The CFTC Market Participants Division ("MPD") issued clarifications as to the capital and financial reporting requirements imposed on swap dealers ("SDs") that use the "tangible net worth" method of calculating net capital.
In Letter 21-15, the MPD stated:
- For the purpose of satisfying the 15 percent revenue and 15 percent asset tests in the definition of "predominantly engaged in non-financial activities" under CFTC Rule 23.100 ("Definitions applicable to capital requirements"), non-bank SDs that use the tangible net worth method of calculating net capital under Rule 23.101(a)(2) ("Minimum financial requirements for swap dealers and major swap participants") can apply the tests at either (i) the non-bank SD entity level or (ii) the level of the non-bank SD's ultimate consolidated parent.
- Non-bank SDs and major swap participants that are permitted to use International Financial Reporting Standards ("IFRS") for purposes of books and records under Rule 23.105 may also use IFRS for purposes of calculating "tangible net worth" and "predominantly engaged in non-financial activities" under Rule 23.101.
- Non-bank SDs that calculate their net capital using the tangible net worth method can satisfy on a quarterly basis instead of a monthly basis the additional positions and counterparty financial reporting requirements under CFTC Rule 23.105(l) ("Additional position and counterparty reporting requirements").
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