Public Statements & Remarks

Statement of Commissioner Kristin N. Johnson Regarding Notice of Proposed Rulemaking to Amend Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants

December 15, 2023

The Commodity Futures Trading Commission (Commission or CFTC) adopted a proposal to amend certain of the Commission’s Part 23 regulations that impose minimum capital requirements and financial reporting obligations on swap dealers (SDs) and major swap participants (MSPs) (Proposed Amendments).[1]  I support the amendments advanced by the Market Participants Division (MPD).

Minimum capital requirements serve as a cushion during times of severe market stress to ensure our registrants’ safety and soundness, protect the financial stability of our financial system, and prevent a run on our financial institutions.  Financial condition reporting provides the Commission with visibility and insight into the business and financial health of our registrants and enables us to require corrective action and prevent a failure of a single entity or group of entities or segment of the derivatives market, which could raise system risk concerns.

Dodd-Frank Act Reforms

The Commission introduced new capital and financial reporting requirements for SDs in 2020, as mandated by the Dodd-Frank Act (2020 Capital Rule).[2]  Title VII of the Dodd-Frank Act amended the Commodity Exchange Act (CEA) to establish a new regulatory framework for swaps, regulated by the Commission, and security-based swaps, regulated by the Securities and Exchange Commission (SEC), to reduce risk, increase transparency, and promote market integrity within the financial system. Section 4s(e) of the CEA introduced minimum capital requirements for SDs,[3] and Section 4s(f) of the CEA created financial reporting and recordkeeping requirements for all SDs.[4]

In the United States, the capital framework is divided into three parallel regimes.  SDs subject to regulation by a prudential regulator are required to comply with the minimum capital requirements adopted by the applicable prudential regulator,[5] while SDs not subject to regulation by a prudential regulator are required to meet the minimum capital requirements of the Commission, and security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) that do not have a prudential regulator are required to comply with the minimum capital requirements of the SEC.[6]  The prudential regulators or banking agencies and the SEC have adopted capital rules for swaps and security-based swaps.

In the adopting release for the 2020 Capital Rule, the Commission indicated that it would consult with the prudential regulators and SEC to assess the capital adequacy of SDs, MSPs, SBSDs, and MSBSPs, monitor the implementation of the rule and data, and consider modifications to the capital and financial reporting requirements.[7]

With the Proposed Amendments, the Commission seeks to make surgical changes to the 2020 Capital Rule, including a number of technical corrections, based on consultation with the prudential regulators and SEC, and based on market feedback on the adoption and implementation of the 2020 Capital Rule.  While the Proposed Amendments are not adjusting the capital components of the 2020 Capital Rule, all regulations designed to mitigate known systemic risk concerns in the swaps market must be subject to careful evaluation.

I commend the Commission for taking formal steps to engage in a rulemaking process that invites Commission discussion and public notice and comment on these regulations, which ensure compliance with the Dodd-Frank Act while remaining practical and solutions-oriented.  I strongly encourage the Commission, however, to begin a formal rulemaking process to address several unresolved issues necessary to ensure compliance with the Dodd-Frank Act and these requirements.

Clarifying Capital Requirements for Commercials

The Proposed Amendments codify Interpretive Letter 21-15, which applies to commercial non-bank SDs—typically entities that primarily engage in agricultural and energy swaps and provide services that are important to the U.S. economy.  The Commission’s overall capital approach permits non-bank SDs to select one of three methods to calculate their capital requirements, as permitted under the rule: the net liquid assets capital approach;[8] the bank-based capital requirements;[9] or the tangible net worth capital approach.[10]

The Commission proposes to revise the 2020 Capital Rule so that the test to determine tangible net worth may be applied at the entity level or ultimate consolidated parent level; so that International Financial Reporting Standards (IFRS) accounting standards or GAAP may be used; and so that position and financial exposure reporting occur at the same frequency as financial reporting, which for SDs is quarterly.

The Proposed Rule minimizes disruption, and clarifies the interpretation and implementation of the tangible net worth test for commercial non-bank SDs.

Refining Financial Reporting Requirements

The Proposed Amendments address issues presented in No-Action Letter (NAL) 21-18, which was extended under NAL 23-11 and applies to bank SDs, including non-U.S. bank SDs.  Non-U.S. bank SDs can file the applicable financial reporting within 90 days of the end of the financial reporting period and the same forms (e.g., relating to balance sheet and regulatory capital schedules) in the same format as provided to home country regulators (but in English and U.S. dollars).  Additionally, U.S. bank SDs can file the same forms (e.g., relating to balance sheet and regulatory capital schedules) under bank regulators’ Call Report and within the same timeframe as when filing with their prudential regulator.

The Proposed Amendments allow the Commission to collect information from bank SDs as a comparative tool.  Also, all SDs must use Schedule 1 for position information, which is similar to the SEC’s FOCUS report—duplicative forms are eliminated.

MPD has demonstrated collaboration working with the prudential regulators and the SEC in developing and harmonizing processes, procedures, and forms for financial reports and notifications—some of which are adopted the Proposed Amendments. Further, the 2020 Capital Rule was an important initiative that demonstrated the Commission’s recognition of the complexity and interconnectedness of the derivatives markets.

Technical Corrections

SD Exposure Reporting

The Proposed Amendments amend Commission regulation to clarify that certain supplemental schedules used to report SD exposure are intended to be provided by all non-bank SDs.  These amendments are necessary to align the reporting of similar information collected by the SEC from SBSDs and to provide the Commission and National Futures Association with important information regarding SD exposure across several geographical locations and counterparties.  This information provides valuable insight into the risk exposure of non-bank SDs, which is essential to performing the regulatory oversight of SDs.

Notice Requirements for Substantial Reduction in Capital

The Commission should begin to review notice requirements comprehensively in light of greater, faster capabilities to comply, notwithstanding the potential existence of challenges for non-U.S. SDs in light of time zone differences.  The Proposed Amendments require notification of a substantial reduction of capital within two business days.  The 2020 Capital Rule did not specify a timeframe, and the Proposed Amendments are consistent with the timeframe applicable to FCMs.


In order to prevent the market instability witnessed during the period when swaps traded in bespoke, bilateral markets, the Commission imposes capital requirements on non-bank SDs, and imposes financial reporting requirements on bank SDs as well as non-bank SDs.  These regulations are critical to the oversight of the swaps market.

I want to thank MPD and the Office of the Chief Economist (OCE) for their excellent work bringing forth this proposed rulemaking, in particular Jennifer Bauer, Maria Aguilar-Rocha, Andrew Pai, Joshua Beale, Thomas Smith, and Amanda L. Olear of MPD, and Lihong McPhail of OCE.

[1] Since no MSP is currently registered with the Commission, in this statement, I will refer to SDs only.

[2] Capital Requirements of Swap Dealers and Major Swap Participants (Capital Requirements), 85 Fed. Reg. 57462 (Sept. 15, 2020); Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010).

[3] U.S.C. § 6s(e).

[4] U.S.C. § 6s(f).

[5] U.S.C. § 6s(e)(1)(A).

[6] Section 15F of the Exchange Act addresses capital requirements for SBSDs/MSBSPs.

[7] Capital Requirements, 85 Fed. Reg. at 57465.

[8] A capital requirement that is consistent with the SEC’s final capital regulations for SBSDs, as well as the existing CFTC’s capital rules for FCMs, and the existing SEC’s capital rules for broker-dealers.

[9] A capital requirement that is consistent with the prudential regulators’ capital requirements for bank SDs and that is based on the existing Federal Reserve Board capital requirements for bank holding companies.

[10] A capital requirement that is based on the SD’s tangible net worth, if the SD or parent is predominantly engaged in non-financial activities.