In December 2016, the Commodity Futures Trading Commission (“CFTC”) released its re-proposed capital rules for swap dealers (“SDs”) and major swap participants (“MSPs”).1 Additionally, the Securities and Exchange Commission (“SEC”) proposed its capital rules in 20122 for security-based SDs and MSPs. The CFTC’s re-proposal attempts to accomplish several things, including harmonization with the proposed SEC capital rules. It further provides optionality for financial and non-financial SDs regarding computing capital under a standardized versus models-based approaches.3 It is important for each financial SD to assess the implications of the proposed rulemaking to its swap dealing operating model. Questions to consider include: (1) Why should SDs consider a models-based capital approach versus non-model? (2) How does entity type (e.g., bank, broker-dealer) impact capital methodology?
Commissioners are not only signaling greater cooperation with the congressional intent of Dodd-Frank; they’re also cooperating with one another and with industry to get things done. Part of the collaborative mindset owes to the way new CFTC Chairman, Timothy Massad, has guided the business of the commission as he also works on the international scene to seek agreement on challenges involving OTC derivatives and the location of clearinghouses. The new era of cooperation could signify a big plus for the markets, in that it can help eliminate lingering questions and move regulatory matters in a direction that’s sensitive to the needs and the burdens of industry. And as the CFTC extends its cooperative approach directly toward industry, opportunities open up for more organizations to engage in discussions directly with commissioners. Of particular note are two recent proposals that the commission has addressed with a sympathetic ear toward commercial end-users in commodity markets.