December 2, 2016

CFTC Unanimously Approves Proposed Rules Establishing Swap Dealer and Major Swap Participant Capital Requirements

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today unanimously approved proposed rules establishing swap dealer (SDs) and major swap participant (MSPs) minimum capital requirements. As required by the Dodd Frank Wall Street Reform and Consumer Protection Act, the rules propose minimum levels of qualifying capital for SDs and MSPs that are not subject to the capital rules of a prudential regulator.

The proposed rules generally permit the application of alternative approaches based upon existing U.S. bank regulators’ capital requirements or the CFTC’s future commission merchant and the Securities and Exchange Commission’s broker-dealer net liquid asset capital requirements. The proposal further provides that SDs predominantly engaged in non-financial activities and MSPs may elect minimum capital requirements based upon the tangible net worth of the entities. Also, SDs may use internal models for purposes of computing their regulatory capital, subject to prior approval by either the CFTC or the National Futures Association. The rules would also require certain SDs and MSPs to satisfy defined liquidity requirements.

In addition, the rules also propose recordkeeping, reporting and notification requirements for SDs and MSPs relative to their respective capital requirements. The proposal would also allow the CFTC to issue capital comparability determinations to foreign jurisdictions or foreign SDs under a program of substituted compliance. The CFTC had proposed SD and MSP capital requirements in 2011, but as global consultation on appropriate margin standards for uncleared swaps was proceeding, no further action was taken. Since the CFTC’s margin requirements are now final and being implemented, the CFTC is re-proposing capital standards for SDs and MSPs. The proposed rules are required to be implemented under sections 4s(e) and (f) of the Commodity Exchange Act, as added by Section 731 of the Dodd-Frank Act.

The comment period for this proposal will be open for 90 days following the publication in the Federal Register.

Last Updated: December 2, 2016