US life insurers met with CFTC chief to seek more anonymity in industry’s long-term liability hedges

28 August 2020 21:02 by Neil Roland

silhouette anonymity

US life insurers met with Commodity Futures Trading Commission chief Heath Tarbert this month to seek more anonymity in using large, privately negotiated futures contracts to hedge unusual liabilities that can exceed 30 years.

MetLife, Prudential and New York Life faulted the CFTC plan to increase the transparency of these huge block trades that the industry relies on to customize complex hedges that can take days or weeks to execute, according to a CFTC document.

The insurers homed in on the agency’s proposal to allow two-day reporting delays for long-term swaps and referred to an industry letter that recommended 15-day deferrals, especially in illiquid markets with fewer traders.

With just a two-day delay, “our anonymity would be compromised,” the American Council of Life Insurers, who also was represented at the meeting, said in the May letter. “Life insurance companies would not be able to fully execute a strategy of any significant size without the market moving against us.”

That means that prompt disclosure of traders’ identities can enable others to step in front of them at better prices before the original parties can complete their hedges, insurers have said.

At the meeting with Tarbert, the insurers also sought a reduction in the proposed minimum-size thresholds for long-term swaps that qualify for special block-trade treatment, according to the CFTC document.

“We would welcome the commission to engage in more in-depth conversations with market participants and, in particular, with end-users that are commercially hedging, to tailor how block trades should be sized and avoid unintended, negative consequences,” the May letter said.

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