Metropolitan Life Insurance Company

IO Park Avenue, Morristown, NJ 07962

Kevin M. Budd
Associate General Counsel
MetLife
Tel 973-355-4985
kbudd@metlife.com

Todd F. Lurie
Assistant General Counsel
Tel 973-355-4368
tlurie@metlife.com

March 8, 2011

Mr. David A. Stawick

Secretary, Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581

Re: RIN 3038 - ADt8 Core Principles and Other Requirements for Swap Execution
Facilities

Dear Mr. Stawick:

MetLife welcomes the opportunity to comment on the proposed regulations regarding Core
Principles and Other Requirements for Swap Execution Facilities (the "Proposed Rules"), which
include Regulations, Guidance, Acceptable Practices and Core Principles for Swap Execution
Facilities (each, a "SEF"), issued by the Commodity Futures Trading Commission (the
"Commission") in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection
Act ("Dodd-Frank"). In particular, MetLife wishes to comment on certain Sections of the
Proposed Rules related to; (1) Permitted Execution Methods, including Request-for-Quote
("RFQ") platforms, (2) regulatory determinations required to be made by SEFs, including
determination of block sizes and when a swap is made "Available for Trading" , and (3) the
delegation of audit and enforcement obligations to each SEF that positions each SEF as a de facto
Self-Regulatory Organization with respect to its market participants.

Metl.ife, Inc. is the holding company of the MetLife family of insurance companies. The MetLife
organization is a leading provider of insurance, annuities and employee benefit programs, serving
90 million customers in over 60 countries. MetLife holds leading market positions in the United
States (where it is the largest life insurer based on insurance in force), Japan, Latin America, Asia
Pacific, Europe and the Middle East. MetLife, Inc. is a public company, registered under the
Securities Act of 1934 and has securities listed on the New York Stock Exchange.
Summary

MetLife is providing this comment letter from the perspective of an active end-user of financial
derivatives that appropriately uses these instruments to continuously and systematically hedge the
risks associated with its investment portfolio and insurance product liabilities, such as hedging of
equity and interest rate risks associated with our global variable annuity products. MetLife's
continued ability to manage financial risks through the use of derivative hedges is an important
component in our risk management framework that allows us to offer a broad range of insurance
products to our customers. To the extent MetLife's costs of hedging these insurance products
increases, a portion of such costs is likely to be passed on to our customers in the form of higher
premiums and in some cases, we may no longer offer certain insurance products.

MetLife recognizes the public policy purposes embodied in the Proposed Rules and supports the
goals of market transparency and price discovery, while expanding liquidity. However, we are
also concerned that the restrictions on RFQ platforms, difficulties associated with swap-related
determinations that will be required of each SEF, and the increased reporting, oversight and
enforcement obligations imposed on SEFs in the Proposed Rules will; (1) increase market risk and
intermediation costs to market participants, which will translate into increased hedging (including
transactional) costs passed through to end-users such as MetLife, (2) materially decrease market
liquidity in various derivative products, in each case, contrary to the specific provisions of
Sections 2(a)(13)(C) and 2(a)(13)(E), of the Commodity Exchange Act (the "CEA") and (3) fail to
protect anonymity of customer proprietary product information and hedging strategies.

MetLife appreciates the effort and consideration that the staff of the Commission has dedicated to
developing the Proposed Rules. Efficient, well-structured trading platforms with appropriate
reporting requirements will increase market confidence, and liquidity and MetLife is supportive of
these efforts.

For the reasons set forth below, we respectfully recommend certain modifications to the Proposed
Rules that will address each of MetLife's concerns:

Permitted Execution Methods

MetLife believes that the Proposed Rules generally implement the statutory directive that SEFs
provide multiple participants with the ability to execute or trade swaps by accepting bids and
offers made by multiple participants in an RFQ or order book. MetLife fully supports the
inclusion of Central Limit Order Books, RFQ systems and any other systems as may be approved
by the Commission, as Permitted Execution Methods under the Proposed Rules. MetLife believes
that it is important for non-dealer market participants to have the ability to request quotes from
multiple participants, make any bid or offer transparent to the entire market and receive resting,
executable bids and offers as well as indicative quotes. However, such non-dealer market
participants should not be required to do so and, in particular, should not be obligated to give
priority to, or execute upon, any resting indicative quotes or executable bids or offers.

MetLife strongly disagrees with the Commission's proposal that participants be obligated to
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request quotes from at least five market participants, as such requirement is likely to lead to
decreased liquidity and increased bid/ask spreads for non-swap dealers. Dodd-Frank defines a SEF
as "a trading system or platform in which multiple participants have the ability to execute or trade
swaps by accepting bids and offers made by multiple participants in the facility or system."
Clearly, an RFQ platform that that provides the option, but not the requirement, to disseminate
RFQ's to multiple market participants satisfies the SEF definition. Non-dealers should have the
flexibility to determine the appropriate number of respondents for a particular trade, which could
vary based on the size and liquidity of the trade and such participants priorities. For example,
disclosure of hedging strategy/signaling to the marketplace may be a concern to MetLife on certain
trades, while price discovery and maximum liquidity may be a priority on other trades).

MetLife believes that the requirement that participants solicit bids and offers from at least five
swap dealers would not only fail to meaningfully increase price discovery, but would likely
diminish it, particularly in markets with a limited number of market makers. As the Commission
has acknowledged in other rulemakings, swap dealers that effectively act as liquidity providers by
agenting swaps for "natural long" customers, such as MetLife, hedge the risk of their customers'
trades by entering into additional, offsetting transactions. Disclosure of a large expected trade by
RFQ to five swap dealers would likely result in a material widening of bid/ask spreads and increase
hedging costs, as swap dealers will pass on to their customers the cost of protecting themselves
against potential adverse price movements due to pre-trade transparency. In some circumstances,
swap dealers may decline to provide quotes, further reducing liquidity.

For cleared derivatives markets to work effectively, market participants should not be exposed to
increased hedging costs resulting from a substantially higher risk of "front running" and/or a
reduction in liquidity. Accordingly, customers should not be required to disclose their positions or
trading strategies to multiple swap dealers. Consequently, customers should not be required to
make RFQs available to the broader marketplace either pre- or post-trade as such information will
lead to adverse price movements and increased costs to customers. We urge the Commission to
adopt the analogous proposal made by the Securities and Exchange Commission (the "SEC"), as
well as other commentators, allowing non-dealer market participants to independently determine
the number of swap dealers from whom to solicit bids and offers.

Furthermore, non-dealer market participants should have the right to receive executable
bids/offers, but such unsolicited bids/offers should not be given priority over requested quotes, and
non-dealers should not be required to execute on the basis of any such unsolicited bid or offer. A
requirement that non-dealers execute on the basis of unsolicited bids/offers will result in a
substantial increase in the a number of execution relationships and documentation required for
trading and will undermine any pricing efficiencies that result from having a limited number of
execution relationships with swap dealers. A regulatory and compliance conflict could arise if
regulated end-users, such as insurance companies, are required to execute on unsolicited, resting
quotes provided by participants that do not satisfy credit rating criteria mandated by insurance
regulators. Credit considerations remain relevant even in a cleared trade environment because not
all swap execution facility trades will necessarily be subject to central clearing and, in any event,
some bilateral obligations will arise in relation to any trades that fail to clear as expected.

In order to adhere to the "by any means of interstate commerce" clause of Dodd-Frank, we also
believe that RFQ should be available for all swaps that are made "Available for Trading" through a
SEF. Limiting trading to a Central Limit Order Book for more frequently traded swaps would be
inconsistent with the "by any means of interstate commerce" clause," will not contribute price
discovery or pre-trade transparency for swaps, and should therefore be rejected.

Market Regulatory Determinations to be Made by each SEF

As a general matter, MetLife believes that SEFs are not the most appropriate choice for
independently making regulatory determinations with respect to whether; (1) any particular swap
should be deemed as "available for trading" or (2) a minimum swap size qualifying as a "block
trade" for the purposes of trade execution and real time public reporting requirements.

Under Dodd-Frank and the Proposed Rules, a swap is required to be executed on a SEF or a
registered designated contract market (a "DCM") only if a SEF or DCM makes such swap
"available for trade." MetLife believes that the determination of "availability to trade" should not
be made by a SEF independently and in its sole discretion, but rather in accordance with standard
objective criteria, established by the Commission through the rule-making process. In addition to
a SEF demonstrating compliance of any proposed swap instrument with each criterion
promulgated by the Commission, the determination as to whether a swap is "available for trading"
should also be subject to Commission approval taking into consideration public comment as well
as a reasonable waiting period before any such determination becomes effective. The
determination of availability to trade in accordance with the Commission's uniform standards,
rather than in a SEF's sole discretion, would ensure that trading in any particular swap is not being
commenced prematurely before a SEF successfully demonstrates that a liquid market for such
swap in fact exists. Uniform standards administered by the Commission would also enhance
product standardization. In addition, institution of an adequate waiting period of at least 180 days
before effectiveness of the "availability to trade" determination would allow for greater
competition among SEFs. This would be accomplished by limiting a SEFs ability to compel
market participants to trade newly approved trades on a specific SEF, as well as providing a
meaningful opportunity for market participants to make any related technological and trading
strategy amendments.

MetLife has similar concerns with respect to the authority granted to SEFs and DCMs under the
Proposed Rules in setting the minimum block trade size for any swap contract traded on these
facilities. We believe that in light of block trade exemptions from certain real time public
reporting requirements, the determination of the appropriate block size thresholds is of particular
importance and should be made by the Commission in accordance with objective criteria, rather
than by each individual SEF and DCM in their own discretion. We believe that the relatively large
number of SEFs (35-40 expected) would likely result in SEFs having fragmented access to data
making it difficult for any particular SEF to adequately assess the available liquidity and accurately
calibrate the block size thresholds. Rather, the block levels should be determined in accordance
with the Commission's standard criteria and further subject to the evaluation by the Commission,
both at the time of the initial determination and subsequently. This issue is of particular
importance to MetLife as we remain concerned that the multipliers determining size of trades to be
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treated as Block Trades pursuant to the Distribution and Multiple Tests in Proposed Rules 43.5(g)
(i) and (ii) are too restrictive and will result in the real-time disclosure of transactions that would
likely impact the market. The legislative history of Dodd-Frank indicates that Congress understood
that Block Trades are very common in the securities and futures markets. MetLife respectfully
suggests that the static Distribution Test in Proposed Rule 43.5(g) (i) should be reduced to an
initial 50% to be consistent with the Congress' intent. Similarly, the five (5) times Multiple Test
in Section 43.5(g) (ii) should be reduced to an initial 1.5X. The time period for Public Reporting
of Block Trades and Large Notional Amount Trades would be adjusted pursuant to the following
table:

Social Size/Multiple Distribution Test Public Reporting Time

Delay
Greater than 1.5X, but less Greater than 50%, but less 4 hours
than 2X than 60% of Reported
Trades
Greater than 2X, but less 60%, but less than 70% of 8 hours
than3X Reported Trades
Greater than 3X, but less 70%, but less than 80% of 12 Hours
than4X Reported Trades
Greater than 4X, but less 80%, but less than 90% of 16 Hours
than 5X Reported Trades
Greater than 5X, but less 90%, but less than 95% of 20 Hours
than 6X Reported Trades
Greater than 6X Greater than 95% 24 Hours

For example, a trade that was 2.5X the "Social Size" Test and was larger than 55% of the
Distribution of Trades would be required to be publicly reported within 4 hours of execution.

Swap Data Reporting

MetLife is also concerned that requiring SEFs to report swap trade information to a Swap Data
Repository (an "SDR"), as set out under the Proposed Rules, will lead to unnecessary confusion
and inconsistency to the extent that SEFs report trade data in different formats, which may overlap
or be inconsistent with the reporting requirements applicable to registered derivatives clearing
organizations ("DCOs"). The relatively large number of expected SEFs compared to DCOs for
each Major Swap Category (currently fewer than five), could result in inconsistent and inaccurate
data reporting by SEFs and suggests that compliance with such requirements would be better
centralized at the DCOs, rather than at each SEF. We believe that DCOs, which are subject to
stringent risk management requirements and have access to substantial risk management resources,
will be in a more advantageous position than SEFs to obtain, analyze and disseminate trade data,
particularly with respect to post-trade amendments (e.g., allocations among portfolio insurance
companies and families of mutual funds) ..

If SEFs would ultimately be tasked with swap data reporting and dissemination, each SEF should
be required to display prices of all swaps available for trading on that SEF by sub-asset class and
tenors, beginning with spot transactions. In addition, all-in fixed swap rates and swap spreads both
should be displayed using the market-standard conventions.

Compliance and Enforcement Obligations of SEFs

Limited SEF Membership. In the over-the-counter derivatives markets, non-swap dealers have
traditionally had access to the market place and pricing without having to resort to third-party
intermediaries. MetLife believes that allowing non-dealers to continue to independently access the
market information would alleviate the transaction costs imposed on such market participants and
reduce the risks associated with the disclosure of sensitive information to the dealers, including the
potential for front running and any abusive uses of insider information. MetLife suggests that each
SEF should be required to offer restricted membership to non-dealer market participants, which
would be limited solely to accessing the pricing information and RFQ solicitation. The
Commission should limit a SEF's jurisdiction over any such restricted member and expressly
indicate that such restricted membership would not subject its holder to the regulatory burden
imposed on dealer participants, including any recordkeeping, audit or reporting requirements.
Further, the Commission should provide that a SEF would have no enforcement authority over
such restricted members.

Cooperation among SEFs. MetLife commends the Commission for its attempts to address
abusive trading practices in § 37.203(a) and recommends that the Commission adopt flexible
practices that recognize the broader range of aTC cleared swaps compared to traditional DCM­
traded contracts which are generally more limited. To the extent that SEFs are required to conduct
market surveillance and do not have the ability to utilize regulatory service providers for such
functions as specified in § 37.204, sharing of information in real-time among SEFs should be
required.

Segregation between commercial and regulatory functions. MetLife agrees that SEFs should be
subject to the detailed disciplinary procedures in the Proposed Rules, including procedural
safeguards for respondents and a clear separation between SEF personnel recommending the
issuance of charges, review panels determining whether charges should be issued, and hearing
panels adjudicating cases on the merits. The Proposed Rules create the opportunity for abuse by
SEFs of their broad enforcement powers and could have the unintended consequence of allowing
SEFs to deny or suspend access via disciplinary or emergency procedures that would allow
discrimination by a SEF against competitors for inappropriate business reasons. MetLife believes
that a more streamlined disciplinary process that features a robust staff summary fine program,
rather than formal disciplinary hearings, could also lead to abuses and discrimination by SEFs
which would be inconsistent with the Core Principles that the Commission seeks to implement.
Similarly, an enforcement regime that calibrates financial penalties to the financial resources of the
respondent could lead to the unintended consequence of punishing larger participants
disproportionately to smaller participants and provide a further disincentive to reduce the capital
and assets held by such respondents.
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Conclusion

In conclusion, MetLife respectfully submits that best practices, customer interests and fundamental
fairness call on the Commission to distinguish the underlying customer protection concerns set
forth under the SEF Core Principles and other sections of the Proposed Rules and permit non-swap
dealers the opportunity to receive the broadest range of executable and indicative bids and offers
without (1) compromising the flexibility to determine the number of quotes requested for a
specific trade, (2) compelling such derivatives users to enter into transactions with an unsuitable
counterparty or (3) incurring any undue increase in the costs oflegitimate hedging. Similarly,
MetLife believes that determinations of whether a swap is "Availablefor Trading" should be made
in accordance with the Commission's standards and be further subject to the Commission's review
and public comment and that minimum Block Trading Size should also be determined by the
Commission in accordance with the standards proposed in this comment letter and our previous
comment letter.

Further, MetLife believes that (1) swap data reporting requirements should be standardized and
that the DCOs should be the primary reporting entities, (2) SEFs should be required to offer non­
dealers limited access membership arrangements, which relieve such members ofthe burden of
SEF compliance and enforcement, (3) SEFs should be required to share market surveillance
information on a real-time basis with other SEFs and (4) there must be a clear distinction between
a SEF's commercial operations and its regulatory function.

MetLife is pleased to be able to continue to participate through the comment process in the
framing of this critical new regulatory framework. Please feel free to contact either of us at the
email addresses above if you have any questions regarding this comment letter.

Todd F. Lurie