Capital Requirements of Swap Dealers and Major Swap Participants

From Markets Reform Wiki
Jump to navigation Jump to search
Dodd-Frank Timeline, Capital Requirements for Swap Dealers and Major Swap Participants
Proposal Date Comment Deadline Final Rule Issue
May 12, 2011 July 11, 2011 TBA

At its April 27, 2011 open meeting, the Commodity Futures Trading Commission (CFTC) approved a rule proposal regarding capital requirements for swap dealers and major swap participants.<ref>Open Meeting on Fourteenth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on April 28, 2011.</ref> The proposal would apply different requirements of an SD/MSP that is also registered as a futures commission merchant (FCM).


One of the mandates of Title I of the Dodd-Frank Act is that the appropriate regulators develop a framework for swap dealers and major swap participants, which include the setting of margin and capital requirements. Entities under the jurisdiction of a prudential regulator such as the FDIC are required to follow its rules. All other swaps are under the jurisdiction of the CFTC, with the exception of security-based swaps, which fall under SEC jurisdiction. For more information, see the summary table of swaps definitions.

The Proposal[edit]

SD/MSPs that are also FCMs must hold the greater of:

  • $20 million;
  • if the FCM is a retail foreign exchange dealer, the amount required by rules governing retail foreign exchange dealers;
  • 8 percent of the risk margin required for customer and non-customer exchange-traded futures positions and over-the-counter (OTC) swap positions that are cleared by a clearing organization;
  • the amount of adjusted net capital required by a registered futures association of which the FCM is a member; and
  • for an FCM that also is registered as a securities broker or dealer, the amount of net capital required by SEC rules.

SD/MSPs not FCMs, but are nonbank subsidiaries of U.S. bank holding companies:

  • the same rules that apply to the bank holding company, generally an 8 percent of total capital to risk-weighted assets ratio, of which:
    • half, or 4 percent, is in the form of Tier 1 capital, and
    • a minimum of $20 million of Tier 1 capital.

SD/MSPs that are neither FCMs nor subsidiaries of a bank holding company

  • tangible net equity equal to $20 million, and
  • additional amounts for market risk and over-the-counter derivatives credit risk.

The proposal also addresses reporting requirements, which mirror those of derivatives clearing organizations.

Related Documents: Fact Sheet, Q&A, and Rule Proposal as it Appeared in the Federal Register[edit]


Larry Tabb - TABB Group [INTERVIEW][edit]

Mwtv abovevideo.png

Larry Tabb is the founder and CEO of TABB Group, an advisory and research firm focusing on issues surrounding financial markets. His research and publication topics include trading and trade processing systems, market structure, regulatory issues, and technology trends. He is a contributing editor for Wall Street & Technology and Advanced Trading magazines, and is a frequent speaker at major business and industry conferences. John Lothian News editor-at-large Doug Ashburn spoke with Tabb about the future of OTC derivatives, capital and margin requirements. Published November 9, 2011. For more video, visit



MarketsReformWiki Sponsors

RSM US LLP ADM Investor Services Cinnober Fidessa