The Managed Funds Association has submitted a comment letter to the US Securities and Exchange Commission calling for the proposed custody rule to be withdrawn and only re-proposed after addressing fundamental flaws with the proposal and conducting a thorough cost-benefit analysis.
The Managed Funds Association (MFA) has submitted a comment letter to the US Securities and Exchange Commission (SEC) calling for the proposed custody rule to be withdrawn and only re-proposed after addressing fundamental flaws with the proposal and conducting a thorough cost-benefit analysis.
MFA believes the current proposal is overly broad and could have negative implications across various financial markets.
MFA argues that the proposal has the potential to significantly disrupt crucial financial markets such as credit markets, prime brokerage, over-the-counter (OTC) derivatives, and commodities markets. The proposal could also substantially change the way transactions are conducted in these and other asset classes, in ways that the SEC has inadequately examined or overlooked entirely.
MFA highlights that the proposal to extend safekeeping requirements to all asset classes lacks evidence of widespread weaknesses or risks in current custodial practices for traditional assets. The letter points out that the SEC is requiring custodial services that are currently unavailable or limited, yet is also demanding compliance within twelve months.
The letter calls on the SEC to withdraw the proposal. However, if the SEC intends to re-propose the rule, MFA’s comment letter offers numerous substantial adjustments that would help alleviate the undue burdens and excessive costs of the current proposal.
MFA writes that the SEC has failed to conduct an adequate cost-benefit analysis of the impact of the proposed custody requirements on certain asset classes. The association also argues that the proposal, when applied to bilateral financial contracts and collateral in margin accounts, would not only be challenging to put into practice but also excessively cumbersome.
MFA notes that the proposal fails to adequately consider the application of safekeeping requirements to loan agreements and syndicated loan markets and that the proposal would fundamentally disrupt critical commodities markets.
