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SEC Proposes Capital and Margin Rules for SDs and MSPs (with Lofchie Comment)

The SEC voted unanimously to propose capital, margin, and segregation requirements for security-based swap dealers and major security-based swap participants in order to regulate the over-the-counter swaps markets, as required by Dodd-Frank.

The SEC's proposed rules are intended to accomplish the following:

  • Set minimum capital requirements for security-based swap dealers and major security-based swap participants.
  • Establish margin requirements for security-based swap dealers and major security-based swap participants with respect to non-cleared security-based swaps.
  • Establish segregation requirements for security-based swap dealers and notification requirements with respect to segregation for security-based swap dealers and major security-based swap participants.

The attached materials provide some basics as to the rule proposals. One interesting question posed in the summary materials below is whether dealers should be required to post initial margin to each other.

Lofchie Comment: I have not yet seen the full release and thus I don't feel that any comment on the substance of the rule proposal would add that much to the SEC's attached fact sheet. There is not enough detail in the fact sheets for me to tell how the rules apply to swaps involving illiquids or products such as variance/volatity/dividend swaps. The next two news stories provide the statements of various of the SEC Commissioners. I think some of what Chairman Schapiro says is particularly interesting, but again the detail is limited. (You should definitely check out the graphic prepared by the SEC for the event to show off its progress on swaps rulemaking (its linked from the box below and its very cute.)

See: Press Release and FAQ; The Regulatory Regime for Security-Based Swaps (graphic).

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