CFTC Proposes Revisions to Capital and Financial Reporting Rules for Swap Dealers

The CFTC proposed amendments to rules that impose minimum capital requirements and financial reporting obligations on swap dealers and major swap participants.

The amendments would modify certain of the capital and financial reporting rules applicable to swap dealers and to futures commission merchants ("FCMs") by codifying parts of CFTC Letter 21-15 ("Staff Interpretation Regarding Tangible Net Worth Net Capital Computation and Financial Reporting for Swap Dealers and Major Swap Participants") and CFTC Letter 21-18 ("Time-Limited No-Action Position for Bank Swap Dealers from certain Financial Reporting Requirements") and its successor No-Action Letter 23-11 (regarding alternative financial reporting by SDs subject to the capital requirements of a prudential regulator). The changes to the capital rules apply only to swap dealers that are not banks (i.e., the prudential regulators have authority over the capital of banks that are swap dealers), and those changes apply only to nonbank swap dealers that are permitted to compute their capital using the "Tangible Net Work Capital Approach." The approach is only permitted to those nonbank swap dealers that are primarily engaged in non-financial activities.

For nonbank swaps dealers, the proposed changes include that additional public disclosure of financial information would be required, capital requirements would be raised to include a percentage of unclear swap margin (this requirement would apply to FCMs as well), notice to the regulators would be required of firms that had substantial reductions in their capital and the use of subordinated debt to increase capital would be subject to regulatory approval.

For bank swap dealers, particularly foreign bank swap dealers, the proposals would make the CFTC's financial reporting requirements consistent with those of the bank's principal regulator.

Comments are due by February 13, 2024.