Washington, D.C. — The Commodity Futures Trading Commission at its open meeting today approved a final rule regarding new capital and financial reporting requirements for swap dealers (SDs) and major swap participants (MSPs). Adoption of this rule marks the completion of the CFTC’s required rulemakings under Section 731 of the Dodd-Frank Act, which was enacted 10 years ago this week.

Final Rule: Capital Requirements of Swap Dealers and Major Swap Participants

On a 3-2 vote, the Commission approved a final rule imposing new capital requirements on SDs and MSPs that are not subject to supervision by a banking regulator, and imposing financial reporting requirements for SDs and MSPs generally. The final rule provides SDs with the option to elect one of three alternative methods to establish and meet minimum capital requirements, depending on the characteristics of their business:

• a net liquid assets method, which is based primarily on existing capital requirements for futures commission merchants (FCMs), and on the capital requirements adopted by the Securities and Exchange Commission for security-based swap dealers and major security-based swap participants;
• a bank-based method, which is based primarily on existing capital requirements for bank holding companies under the supervision of the Federal Reserve Board; and
• a tangible net worth method, designed specifically for SDs which are part of a larger  commercial enterprise.

MSPs are required to maintain positive tangible net worth.

The final rule also makes several amendments to existing capital requirements for FCMs to impose specific requirements for swaps and security-based swaps.

In addition, the final rule includes 1) a comprehensive model approval process; 2) accompanying financial reporting, recordkeeping, and notification requirements; and 3) a substituted compliance determination process for those SDs which may already be required to maintain capital in accordance with a foreign regulator.

This final rule is effective 60 days after publication in the Federal Register. Market participants must be compliant by October 6, 2021.

Additional information on this rulemaking, including statements by the Chairman and Commissioners, can be found here.