Subject: File No. S7-02-10
From: Suzanne Shatto

October 12, 2012

Analysis: Commodity exchange battleground switches to "swaps"

By Ann Saphir

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tomorrow, tomorrow.

this needs to happen. and brokers need to put up sufficient capital. switching swaps to futures is a short-term answer for the stock market. brokers will still have to put up sufficient margin. with futures, the margin has to be allocated and sustained over the life of the contract. and clearinghouses need to subtract liability for transactions from the margin that brokers put up. if they want a future contract, this futures contract should tie up margin for the length of the contract. so this should force some financial change in the financial markets. the regulators need to make sure that the clearinghouses are properly decrementing margins for trades. it is not enough to settle differences week by week.

can one futures trade balance another futures trade? it would seem that they don't, since their transactions are with different counterparties that expose the clearinghouse to risk. so, if someone purchased a contract for $100, and they sold another contract for $100, this exposes the clearinghouse to $200 in risk. there is a question whether the clearinghouse has enough assets to be on both sides of the trade, which was the reason the clearinghouse was created. i don't think that the customer who has two transactions for $100 can claim one cancels another, but should put up margin sufficient to cover both of them.

do equities IOUs count as futures? equity IOUs are created to avoid market deadlines, are failures to deliver. should equities be stripped out of these swaps?

so do these futures contract now not count as covering shares that have not been purchased? it would seem that they don't, since moving a futures contract moves the deadline past those required in the equities/options market.

will a brokers' auditors be allowed to see the transaction details?

Bank of China executive warns of shadow banking risks

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transition to capitalism means they have to deal with fraud that seems to attach itself to capitalism if there is lax regulation (as the world does).