SEC Staff Issues FAQ on SBS Margin, Capital and Segregation Rules

In new guidance, the SEC Division of Trading and Markets staff addressed the application of financial responsibility requirements (margin, capital and segregation) to security-based swap ("SBS") activities.

The FAQ covers a number of issues, including:

• the use of a single reserve computation under SEC Rule 15c3-3 for broker-dealers (whether or not registered as a security-based swap dealer ("SBSD")) transacting an SBS;

• applications for use of a good "control location" for SBS customer excess collateral under the segregation requirements of Rules 18a-4(b)(2)(v) and 15c3-3(p)(2)(ii)(E);

• the application of Rules 18a-4 and 15c3-3 to variation margin owed to but not called for by an SBS customer;

• use of the "risk margin amount" (for firms authorized to use models to compute deductions for credit risk under Rule 18a-1(d) or 15c3-1e(d)) under Rule 18a-1(c)(6)(ii) or 15c3-1(c)(17)(ii) rather than the "initial margin amount" for purposes of net capital deductions until September 1, 2022;

• whether a firm can use the CFTC-standardized initial margin "grid" amount rather than Rule 18a-3(d)(1); and

• a series of technical questions relating to information to be filed on Form X-17A-5 (FOCUS Report) Part IIC by bank SBSDs.