Grygo is chief content officer for FTF.
Amid the stampede to emerging and disruptive technologies, a few more Earthly matters must be resolved within the realm of securities operations.
One of those matters is the final resolution of the SEC’s proposed rules and amendments that govern capital, margining, and segregation requirements for securities-based swaps.
These guidelines are important to “security-based swap dealers [SBSDs] and major security-based swap participants [MSBSPs] and capital requirements for broker-dealers,” says the SEC, which recently voted to reopen the commenting process, which includes requests for feedback about the changes to the proposed rule language.
(While parallel in many ways, the SEC’s effort is separate from the final “Swap Margin Rule” push of the Office of the Comptroller of the Currency, Treasury (OCC); the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corp. (FDIC); the Farm Credit Administration (FCA); and the Federal Housing Finance Agency (FHFA). In a nutshell, they are “adopting amendments to their rules establishing minimum margin requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants (Swap Margin Rule),” officials say. The final rule will take effect Nov. 9, 2018.)
To refresh everyone’s memory, the SEC proposed in October 2012 amendments and new rules to establish:
- “Capital and margin requirements for SBSDs and MSBSPs that do not have a prudential regulator (nonbank SBSDs and MSBSPs);”
- “Segregation requirements for SBSDs;”
- “Notification requirements for SBSDs and MSBSPs relating to segregation;”
- And a way to “raise minimum net capital requirements and establish liquidity requirements for broker-dealers permitted to use internal models when computing net capital.”
Since then, the SEC proposed in May 2013 new provisions “to establish the cross-border treatment of security-based swap capital, margin, and segregation requirements. Finally, in April 2014, the Commission proposed an additional nonbank SBSD capital requirement,” according to officials.
Given the scope of these changes the SEC got “numerous comment letters on the proposals and believes it is prudent to reopen the comment period for the proposals in light of these comments,” officials say. “In addition, the Commission believes the public should have the opportunity to provide comment on the potential economic effects of the proposals in light of regulatory and market developments since they were published.”
In an official statement, Jay Clayton, SEC chairman, is stressing that “the comment period is an important step forward in standing up the security-based swap regime, We strongly encourage interested persons to submit comments and data for the Commission to consider as the rulemaking process moves forward.”
The SEC is also directing the public to areas that need attention:
- “The potential use by a nonbank SBSD of a credit risk charge for uncollected margin under the proposed capital rules for counterparties other than commercial end users, and whether a threshold should apply;”
- “The treatment of collateral held at a third-party custodian under the proposed capital rules;”
- “The potential use of a uniform margin model, including an industry-developed model, to compute initial margin for non-cleared security-based swaps;”
- “The potential use of a risk-based margin threshold under which a nonbank SBSD need not collect initial margin;”
- “Potential alternatives relating to exceptions for dealers under the proposed margin rule;”
- “The potential portfolio margining of swaps and security-based swaps;”
- “Clarifications regarding the application of the proposed omnibus segregation requirements, as well as the cross-border application of the proposed segregation requirements;”
- “Additional guidance regarding the criteria the Commission would consider when making substituted compliance determinations for capital and margin;”
- “The amount of time it would take for registrants to take the necessary steps to come into compliance with applicable requirements;”
- “And the economic implications of the proposed rules, including solicitation of comment and supporting data on the current risk management practices that support trading activity in security-based swaps, as well as on how the baseline of the economic analyses has changed since the publication of the proposals.”
As per the SEC’s process, the comment period will start the day that the changes are posted in the Federal Register and last for 30 days. This reporter scanned “the daily journal of the United States government” but did not find the official notice by deadline, so it’s posting must be imminent.
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