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CFTC DSIO Director Indicates SD Capital Reproposal Coming Soon's picture
Commentary by Nihal Patel

CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") Director Joshua B. Sterling highlighted a number of regulatory issues for swap dealers being considered at the CFTC.

Capital Requirements. Mr. Sterling indicated that the CFTC staff is considering the SEC-adopted capital requirements, and will complete that process "in the coming weeks." However, he said that CFTC staff intends to recommend re-opening the comment period for the CFTC capital rules (given that the proposal was published in 2016) to ask "very directed questions," with the aim of adopting rules next year.

Supplemental Leverage Ratio. Mr. Sterling expressed his general agreement with past efforts by CFTC leadership to push for changes in the way the supplemental leverage ratio impacts the cleared swaps markets. Mr. Sterling, in particular, highlighted a June Basel Committee action that suggests bank regulators are reconsidering the matter.

Uncleared Swaps Margin. Mr. Sterling noted that the CFTC has already undertaken measures to address possible "congestion" for implementation of initial margin requirements in September 2020 and highlighted a recent DSIO letter regarding documentation requirements as initial margin rules are implemented.

Benchmark Reform. Mr. Sterling said that the CFTC staff has worked with U.S. banking regulators to address concerns relating to "legacy" status of certain swaps and treatment under margin requirements as a result of benchmark reform-related amendments.

FCM Customer Margin Permitted Investments. Mr. Sterling pointed out that DSIO is considering an industry request to expand the list of permitted investments in which futures commission merchants ("FCMs") may invest customer margin funds, in particular to align FCM requirements with an exemption given to derivatives clearing organizations relating to foreign sovereign debt.

Mr. Sterling's comments were given in a speech before the ABA Securities Association.


Mr. Sterling's comments cover a lot of ground, but perhaps the most significant point is that the CFTC staff is looking further down the line for implementing capital requirements for swap dealers. Even assuming a relatively speedy process following a reproposal in the coming weeks, the CFTC will have a healthy amount of comments to consider before moving to finalizing and implementing the rules.

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