O’Melveny’s Traeger Quoted in International Financial Law Review on CFTC New Cleared Swaps Rules

January 20, 2012


O’Melveny & Myers LLP partner Heather Traeger was quoted in the January 20, 2012, International Financial Law Review article, “Why CFTC’s new cleared swaps rules are potentially inadequate.” The article discusses how the controversy surrounding MF Global’s recordkeeping brings to light the potential shortcomings in the Commodity Futures Trading Commission’s (CFTC) Protection of Cleared Swaps Customer Contracts and Collateral rule, which were passed on January 13, 2012.


Traeger, a member of O’Melveny’s Financial Services Practice, participated in the drafting of an Investment Company Institute (ICI) comment letter in support of the legally separated but operationally comingled (LSOC) model as a member of ICI’s Derivatives Markets Advisory Committee. Traeger told IFLR “the protection benefits of the full physical segregation model did not justify increased operational costs which could be passed on to investors.” Continuing, she said, “You have a potential increase in costs related to initial margin, guaranty fund contribution levels, establishing multiple accounts, and limiting the [futures commission merchant] FCM’s flexibility to invest customer collateral because it has been segregated with a third-party custodian” and notes they will continue to seek other methods to make ends meet. 


As a solution, Treager pointed out that in “opting for the LSOC model, the CFTC will need to work with DCOs and FCMS in monitoring compliance of recordkeeping requirements to ensure portability of swap positions in cases of insolvency.” Furthermore, she advised that it is necessary that the “CFTC examine the futures model for protecting customer collateral and determine whether there need to be modifications, and going forward whether there are areas that should be incorporated into both the futures and the swaps regimes.”


Traeger is resident in the Firm’s Washington, DC office.