Chris Kirkpatrick
Secretary
Commodity Futures Trading Commission
1155 21st Street, NW
Washington, DC 20581

Re: Capital Requirements for Swap Dealers and Major Swap Participants; RIN 3038-AD54

Dear Mr. Kirkpatrick:

The Securities Industry and Financial Markets Association (“SIFMA”) 1 welcomes the opportunity to provide the Commodity Futures Trading Commission (the “CFTC” or the “Commission”) with comments on the Commission’s reproposed capital and liquidity requirements, and related financial reporting and recordkeeping requirements (the “Proposal”), 2 that would be applicable to swap dealers (“SDs”) and major swap participants (“MSPs”). The Proposal would also revise the capital requirements now in place for Commission-registered futures commission merchants (“FCMs”) that are involved in swap transactions even if not registered as SDs. SIFMA greatly appreciates the Commission’s efforts to craft capital requirements for those SDs that are not subject to the capital requirements of the Prudential Regulators3 (such firms, “CFTC Capital SDs”).

Alternative Approaches to Capital Compliance. SIFMA wishes to make particular recognition of the efforts that the Commission has undertaken in providing two principal sets of options by which a CFTC Capital SD may calculate its capital requirements: (i) one based on the “liquid assets capital approach” (the “LAC Approach”) that is a modification of the rules that currently apply to FCMs and securities broker-dealers, and (ii) the other based on the “riskweighted assets approach” (the “RWA Approach”) to which U.S. and non-U.S. banks and their affiliates are generally subject under the Basel capital guidelines.4

SIFMA also appreciates that the Commission has indicated that it will make available to a non-U.S.-organized and -domiciled CFTC Capital SD (a “Foreign SD”)5 the ability to meet its capital requirements through“substituted compliance”; i.e., through compliance with the capital requirements of its home or host country regulator. Providing these alternative approaches to meeting capital requirements (the LAC Approach, the RWA Approach and substituted compliance) will offer each CFTC Capital SD the ability to implement the approach that is best tailored to its business and is most likely to be consistent with the way that it currently calculates capital whether in the SD itself, in an affiliate or at the holding company level.

Continue Reading >