On July 8, the staff of the Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission issued a report containing data and analysis concerning possible exclusions from the calculation of the swap dealer de minimis registration threshold for swaps executed on a regulated exchange and/or cleared by a derivatives clearing organization.
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On June 21, the Securities and Exchange Commission adopted a panoply of final rules dealing with the following aspects of the regulation of security-based swaps (SBS):

  • Capital requirements for nonbank SBS Dealers (SBSDs) and Major SBS Participants (MSBSPs).
  • Increased minimum net capital requirements for broker-dealers that use internal models to compute net capital (ANC broker-dealers).
  • 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 those instruments.
  • Margin requirements for nonbank SBSDs and MSBSPs with respect to non-cleared security-based swaps.
  • Creation of a process for non-US SBSDs and MSBSPs to request substituted compliance with respect to the capital and margin requirements.
  • A requirement that nonbank SBSDs establish internal risk management controls compliant with Rule 15c3-4.


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On June 21, the Securities and Exchange Commission adopted a package of new rules and rule amendments to establish capital, margin and segregation requirements under Title VII of the Dodd-Frank Act.

The new rules address the following areas:

  • Capital requirements for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSP), for which there is not a prudential regulator (nonbank SBSDs and MSBSPs).
  • Capital requirements for broker-dealers that trade security-based swaps or swaps and are not registered as an SBSD or MSBSP.
  • Minimum net capital requirements for broker-dealers that use internal models to compute net capital.
  • Margin requirements for nonbank SBSDs and MSBSPs with respect to non-cleared security-based swaps.
  • Segregation requirements for SBSDs and stand-alone broker-dealers for cleared and non-cleared security-based swaps.


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On May 29, the International Swaps and Derivatives Association (ISDA) issued calculation guidance for swap market participants seeking to determine if they might become subject in 2020 to mandatory initial margin requirements for swaps executed with swap dealers registered with the Commodity Futures Trading Commission. Under both the CFTC margin rules and the margin rules adopted by the prudential regulators for bank swap dealers, any “financial end user” (as defined in the margin rules) that is not already subject to mandatory initial margin for trades with swap dealers will become so on September 1, 2020, if it has “material swaps exposure.” An entity will have “material swaps exposure” for 2020 if the entity and its margin affiliates have a daily average aggregate notional amount (DAANA) of uncleared swaps, uncleared security-based swaps, foreign exchange forwards and foreign exchange swaps with all counterparties for June, July and August of this year that exceeds $8 billion, where such amount is calculated only for business days.
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On June 6, the Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission issued no action letter 19-13 to permit swap dealers and their counterparties to make certain changes to current swaps without subjecting the swaps to the CFTC swap margin rule. The need for the relief stems from the anti-avoidance position taken by the CFTC when the swap margin rule was enacted that any change made after the margin rule compliance date applicable to swap dealer and its counterparty to an uncleared swap (a Legacy Swap) in existence on the compliance date will cause the Legacy Swap to be brought into scope for margin.

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On April 29, Commodity Futures Trading Commission Chairman Chris Giancarlo sent a letter to Randy Quarles, the Vice Chair for Supervision of the Board of Governors of the Federal Reserve System, in which he proposed that the US regulators responsible for the administering the margin rules for uncleared swaps should collaborate in providing some relief to non-dealer swap market participants who may become subject to initial margin requirements in 2020. The specific relief would be the issuance of the same guidance issued by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) in March (for more information, see the March 8, 2019 edition of Corporate & Financial Weekly Digest), which stated that in-scope parties do not have to put in place compliant documentation and custodial relationships if there is no expectation that the exposure associated with their swaps will actually exceed the regulatory threshold for posting initial margin ($50 million for the United States).
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The Securities and Exchange Commission recently announced that it had at last adopted final rules to implement Section 14(j) (Disclosure of Hedging by Employees and Directors) of the Securities Exchange Act of 1934, which was enacted in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act. New Item 407(i) of Regulation S-K will require a company to describe any practices or policies it has adopted regarding the ability of employees (including officers) or directors, or their designees, to purchase financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities of the company held directly or indirectly by employees or directors, including company equity securities granted as compensation. This disclosure will be required in proxy or information statements relating to the election of directors. The final rules specify that the disclosure requirement will apply to equity securities of the company, its parents, its subsidiaries and subsidiaries of the company’s parents, but do not define the term “designee” (instead requiring a facts and circumstances analysis).
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On December 19, the US Securities and Exchange Commission voted to issue proposed rules that would require the mandatory use of certain risk mitigation techniques by security-based swap dealers and major security-based swap participants (collectively, SBS Entities). Under the proposed rules, SBS Entities will be required to:

  • Reconcile outstanding security-based swaps with applicable counterparties on a periodic basis;
  • Engage in certain forms of portfolio compression exercises, as appropriate; and
  • Execute written security-based swap trading relationship documentation with each of its counterparties prior to, or contemporaneously with, executing a security-based swap transaction.


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On December 10, the International Swaps and Derivatives Association (ISDA) introduced its latest market protocol, the 2018 Benchmark Supplement Protocol, which is designed to give market participants an efficient means to incorporate terms from the ISDA Benchmark Supplement into their existing and/or future derivative transactions.
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On October 31, the Securities and Exchange Commission took an unusual additional step towards implementing its rules for security-based swaps (SBS) by issuing a document entitled “Commission Statement on Certain Provisions of Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants.” The novelty of the Statement is that it amounts to a promise of five years of future no-action relief from enforcement after implementation of the SBS rules for any SBS Entity (as defined below) that chooses to follow certain Commodity Futures Trading Commission external business conduct rules for its SBS trading instead of complying with the SEC’s analogous (but slightly different) business conduct rules for SBS. An SBS Entity is any entity that is registered with the SEC as either (1) an SBS dealer or (2) a major SBS participant.
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