The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") granted no-action relief to a futures commission merchant ("FCM") seeking to add back to its net worth the amount of deferred tax liabilities ("DTLs") "directly related" to intangible assets recognized for GAAP purposes as a result of a non-taxable business combination; i.e., the acquisition by the Charles Schwab Corporation ("Schwab") of TD Ameritrade Holding Corporation and its subsidiaries.
In its letter to the DSIO, Schwab pointed out that because the acquisition of the intangible assets did not increase Schwab's regulatory capital (even though it increased Schwab's GAAP equity), it would be punitive to require Schwab to take a capital charge for a deferred tax liability related to the intangible assets, particularly as the "DTLs do not represent a postponed tax obligation and will not change the cash flows" of the firm.
In response to Schwab's request, the DSIO stated that it will not recommend enforcement action under CFTC Regulation 1.17 ("Minimum Financial Requirements for Futures Commission Merchants and Introducing Brokers") if Schwab excludes from its net capital computation both the intangible assets and the related deferred tax liability.
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