External Meetings: Meeting with PIMCO

PIMCO is a large asset manager representing millions of individuals and corporate clients, endowments, universities, and municipalities. They are not a dealer and do not have a proprietary book.   ~ ~PIMCO is concerned about three areas of the real-time reporting proposed rule:  (1) the definition of “block-trade”; (2) the rounding methodology; and (3) the proposed time delay.  In addition, PIMCO suggested that there would be unintended consequences if the rule was implemented as proposed.   Specifically, they expressed a general concern that swap dealers may not offer as aggressively because they fear they can’t make money because of front-running.  Therefore, concern that these swap dealers will charge PIMCO and, in turn, PIMCO’s clients, more than they are currently being charged. ~ ~Definition of “Block Trade”~(i) The proposed rule’s distribution test (i.e., current 95% methodology), which is based off a study of the futures market, is not an accurate reflection of the swaps market.  ~(ii) Suggestion: Trades which represent a notional or principal amount that is greater than 2/3 or 45% of the notional or principal transaction sizes in a swap instrument during the applicable period of times should be considered a “block trade.”~ ~Rounding Methodology~(i) The proposed rule’s “250+” rounding methodology does not work for every asset class because not every asset class is homogeneous.  Therefore, the final rules rounding methodology should be more granular.~(ii) Suggestion:   Short term, intermediate, and long term buckets.~(a)  Suggest IR swaps have 4 or 5 buckets: 0-2 years, 2-5 years, 5-7 years, 7-12 years, 12+ years buckets.~(b) Suggest 3-5 years buckets for Credit Swaps such as differentiating high-yield versus investment grade CDS, index versus single-name CDS;~(c) Commodities buckets should probably be broken down by the difference in products (i.e., Metals, Energy-type items, Food, etc.).~(iii) Anonymity – they suggested that  for interest rate swaps, a 25 bp spread should adequately protect the anonymity of the counterparties.   ~ ~Time Delay~(i) 15 minutes is too short a time, even given changes in the block definition and rounding methodology.~(ii) Some trades takes hours, some take days or even longer for the dealer to cover.  Such added risk will be passed onto PIMCO’s clients.~(iii) Suggests the SEC’s approach may be appropriate and believes 24 hours may be an appropriate “one-size- fits-all” time delay.~ ~Phase-In Implementation~Too much transparency too soon can frustrate the CFTC’s policy goals.~ ~Miscellaneous~(i) Notes that the block definition and rounding methodology are the issues they are most concerned about for the RTPR.~(ii) Believes that when a swap dealer holds onto risk for 48+ hours, such risk becomes proprietary.