, unambiguous exemption for end-users from the
bill’s clearing, trade execution, margin, and capital requirements. More than 270 companies and
trade associations have signed letters the Coalition sent to Congress during debate on the Dodd-
Frank legislation advocating for a carefully calibrated derivatives regulatory regime that would
not impose undue burdens on end-users whose derivatives activities do not pose systemic risk.

The Coalition supports the Commission’s aim to increase transparency by enhancing price
discovery for the purpose of inducing more competitive pricing and more cost-effective hedging
solutions to the end-user community. It is important to remember that enhancing price discovery
is only a means to an end—more competitive pricing. In most circumstances, enhancing price
discovery should result in more competitive pricing for end-users, but there are certain
circumstances in which a heightened level of real-time price disclosure can work in the opposite
direction. To the extent that the real-time reporting requirements result in price increases, not
price reductions, they would serve to frustrate, rather than fulfill, the goals of the Dodd-Frank
Act.

The Commission has proposed detailed and lengthy rules pertaining to the real-time public
reporting of swap transaction data, which the Coalition believes could facilitate the

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dissemination of data that will be useful for price discovery, provided that certain principals and
precautions are taken into consideration as outlined below.

Topic: Block Size / Large Notional Determination

Sub Topic: Categorization of Swap Instruments

In order to manage the risks attendant to their businesses, end-users need to execute large hedges
efficiently and in a cost effective manner. The Coalition is concerned that the NPR’s
contemplated broad-based categorization of swap instruments for the purpose of determining
block sizes will adversely affect liquidity and bid/ask spreads in the OTC derivatives market.
The NPR states: “The Commission believes that it is appropriate to group particular swap
contracts into various broad categories of swap instruments in determining the appropriate
minimum block size.” 1 Unlike the equity or bond markets, where there are finite universes of
tradable instruments, the OTC derivatives market has a much wider range of traded instruments
due to the customizable nature of OTC derivatives contracts. For example, a typical interest rate
swap could be customized up to a dozen different ways 2 to match the underlying risks being
hedged, resulting in many possible permutations. Customization is important for end-users to
hedge their risk exposure properly and to achieve appropriate hedge accounting. Unlike other
uniform markets, such as the bond market, small changes in economic terms can have important
implications on the level of liquidity, bid/ask spreads, and block trade sizes in the OTC
derivatives market. With this in mind, the Coalition cautions against a broad-based
categorization of swap instruments for the purpose of determining the appropriate minimum
block size.

For example, while a 5-year USD interest rate swap based on the 3-month LIBOR index is one
of several “benchmark” swaps 3 and is highly liquid, a similar tenor swap based on the 1-month
LIBOR index with an amortizing notional is much less liquid. While the significance of such
economic differences may not be readily apparent, due to different levels of market demand,
liquidity can differ significantly and block sizes must be defined accordingly.

1 75 Fed. Reg. 76139, 76145 (Dec. 7, 2010).

2 For simple “vanilla” interest rate swaps, customization could include: notional currency;
notional profile—bullet, amortizing, accreting; payment frequency; interest rate reset
frequency; effective date; maturity date; stub periods; business day conventions; and day
count conventions.
3 “Benchmark” swaps are standard instruments that are more frequently traded and more liquid
than customized trades, and they tend to set the pricing for customized trades.

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Other examples of a high degree of variance in liquidity due to small changes in economic terms
include 4 :

 A 5-year USD interest rate swap versus a similar swap with the same maturity date, but
an effective date one year from now.

 A 2-year USD interest rate cap with 3 percent strike versus a similar cap with a 5 percent
strike.

 A 2-year USD/MXN foreign exchange option contract versus a 2-year EUR/MXN

foreign exchange option contract.

Indeed, any of the economic factors listed in Appendices A1 and A2 of the NPR potentially
could determine how liquid or illiquid a particular contract would be.

Besides the plethora of economic terms that impact block size, other illustrative non-economic
factors include:

 Liquidity differences due to time of year when trading occurs.

 Liquidity differences due to time of day when trading occurs.

 Liquidity differences due to un-foreseen market events.

Creating broad categories of swap instruments while ignoring the impact of these factors would
reduce liquidity in the OTC market significantly. Then-Senate Agriculture Committee Chairman
Lincoln stated in the Congressional Record that liquidity in a specific contract (determined by
the substantive factors discussed above) should be taken into account by regulators for purposes
of block size calculations. 5

Grouping swap instruments into overly broad categories would lead to the categorization of
illiquid and less liquid customized trades as non-block trades, when, in fact, they do have the
ability to move the market. In turn, this would lead to dealer counterparties pricing these

4 Some of the key drivers of liquidity include: product type, currency, effective date (i.e.,
whether something is spot starting or forward starting), maturity date, underlying index being
hedged, and option strike(s).
5 ‘‘The committee expects the regulators to distinguish between different types of swaps based
on the commodity involved, size of the market, term of the contract and liquidity in that
contract and related contracts . . . .” 156 Cong. Rec. S5,921–22 (daily ed. July 15, 2010)
(statement of Senator Blanche Lincoln).

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transactions at a higher than usual spread from the “mid-price” in order to compensate dealer
counterparties for a more difficult market6 structure in which to lay off risks of larger trades.

The Coalition recommends that the Commission consider:

1. A more nuanced, robust, and granular categorization of swap instruments to account for
the liquidity impact of various economic terms and non-economic factors.

2. Alternatively, a differentiated real-time reporting approach to highly-liquid benchmark

instruments, such as a 5-year USD interest rate swap based on the 3-month LIBOR index,
versus non-benchmark instruments, such as a 5-year USD interest rate swap based on the
1-month LIBOR index with an amortizing notional. A strict set of real-time reporting
rules could apply to all “benchmark” instruments that have significant price-discovery
functions, while non-benchmark instruments could fall under a different set of real-time
reporting requirements. In so doing, the Commission would achieve the majority of the
price-discovery benefits without the danger of damaging the market structure for the non-
benchmark transactions that do not have a meaningful price discovery function.

Topic: Block Size / Large Notional Determination

Sub Topic: Distribution & Multiple Tests

Because there currently is no centralized data repository on the OTC derivatives market, it is not
possible for end-users to test the proposed Distribution and Multiple Tests against the current
market place and determine whether the proposed tests would be appropriate or whether they
inadvertently would categorize large market-moving transactions as normal size trades.

If large market-moving trades are misclassified as normal size trades and, therefore, do not
qualify for the time delay afforded to block trades, end-user counterparties could face increased
hedging costs as dealer counterparties would pass the higher cost of managing their increased
trading risks onto end-users. These higher costs would deter end-users from using swaps to
mitigate their business risks.

To avoid these increased costs, end-users may turn to the undesirable strategy of fragmenting
their large hedges into smaller hedges that would be executed over time in an attempt to protect
the cost efficiency of hedging. This function traditionally is performed by experienced
professional traders at dealer counterparties who have significantly greater resources at their
disposal than end-users. The unintended consequence of this rulemaking, however, would be to
force end-users to adopt these dealer-like strategies and to saddle end-users with more

6 When end-users execute large hedges with a swap dealer, the swap dealers typically lay off
their risks in the market over time. If the execution of such large hedges was to be made
known to all market participants, pricing may be driven up (or down) by other market
participants, resulting in a higher cost of laying off risks for the swap dealer.

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burdensome hedge accounting as the hedges would be fragmented and executed over time at
different price points.

The Coalition recommends that the Commission consider the following alternatives:

1. The Commission should wait for the availability of swap data repository (“SDR”) data
before promulgating block size rules and calculation algorithms. SDR data would allow
the Commission to determine how different calculation approaches would affect market
structure and forestall the risks of dealer counterparties passing on increased trading costs
to end-users. Such SDR-driven calculation algorithms would leverage SDR data to
objectively determine how easy it would be for dealer counterparties to lay off trading
risks associated with larger size transactions.

2. At the very least, block size thresholds initially should be set to smaller sizes to prevent
unintended damage to market structure, and potentially adjusted upwards once there are
sufficient SDR data to generate better calculations of appropriate thresholds.

3. Once SDR data are available and block size rules and calculation algorithms are
determined, the Commission should provide a process by which market participants can
alert the Commission to potential misclassification of block size trades. An ongoing
reporting mechanism would create a consistent, open, and expedient process by which to
redress unforeseen issues with block size classification. Through such a process, targeted
“exception” rules could be created for specific categories of transactions to allow them to
follow a differentiated block size calculation scheme and to preserve market participants’
ability to transact large size market-moving trades.

Topic: Time Delay

Sub Topic: Bond Market vs. OTC Derivatives Market

The Commission has borrowed lessons from the bond market and the development of the
TRACE system in promulgating a 15-minute time delay for block size trades. The development
of the TRACE system is milestone in increasing transparency in the bond market and serves as
an important example for the OTC derivatives market.

In borrowing from the TRACE system, however, the Commission must keep in mind the
fundamental difference between the bond market (with a finite set of immutable instruments) and
the OTC derivatives market (with a near infinite set of mutable instruments).

The finite set of immutable bonds in the bond market makes laying off trading risks in large-size
trades much easier than the laying off trading risks associated with derivatives (especially with
non-benchmark instruments). It is not uncommon for dealer counterparties to take several hours
(and sometimes several days for illiquid categories of trades) to lay off their risks arising from
executing larger sized hedges with end-users. An across-the-board 15-minute time delay that
does not account for the instrument type and market conditions is too simplistic to be effective
for the derivatives market.

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The Coalition recommends the following alternatives:

1. The Commission should wait for the availability of SDR data before promulgating time
delays. SDR data would allow the Commission to determine what time delays are
appropriate for different granular categories of swap instruments for counterparties to
lay-off risks. Each category of swap and size of a transaction potentially could call for a
different level of time delay. In any case, a 15-minute delay would be too short to
provide any protection from increased hedging costs. SDR data such as frequency,
volume, and direction of trading in granular categories of swaps could be the basis for
determining how much time a dealer counterparty would need to offset the risks of
executing a large hedge with an end-user without overwhelming the market’s typical
trading volume.

2. At the very least, however, in order to protect end-users’ access to cost-efficient hedging,
block trades should not be required to be reported before the end of the trading day on the
date of execution in the relevant market. The SEC proposed a similar approach by
suggesting a range of eight to twenty-six hours depending on the time of execution of a
trade. The CFTC should consider a similar approach that would delay reporting of all
required trade information until the end of the relevant trading day. It is unknown how
real-time reporting will affect pricing and liquidity, and it would be preferable to
implement, at least initially, a longer delay to protect end-user access to critical hedging
tools. It is also difficult for the Coalition to suggest definitive time delays because our
end-user companies are not dealers or market-makers. The Coalition encourages the
Commission to solicit feedback from dealers and market-makers on their experience of
the depth and liquidity of the different instruments in the swap markets, as well as on the
time delays that would be required to offset their trading risks in order to be able to
continue providing cost-efficient swaps to end-users for hedging. The Coalition’s
members are willing to work with the Commission, dealers, and market-makers in
continuing a discussion to develop reasonable time delays.

3. The Commission also should consider creating an adjustment mechanism to handle times
of market stress when liquidity tends to dry up and even “normal” size transactions
become much harder to execute. An inflexible time delay rule could discourage market
making and liquidity provision during times of heightened market stress. Such an
adjustment mechanism potentially could include an upward adjustment to the time delay
during market stress, or the temporary application of a time delay to all transactions
irrespective of size.

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Topic: Time Delay
Sub Topic: Maximum Time Delay

The Commission has asked whether it should establish a maximum timeframe in which reporting
parties must report trades to a registered SDR. 7 The Coalition urges that the Commission should
not establish such time frames. Although in most cases, a swap dealer or major swap participant
(“MSP”) would be responsible for reporting in real-time, there likely will be a number of
reporting entities that do not currently possess the infrastructure or the resources to create
compliant infrastructure in short order. 8 The Coalition supports the Commission’s assertion that
“what is ‘technologically practicable’ for one party to a swap may not be the same as what is
‘technologically practicable’ for another party to a swap.”9 Thus, the Coalition believes the
Commission should not establish such maximum reporting time frames, except for large swap
dealers and MSPs, or at a minimum, adopt longer time frames for reporting for market
participants that are not large swap dealers or MSPs.

Moreover, the drafters of the Dodd-Frank Act recognized that some market participants may not
possess the technological and operational wherewithal to perform real-time reporting within
minutes of a trade. Therefore, they used the term “technologically practicable” throughout the
bill (rather than “technologically possible”). Establishing an absolute timeframe across the
marketplace irrespective of individual market participants’ capabilities would ignore the leniency
the Act’s drafters intended to give to market participants.

Topic: Time Delay

Sub Topic: Technology Issues Pertaining to the Maximum Time Delay

As the Commission noted in the NPR, some of the OTC derivatives market’s practices are still
manual. The Commission commented that it “believes that reporting parties should remain
current with changes in technology and regularly update their technology infrastructure to
decrease the time of transmission of swap transaction and pricing data to real-time
disseminators.” 10 The Coalition believes it is important that the Commission understand that
some market practices, such as the execution of swaps over the telephone and the manual input
of those swaps into electronic recording systems, are still manual because technological and
structural challenges prevent many market participants from transitioning to automated systems.
These challenges include:

7 75 Fed. Reg. 76139, 76146 (Dec. 7, 2010).

8 For example, community banks, small to mid-size regional banks, or farm credit institutions
that offer hedges in connection with originating or refinancing a loan.
9 75 Fed. Reg. 76139, 76143 (Dec. 7, 2010).

10 75 Fed. Reg. 76139, 76145 (Dec. 7, 2010).

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  The lack of widely available low-cost IT infrastructures.

 The customizable nature of contracts requiring new data entry for each trade as opposed
to the “enter-once-and-reuse nature” of the bond market.

 The need to check and double-check manual data entry due to the potential for human
error.

The Coalition believes that the Commission’s efforts in encouraging the establishment of SDRs
and other market “utilities” would bring the cost of automation down and make automated
infrastructure more widely available to the market. Therefore, the Coalition does not believe the
Commission should impose a wholesale maximum time delay for reporting at this time.

Topic: Real-Time Data’s Usefulness in Price Discovery

Sub Topic: Reproducible Pricing vs. Anonymity

The Coalition recognizes the Commission’s challenge of balancing two opposing objectives in
promulgating data fields required for real-time reporting.

1. Price Reproducibility: On the one hand, the usefulness of real-time data in the process
of price discovery depends on the ability for market participants to reproduce the pricing
of instruments using the disseminated data.

2. Anonymity: On the other hand, the Commission must provide a degree of anonymity
such that participants cannot be identified by the data fields reported in real-time.

These two objectives are both important, yet each requires a different approach to data
completeness. The former would argue for a complete capture of a trade’s economic terms. The
latter would argue for reporting only a few important economic terms.

Although the Commission has proposed a large number of data fields in Appendices A1 and A2,
it is unclear at this point whether either objective will be achieved if those data fields are
collected.

An awkward middle ground between the two objectives would be undesirable. If the list of data
fields is extensive (such that the cost of implementation would be substantial), yet not complete
enough that pricing of instruments can be reproduced easily, then end-users would bear the
implementation costs without the commensurate benefit of enhanced price discovery.

Ultimately, market participants do not necessarily require price reproducibility in order to have
enhanced price discovery so long as they are able to deduce the material incentives 11 that swap

11 Business Conduct Standards for Swap Dealers and Major Swap Participants With
Counterparties, 75 Fed. Reg. 80659 (Dec. 22, 2010) (to be codified at 17 CFR Parts 23 and
155) ( “The material incentives and conflicts of interest that the swap dealer or major swap

[Footnote continued on next page]

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dealers or MSPs may have in connection with the particular swap. The disclosure of such
material incentives would allow SDRs to capture a less onerous set of data fields, and market
participants would not need expensive pricing models or market data infrastructure to deduce the
material incentives for themselves.

An example will highlight the importance of maintaining anonymity for end-users. Many
Coalition members raise debt in the capital markets to fund their businesses. They often seek to
hedge the interest rate risk associated with such debt issuances by entering into one or more
interest rate swaps with dealer counterparties. Because the bond issuance and its terms may
already be in the public domain, dealers and other market participants will anticipate that the
issuing end-user will enter into swap transactions in order to hedge. If these interest rate swaps
were required to be reported in real-time, market participants would have enough information to
identify the issuer by matching the terms of the swap required to be reported in Appendix A of
the NPR with the bond issuance being hedged, notwithstanding the masking of the notional
amount of the interest rate swap(s) being executed as provided for in Section 43.4(h). The
identification of the end-user counterparty for these types of swaps also would make it more
difficult and costly for dealer counterparties to lay off their risk from the swap which in turn,
would increase hedging costs for end-users.

Section 43.4(e) provides the regulatory framework for protecting the anonymity of the parties to
a swap. In the NPR, the Commission uses an example of an off-facility commodity swap with a
specific delivery point as an example deserving of this protection. However, even common
instruments such as interest rate swaps (regardless of whether they have been executed on or off-
facility), should be eligible for similar reporting anonymity.

Topic: Real-Time Data’s Usefulness in Price Discovery

Sub Topic: Advantage to Dealers and Hedge Funds

As the end-user community previously has noted, there already is a significant degree of price
transparency in the OTC derivatives market for liquid transactions. End-users leverage widely
available real-time pricing data of benchmark instruments (such as swap curves, basis swap
curves, and option volatility surfaces) to price either standard or bespoke hedges. While the
flood of new real-time data in theory could provide a greater degree of access and a larger data
set with which to price instruments, in reality, the deluge of real-time data would overwhelm
end-users’ ability to process the data in any meaningful way.

Instead, a potential unintended consequence of this deluge of real-time data could be a greater
degree of information asymmetry between end-users and their counterparties. Real-time
processing of massive amounts of market data is the traditional province of sophisticated dealers,
hedge funds, and high-frequency traders—not end-users. Therefore, despite the Commission’s

[Footnote continued from previous page]

participant may have in connection with the particular swap, which shall include: (i) With
respect to disclosure of the price of a swap, the price of the swap and the mid-market value of
the swap as defined in paragraph (c)(2) of this section . . . .”

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best intentions, it is difficult to fathom how end-users could meaningfully and cost-effectively
leverage the new stream of data.

To compound the potential issue of information asymmetry, the lack of a consolidated real-time
disseminator would mean the barrier to entry to process the data would be very high. Certainly,
it is conceivable that dealers, hedge funds, and high-frequency traders would have the resources
to invest in infrastructure to create their own consolidated data stream. However, end-users
would have difficulty matching up with these capabilities or affording to pay heretofore non-
existent data processing firms to leverage the new stream of real-time data.

Again, we emphasize that the price discovery enhancement most beneficial to end-users is the
disclosure of material incentives that swap dealers or MSPs may have in connection with a
particular swap. 12 This could be achieved without requiring a deluge of detailed transaction
data. Furthermore, such an approach would not have the unintended consequence of tilting the
playing field to the advantage of sophisticated dealers, hedge funds, and high-frequency traders
that have greater data-processing capabilities than end-users.

Topic: Real-Time Data’s Usefulness in Price Discovery

Sub Topic: Cleared vs. Uncleared Trades

The Coalition believes there is a difference in the price-discovery benefits of real-time reporting
of cleared transactions versus uncleared transactions. Cleared transactions generally do not have
a credit component in their pricing, and as a result, represent the pure trading profits being levied
on transactions by dealer counterparties. In contrast, the pricing of uncleared transactions
includes a mixture of trading profits and credit spreads. The price discovery benefit is difficult,
if not impossible, to assess on uncleared transactions because there is no way to detangle these
aggregated components without jeopardizing the counterparties’ confidentiality.

Because most end-users will be engaged in non-cleared trades, the price discovery benefits of
reporting these transactions in real-time is questionable. The continual operational costs and the
infrastructure implementation costs that will be imposed on end-users to report trades in real-
time, however, are certain.

The Coalition recommends that the Commission provide a differentiated approach to cleared
versus uncleared trades. Uncleared trades (containing varying degrees of credit spreads
embedded into the pricing) could be subject to a much less burdensome real-time reporting
requirement, as they would not measurably enhance the price discovery process. Therefore,
resources should be concentrated in implementing real-time reporting for cleared trades where
there is a significant price discovery benefit.

12 As discussed in the CFTC’s proposed rule, Business Conduct Standards for Swap Dealers
and Major Swap Participants With Counterparties, 75 Fed. Reg. 80659 (Dec. 22, 2010) (to be
codified at 17 CFR Parts 23 and 155).

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Topic: Rounding

The Coalition supports the Commission’s proposal to include the rounding of notional before
public dissemination of transaction data, but asks that the Commission take a more nuanced
approach to rounding. The Commission has proposed the following rounding scheme:

 Less than one million, round to the nearest 100 thousand;

 Less than 50 million, but greater than one million, round to the nearest million;

 Less than 100 million, but greater than 50 million, round to the nearest 5 million;

 Less than 250 million, but greater than 100 million, round to the nearest 10 million; and

 Greater than 250 million, use ‘‘250+’’.

The key benefit of rounding is that it will provide an appropriate level of anonymity for all
transactions and a degree of protection from front-running 13 for larger transactions.

The proposed rounding scheme, however, does not take into account the particularities of
specific granular categories of swaps. For example, a 10-year Chilean Peso interest rate swap
with notional of $74 million would be considered quite large in today’s market. Yet it would not
be able to benefit from the highest-tier rounding threshold of $250 million. For certain
categories of swaps that are fairly illiquid or trade in much lower notional volume, the highest-
tier rounding threshold of $250 million may be appropriate. Therefore, the Coalition would
suggest a more nuanced rounding scheme that caters to granular categories of swaps and that
leverages SDR data to make a determination of appropriate rounding thresholds, paying
particular attention to the highest-tier threshold.

Topic: Affiliate Swaps

Companies are concerned that intercompany swaps (transactions between affiliated entities under
the same corporate umbrella) potentially could be subject to the real-time reporting requirements.
Many companies have centralized treasury groups where expertise with hedging and hedge
accounting resides. These centralized treasury groups may execute dealer counterparty-facing
transactions, and enter into other, offsetting transactions with affiliates. Such a matching
transaction or back-to-back transaction allows affiliated entities to hedge their commercial risks,

13 For example, if a transaction with a notional size of $575 million was transacted and reported
in real-time (assuming this isn’t a block size trade) without any rounding, then other market
participants could reasonably assume that the swap dealer would soon thereafter offset the
risk by trading related transactions with a combined notional of similar magnitude.
However, in the presence of rounding, market participants would not be able to front-run as
easily given the uncertainty as to the true size of the actual transaction (although front-
running at least $250 million worth of notional is still entirely possible).

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while taking advantage of the efficiency and expertise of a centralized dealer counterparty-facing
treasury group. The Coalition believes the substantive benefit of real-time reporting resides
entirely with the dealer counterparty-facing transaction, whereas the real-time reporting of the
back-to-back transaction between affiliates has no real-time reporting value. Indeed, such
reporting would distort the price discovery process and could actually mislead market
participants as the pricing information would be duplicative and would double count the reality
of what is taking place in the market.

Moreover, the real-time reporting of inter-company swaps would require one of the two affiliated
entities (an end-user) to report the information. End-user companies generally lack the
infrastructure, operational process, and human resources to perform real-time reporting.

Therefore, the Coalition recommends inter-company swaps not be subject to the real-time
reporting requirement.

Topic: Foreign Exchange Swaps and Forwards

The Coalition has urged the Treasury Department to exempt foreign exchange (“FX”) swaps and
forwards from treatment as swaps, including any clearing and margin requirements. Whether or
not they are exempted, FX swaps and forwards must be reported to a SDR, or, if no SDR will
accept the FX swaps and forwards, to the CFTC. 14 They should not, however, be subject to real-
time reporting requirements.

Mandating that FX swaps and forwards be reported in real-time could adversely affect an already
well-functioning market. FX swaps and forwards are different from other “swaps” addressed by
the Dodd-Frank Act and should not be regulated as if they were the same. As Treasury Secretary
Geithner said about regulating FX swaps and forwards during a Senate Agriculture Committee
hearing, “we’ve got a basic obligation to do no harm, to make sure, as we reform, we don’t make
things worse . . . because of the protections that already exist in these foreign exchange markets
and because they are different from derivatives, have different risks, require different solutions,
we’ll have to take a slightly different approach.” 15

The vast majority of FX swaps and forwards (90 percent of interdealer trades 16 ) are settled
through the CLS Bank, which effectively eliminates the primary risk posed by the FX market—

14 Dodd-Frank Act Sec. 721(a)(21) (7 U.S.C. §1a (47)(E)).

15 Over-the-Counter Derivatives: Hearing before the Senate Agriculture, Nutrition & Forestry
Comm., 111th Cong. (Dec. 2, 2009) (Congressional Quarterly transcript) (statement of
Treasury Secretary Timothy F. Geithner).
16 Commission of the European Communities, Staff Working Paper accompanying Commission
Communication, Ensuring Efficient, Safe & Sound Derivatives Markets, at 41 (“CLS is

[Footnote continued on next page]

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settlement risk—among CLS participants. Furthermore, requiring FX swaps and forwards to be
reported in real-time actually could increase systemic risk by making it more difficult for
businesses to convert cash and by deterring prudent FX hedging and risk management.

Conclusion

We thank the Commission for the opportunity to comment on these important issues. The
Coalition and its members look forward to working with the Commission to help implement
rules that will strengthen the derivatives market without unduly burdening business end-users
and the economy at large. We are available to meet with the Commission to discuss these issues
in more detail.

Sincerely,

Business Roundtable
Financial Executives International
National Association of Corporate Treasurers
National Association of Manufacturers
National Association of Real Estate Investment Trusts
The Real Estate Roundtable
U.S. Chamber of Commerce

[Footnote continued from previous page]

currently used for 55% of FX transactions (90% of the interbank market”)),” available at
http://ec.europa.eu/internal_market/financialmarkets/docs/derivatives/report_en.pdf.

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