Public Statements & Remarks

Statement of Dissent by Commissioner Rostin Behnam

Capital Requirements of Swap Dealers and Major Swap Participants: Proposed rule; reopening of comment period; request for additional comment

December 10, 2019

I respectfully dissent from the Commodity Futures Trading Commission’s (the “Commission” or “CFTC”) decision today to reopen the comment period and request additional comment on proposed regulations and amendments to implement section 731 of the Wall Street Reform and Consumer Protection Act,[1] which requires the CFTC to establish capital rules for all registered swap dealers (“SDs”) and major swap participants (“MSPs”) that are not banks, including nonbank subsidiaries of bank holding companies, as well as associated financial recordkeeping and reporting requirements (the “Reopening”).  While I would have been comfortable supporting the Reopening as a matter of moving this critical Dodd-Frank Act rule forward to finalization, to the extent it introduces supplementary avenues for future rulemaking such as a leverage ratio requirement, it is a deception.  Impulsively inviting comment on matters tangential to the 2016 Capital Proposal[2], but perhaps relevant to determining appropriate capital standards and methodologies, as opposed to a thoughtful re-proposal sacrifices discipline for expediency, and runs afoul of proper process for notice and comment.  I will not be complicit in supporting Commission action that I believe could invite backdoor rationalization when finalization is before us.  The public deserves--and our integrity demands--that we play by the rules.

Today’s action is a reopening of the comment period and a request for comment, rather than a true proposal, and thus the 2016 Capital Proposal remains the only concrete indicator to the public of the Commission’s intentions.  If the 2016 Capital Proposal is an extreme overshoot, the appropriate way to provide the public with an opportunity to comment is to issue a reproposal.  Asking further questions, without a clear signal as to where the Commission is going, at the minimum risks further slowing this nearly ten-year effort to finalize a capital rule by adding an unnecessary step to the process in the form of a reproposal at some time in the future; and at the worst, incites the agency towards an exercise in creative reasoning outside the bounds of process.

Too often over the last couple of years, I believe this agency has slowed its own progress by snaking outside clear Administrative Procedure Act (“APA”) trajectories and adding unnecessary steps to the rulemaking process.  In part, I fear that we are doing the same thing today.  The competing threads throughout the Reopening make it harder for the public to discern what the Commission is proposing to do, and will make it more difficult to effectively comment on the existing proposal from 2016.   This creates undue risk under the APA, and arguably poisons the well in regard to the reachable goals of this new request for comment.

To reiterate sentiments made in my first speech as a CFTC Commissioner,[3] capital is a cornerstone financial crisis reform[4] that is critical to protecting our financial institutions and our financial system as a whole, specifically from systemic risk and contagion, but also from unintended consequences if capital (and margin) levels are applied and set without due regard to the uniqueness of our financial markets and market participants.  I appreciate that in moving forward, we must heed our directive to establish capital standards appropriately and in due consideration of other activities engaged in by SDs and MSPs such that we ensure that we do not penalize commercial end-users who need choices and benefit from competition in our markets.

The Reopening’s overarching premise is that the chosen response to certain uncertainties at the time of the Commission’s prior proposals[5] resulted in recommending standards that, in application, could in no way be justified as appropriate to offset the greater risk to SDs, MSPs, and the financial system,[6] such that the only solution for the potentially extreme overshoot is to dial it back.  With the passage of time comes a nagging amnesia to the pain that the financial crisis brought on American households and the global economy.  We cannot forget that undercapitalization was at the heart of the crisis.

The overall changes to the derivatives market over the last several years, the Commission’s adoption and implementation of margin rules for uncleared swaps and growing knowledge and experience with SDs, and recent movement by the Securities and Exchange Commission in finalizing capital, margin, and segregation requirements as well as financial reporting requirements for security-based swap dealers and major security-based swap participants,[7] provide a reasonable basis for affording the public an opportunity to reevaluate the 2016 Capital Proposal.  However, to the extent the Reopening seeks additional comment on both broader issues of harmonization and more targeted proposals regarding what amount of capital is appropriate and what methodology is used, its focus on solidifying a data-driven approach should send a strong signal that the Commission must justify its final determinations with respect to capital standards.

To reiterate, I would have liked to support today’s Commission action.  To the extent it would move us toward a final rule on a matter that is critical to the safety and resiliency of our markets, the supplemental concepts for consideration and overarching premise that we overshot the mark badly in the 2016 Capital Proposal raise concerns.  If the 2016 Capital Proposal is an extreme overshoot, and if there are alternative methodologies and concepts to consider because of new market data, the appropriate way to provide the public with an opportunity to comment is to issue a reproposal.  While I would have liked to stand with my fellow Commissioners today in supporting this first step towards a final capital rule, I cannot justify it under these circumstances.


[1] See The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 § 731(e), 124 Stat. 1376, 1704-6 (2010) (the “Dodd-Frank Act”)

[2] Capital Requirements of Swap Dealers and Major Swap Participants, 81 FR 91252 (proposed Dec. 16, 2016).

[3] See Rostin Behnam, The Dodd-Frank Inflection Point: Building on Derivatives Reform, Remarks of CFTC Commissioner Rostin Behnam at the Georgetown Center for Financial Markets and Policy (Nov. 14, 2017),

[4] G20, Leaders’ Statement, Framework for Strong, Sustainable and Balanced Growth, The Pittsburgh Summit (September 24-25 2009), (“We committed to act together to raise capital standards…”).  

[5] See Capital Requirements of Swap Dealers and Major Swap Participants, 76 FR 27802 (proposed May 12, 2011); 2016 Capital Proposal.

[6] See Id. at §731(e)(2)(C) and (e)(3)(A)(ii); 7 USC 6s(e)(2)(C) and (e)(3)(A)(ii).

[7] See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital and Segregation Requirements for Broker-Dealers, 84 FR 43872 (Aug. 22, 2019); Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers, SEC Release No. 34-87005 (Sept. 19, 2019), available at .