In new guidance, the SEC Division of Trading and Markets staff addressed the application of financial responsibility requirements (margin, capital and segregation) to security-based swap ("SBS") activities.
The FAQ covers a number of issues, including:
- the use of a single reserve computation under SEC Rule 15c3-3 for broker-dealers (whether or not registered as a security-based swap dealer ("SBSD")) transacting an SBS;
- applications for use of a good "control location" for SBS customer excess collateral under the segregation requirements of Rules 18a-4(b)(2)(v) and 15c3-3(p)(2)(ii)(E);
- the application of Rules 18a-4 and 15c3-3 to variation margin owed to but not called for by an SBS customer;
- use of the "risk margin amount" (for firms authorized to use models to compute deductions for credit risk under Rule 18a-1(d) or 15c3-1e(d)) under Rule 18a-1(c)(6)(ii) or 15c3-1(c)(17)(ii) rather than the "initial margin amount" for purposes of net capital deductions until September 1, 2022;
- whether a firm can use the CFTC-standardized initial margin "grid" amount rather than Rule 18a-3(d)(1); and
- a series of technical questions relating to information to be filed on Form X-17A-5 (FOCUS Report) Part IIC by bank SBSDs.
Commentary
There is something for all types of SBSDs in this FAQ (banks, broker-dealers, other non-banks); the FAQ is a must-read for all firms expecting to register as an SBSD.
Primary Sources
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.