The CFTC Market Participants Division ("MPD") clarified certain requirements applicable to swap dealers using models to calculate certain aspects of the CFTC capital requirements.
In Letter 21-14, the MPD responded to inquiries about the use of models for purposes of regulatory capital requirements under CFTC Rules 1.17 ("Minimum financial requirements for futures commission merchants and introducing brokers") and 23.101 ("Minimum financial requirements for swap dealers and major swap participants"). (Note: the relevant capital rules will require compliance from October 6, 2021 for the September 2020 amendments to capital requirements.) The MPD said that:
- For purposes of determining capital requirements, dually registered futures commission merchants and swap dealers ("FCM/SDs") and standalone swap dealers are not required to receive approval from the CFTC or NFA prior to using a model for calculating the initial margin on uncleared swaps. The staff noted that the capital model approval requirements apply solely to models for computing market risk and credit risk capital charges, not to models used to compute the amount of initial margin required to be collected.
- For purposes of calculating the uncleared swap margin amount, FCM/SDs and standalone swap dealers are permitted to use an initial margin model aside from the ISDA-developed Standardized Initial Margin Model.
- An FCM/SD or standalone swap dealer that has received approval from the CFTC or NFA to use models to compute initial margin pursuant to CFTC Rule 23.154 ("Calculation of Initial Margin") for certain types of swaps - but chooses to use the schedule-based approach for other types of swaps - can use a model to compute the uncleared swap margin amount for capital purposes for all its swap positions.
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