CFTC Clarifies Swap Dealer Capital Calculation Requirements – Finance and Banking

The CFTC Market Participants Division (“MPD”) issued clarifications as to the capital and
financial reporting requirements imposed on swap dealers
(“SDs”) that use the “tangible net worth”
method of calculating net capital.

In Letter 21-15, the MPD stated:

• For the purpose of satisfying the 15 percent revenue and 15
  percent asset tests in the definition of “predominantly
  engaged in non-financial activities” under CFTC Rule 23.100 (“Definitions applicable to
  capital requirements”), non-bank SDs that use the tangible net
  worth method of calculating net capital under Rule 23.101(a)(2) (“Minimum financial
  requirements for swap dealers and major swap participants”)
  can apply the tests at either (i) the non-bank SD entity level or
  (ii) the level of the non-bank SD’s ultimate consolidated
  parent.




• Non-bank SDs and major swap participants that are permitted to
  use International Financial Reporting Standards (“IFRS”)
  for purposes of books and records under Rule 23.105 may also use
  IFRS for purposes of calculating “tangible net worth” and
  “predominantly engaged in non-financial activities” under
  Rule 23.101.




• Non-bank SDs that calculate their net capital using the
  tangible net worth method can satisfy on a quarterly basis instead
  of a monthly basis the additional positions and counterparty
  financial reporting requirements under CFTC Rule
  23.105(l) (“Additional position and counterparty reporting
  requirements”).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.