Capital, Margin and Segregation Requirements for SBSDs and MSBSPs

The Asset Management Group (AMG) of SIFMA provides comments to the Securities and Exchange Commission (SEC) on proposed capital, margin and segregation requirements for security-based swap (SBS) dealers and major security-based swap participants (MSBSPs), RIN 3235-AL12.

SIFMA AMG’s recommendations include:

• SBS collateral requirements should be bilateral at the election of the non-SBS Entity counterparty.  To the extent that the CFTC requires SBS Dealers to collect collateral, the Commission should also require SBS Dealers to post collateral to a counterparty upon the election of such counterparty.
• The amount of collateral that an SBS Dealer is required to collect from financial end user counterparties to protect against potential future exposure should vary based on the potential future exposure risk posed by the financial end user and the type of end user.
• The margin amount calculation methodology in the Proposal should be substantially revised.
  • The CFTC should permit the use of margin models to the greatest extent possible, including allowing all SBS counterparties to use models and permitting the use of models for both debt and equity SBS.
  • Models used to calculate margin requirements should be required to include liquidation time horizons for non-cleared SBS at a 99% confidence interval over a horizon of less than ten days.
  • The CFTC should require that financial end users be able to independently verify the calculation of margin amounts.
• A counterparty’s decision to exercise its right to third-party segregation should not result in an increased capital charge to the SBS Dealer.
• The CFTC should ensure that all counterparty collateral held by an SBS dealer through the proposed “omnibus segregation” model be protected from the risk of default of other counterparties of the SBS dealer.