CFTC – Approves Final Swap Dealer Capital Rule – Completes All Required Rulemakings Under Section 731 of the Dodd-Frank Act

July 22, 2020

Swap Dealer Capital Alternatives

Swaps dealers (SD) have an option to elect one of three alternative methods of capital. Flexibility in minimum capital requirement based on the business and nature of operations.Net liquid assets method based on existing capital requirements for FCMs and SEC rules for security-based swap dealers and major security-based swap participants. The bank-based method, based on existing Fed capital requirements of holding companies. The tangible net worth method is designed for SDs as part of a larger commercial enterprise. Major swap participants (MSPs) are required to maintain a positive tangible net worth.

FCM Capital Amendments

Minor amendments to existing capital rules for FCMs, to impose specific requirements
for swaps, and security-based swaps need to maintain minimum capital from two tests.
Greater of: (1) the current FCM risk margin amount of 8% of customer/noncustomer cleared futures, cleared foreign futures, cleared swaps positions; and (2) 2% of total margin amount associated with uncleared swaps, (SBS excluded from both amounts).
Also increased $1 million minimum capital floor for FCMs, to $20 million for FCM swap dealers.

Model Approval

The new rule includes a comprehensive model approval process on market risk or credit risk. The application to use the model must be in writing and must be filed with the CFTC and NFA. Include a list of categories of positions that SD or FCM-SD hold in proprietary accounts. Describe mathematical models to price positions and compute market and credit risks. SD may use capital models after application if previously approved by other regulators; however, FCM-SD must obtain prior approval to use, because carrying customer funds. Accompanying financial reporting, recordkeeping, and notification requirements for models.

Substituted Foreign Compliance

Program for non-US domiciled SD or MSP, to petition CFTC for substituted compliance if they are in a jurisdiction with comparable capital adequacy and financial reporting objectives. Determination process for SD already required to maintain capital by the foreign regulator.


File periodic unaudited financial statement and an annual audited one with CFTC and NFA. Permits entities dually-registered with the SEC to file the FOCUS Report, instead of the CFTC reporting mandate. CFTC registrants to file a notice of defined events, to alert financial or operational issues. Events related to failure to post or collect initial or variation margin with swap counterparties. Require notice of bulk transfers to be filed with CFTC electronically and in a set period. Expanded from 5 to 10 days, the time before a notice that FCM or IB must provide prior to such transfer.


Rule compliance date by October 6, 2021.
CFTC determined to defer consideration of proposed liquidity requirements at this time.

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