Statement of Chairman Timothy Massad on the Proposed Rule Setting Capital Requirements for Swap Dealers and Major Swap Participants

December 2, 2016

I support the proposed rulemaking the Commission unanimously approved today.

Capital requirements for swap dealers are among the most important reforms of the over-the-counter swap market agreed to by the leaders of the G20 nations in 2009. They complement margin requirements for uncleared swaps, which the Commission finalized earlier this year. While margin is the front line defense against a default, adequate capital is critical to the ability of swap dealers to absorb losses.

One of my priorities this year has been to issue a reproposal of our rule setting these capital requirements. Our original proposal was issued at a time when margin requirements for uncleared swaps had not yet been established and bank capital rules were still being finalized. It is important that our rules are harmonized with prudential requirements, which is why it was appropriate to update and repropose our rule.

As with margin, the law provides that swap dealers for which there is a prudential regulator shall comply with the capital rules of the prudential regulators, and the CFTC must adopt capital rules for all others. Because capital requirements are entity-wide, and not specific to transactions, I believe the requirements should take into account the fact that there are different types of firms that act as swap dealers—such as bank affiliates, broker-dealers, futures commission merchants and others primarily engaged in non-financial activities. Requiring all firms to follow one approach could favor one business model over another, and cause even greater concentration in the industry.

The reproposal we have approved today recognizes this diversity. It supports competition as well as safety and soundness, by providing three different approaches. First, for swap dealers that are affiliates of prudentially regulated firms, the proposal permits them to use a method based on that of our banking regulators. Swap dealers that are also broker-dealers can use an approach that is based on the Securities and Exchange Commission’s net liquid assets approach. And for those dealers that are engaged primarily in non-financial activities, we have proposed a third approach based on net worth. And we have harmonized these requirements, where appropriate, with the capital rules of our prudential regulators and the Securities and Exchange Commission.

I thank the CFTC’s hardworking staff for the significant time and effort they have devoted to this rule. I thank my fellow Commissioners for their support of this measure. And I encourage public comment on this proposal.

Last Updated: December 2, 2016