Public Statements & Remarks

Statement of Commissioner J. Christopher Giancarlo on Proposed Rule for Capital Requirements of Swap Dealers and Major Swap Participants

December 2, 2016

For some time now, I have been asking whether the amount of capital which regulators have caused financial institutions to take out of trading markets is at all calibrated to the amount of capital which is needed to be kept in global markets to support the health and durability of the global financial system. I have called on the Financial Stability Oversight Council and domestic and foreign financial regulators to conduct a thorough analysis in this regard. Those calls have been largely ignored. So, I hope that commenters to this capital proposal can help provide some insight into my question.

Along those lines, I have included several questions in this proposal that ask for feedback on whether the capital requirements under the different capital approaches are appropriate. I thank staff of the Division of Swap Dealer and Intermediary Oversight for including my questions in the proposal. I am particularly interested in how the proposed capital requirements will affect smaller swap dealers and how much additional capital they may have to raise to comply with the proposal. I have included several questions in the cost-benefit section in this regard. I am also interested in the impact of the proposed rule on any potential new registrants if the swap dealer de minimis level falls to $3 billion.

I have also included several questions about the scope of the proposal. For example, the proposed minimum capital requirement is based upon eight percent of the margin required on the swap dealer’s cleared and uncleared swaps and security-based swaps and the margin required on the swap dealer’s futures and foreign futures. However, Commodity Exchange Act section 4s(e)(3)(A) only cites the risk of uncleared swaps in setting standards for capital.1 Additionally, in the Commission’s final swap dealer definition rule, it said it will “in connection with promulgation of final rules relating to capital requirements for swap dealers and major swap participants, consider institution of reduced capital requirements for entities or individuals that fall within the swap dealer definition and that execute swaps only on exchanges, using only proprietary funds.”2 Given these pronouncements, I welcome commenters’ views on the broad scope of the proposed capital requirements.

Finally, I am concerned about the proposed capital model review and approval process. The proposal states that the Commission expects that a prudential regulator’s or foreign regulator’s review and approval of capital models that are used in the corporate family of a swap dealer would be a significant factor in the National Futures Association’s (NFA) determination of the scope of its review, provided that appropriate information sharing agreements are in place. Given the large number of models that will need to be reviewed, the complexity of those models and the practical resource constraints at the NFA, I am concerned that the proposed process will be unworkable. We have already seen the challenges in the model approval process for initial margin under tight implementation timelines, and in that case there was a standard initial margin model. We should learn from that lesson. So, I am interested to hear commenters’ views on alternative model approval processes, such as automatic or temporary approval of capital models that have been previously approved by a prudential or foreign regulator.

I look forward to reviewing thoughtful and well-considered comments.

1 7 U.S.C. § 6s(e)(3)(A).

2 77 Fed. Reg. 30596, 30610 fn. 199 (May 23, 2012).

Last Updated: December 2, 2016