CFTC increases transparency, reopens comment on capital requirements for swap dealers

Chairman Tarbert also previews future meeting on cross-border issues

10 December 2019


The U.S. Commodity Futures Trading Commission acted on Dec. 10 to reopen the comment period on a 2016 proposal regarding capital requirements for swap dealers. Two of the CFTC's five commissioners opposed the move, however, calling instead for a more thorough rulemaking process.

The agency also finalized rules to add transparency to the CFTC's overall rulemaking process, and advanced a proposal that would codify existing no-action relief that provides exemptions from swap clearing requirement for inter-affiliate swaps.

CFTC Chairman Heath Tarbert commented at the end of the meeting that he intends to have one more public meeting before the end of the year and indicated that this meeting would consider a rulemaking related to cross-border issues. He also said he plans to address a bankruptcy-related rule and a position limits rule within the first two months of next year.

Comments on capital requirements for swap dealers

The proposal to reopen the comment period on a 2016 proposed rulemaking on capital requirements for swap dealers and major swap participants passed on a 3-2 vote, with Commissioners Dan Berkovitz and Rostin Behnam dissenting.

Among the reasons cited by agency staff for reopening the comment period included efforts to harmonize the CFTC measure with a similar rule finalized by the SEC in July, and the incorporation of comments already shared with the agency. The staff highlighted several areas where changes to the 2016 proposal are under consideration:

  • Calculation of minimum net capital requirement
  • Composition of capital
  • Logistics of model approval
  • Liquidity requirements
  • Financial reporting requirements for swap dealers

Berkovitz and Behnam both objected to the proposal to reopen comments on the ground that a wholly new proposed rulemaking was procedurally appropriate, given the potential for substantive changes from the initial 2016 proposal. Behnam said "there too much risk in my mind for going astray" if the agency is simply "asking further questions without a clear signal to where the rulemaking will be headed."

The renewed comment period will be open for 75 days after publication in the federal register.

Inter-affiliate swaps

The commission also advanced amendments to the clearing requirement exemption for inter-affiliate swaps on a 5-0 vote, codifying existing no-action relief and expanding the eligible jurisdictions within which transactions would not be subject to variation margin requirements.

Rulemaking transparency

The commission voted 5-0 to finalize amendments to Part 13 of the agency's public rulemaking procedures. Chairman Heath Tarbert noted that several items in Part 13 did not fully conform with the broader Administrative Procedure Act that governs all U.S. agencies including the CFTC, and that CFTC procedures had not been updated since 1976. Under new rules, the agency will publish more information to its website, including a plain language explanation of the rulemaking process and all ex parte communications relevant to CFTC business.

Tarbert pointed to an increased frequency in public meetings of the CFTC, and said he expects that trend to continue in 2020. He also pledged a commitment to transparency that includes protecting any commissioner's right to speak out on enforcement issues—an issue that came to the fore after commissioners made public statements regarding an August settlement between Kraft and the CFTC over wheat market manipulation—and noted that the public should expect to see more dissenting and concurring statements on all future futures that will provide a greater level of detail and context.

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