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SEC Adopts New Capital, Margin, and Segregation Requirements; Amends Capital and Segregation Requirements for Broker-Dealers

June 24, 2019, 09:00 AM
Filed Under: Regulatory News

The Securities and Exchange Commission took another significant step toward establishing the regulatory regime for security-based swap dealers today by adopting a package of rules and rule amendments under Title VII of the Dodd-Frank Act.  These and other rules previously adopted by the Commission are designed to enhance the risk mitigation practices of firms that stand at the center of our security-based swap market, thereby protecting their counterparties and reducing risk to the market as a whole.

“I once again would like to thank Commissioner Peirce for her excellent leadership on our efforts to stand up the Dodd-Frank Title VII regulatory regime.  Today’s rules reflect another important step in this effort.  These rules help ensure that the firms who are at the center of the security-based swap market manage counterparty risk appropriately and in so doing protect investors and the market more generally,” said SEC Chairman Jay Clayton.  “Our colleagues at the SEC, including our teams in the Division of Trading and Markets and the Division of Economic and Risk Analysis, brought their extensive knowledge and expertise to bear in crafting these rules.  Commissioner Peirce and I are grateful for their efforts and we also want to thank CFTC Chairman Giancarlo, CFTC Commissioner Quintenz, and their colleagues for their efforts and commitments to inter-agency cooperation.”

“These final rules are designed to ensure the financial integrity of dealers at the center of the critically important security-based swap market and represent an enormous effort on the part of our staff, particularly in the Divisions of Trading and Markets and Economic and Risk Analysis,” said Commissioner Hester Peirce.  “In addition, working with Commissioner Quintenz and the CFTC on this important rule has been a wonderful opportunity to cooperate in a way that serves the American people.  Throughout the process, our two staffs have drawn on one another’s experiences, expertise, and insights in an effort to build effective rules.  I am grateful to Chairman Giancarlo and Chairman Clayton for their work on this rule and our broader cooperation efforts.”

The rules establish minimum capital requirements for security-based swap dealers and major security-based swap participants for which there is not a prudential regulator (nonbank SBSDs and MSBSPs).  They also increase the minimum net capital requirements for broker-dealers that use internal models to compute net capital (ANC broker-dealers).  In addition, they establish capital requirements tailored to security-based swaps and swaps for broker-dealers that are not registered as an SBSD or MSBSP to the extent they trade these instruments.

They establish margin requirements for nonbank SBSDs and MSBSPs with respect to non-cleared security-based swaps.

They establish segregation requirements for SBSDs and stand-alone broker-dealers for cleared and non-cleared security-based swaps.

They amend the Commission’s existing cross-border rule to provide a means to request substituted compliance with respect to the capital and margin requirements for foreign SBSDs and MSBSPs, and provide guidance discussing how the Commission will evaluate requests for substituted compliance.

Click here to read a more detailed explanation of the new rules.

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