Security-Based Swaps: Capital, Margin and Segregation Requirements: SEC Proposes Rules Regarding Capital, Margin and Collateral Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants

Sullivan & Cromwell LLP - November 19, 2012

On October 18, 2012, the SEC proposed rules on capital, margin and collateral segregation for non-bank Security-Based Swap Dealers and non-bank Major Security-Based Swap Participants, along with amendments to the current minimum net capital requirements for broker-dealers permitted to use internal value-at-risk models. If adopted, the proposals would require, among other things, that:

  • SBSDs maintain certain minimum net capital levels according to prescribed fixed and ratio-based minimums;
  • MSPSPs maintain a positive tangible net worth and post and receive collateral on a daily basis with respect to non-cleared security-based-swaps;
  • Broker-dealers permitted to use internal value-at-risk models hold increased levels of net capital;
  • SBSDs take capital charges in connection with uncollateralized transactions with commercial end users and uncollateralized pre-effective date security-based-swap transactions;
  • SBSDs and MSBSPs implement risk management procedures and liquidity stress tests;
  • SBSDs collect from certain counterparties margin collateral in connection with security-based swap transactions; and
  • SBSDs segregate customers’ margin collateral on cleared and uncleared security-based swap transactions from collateral held for other types of customer transactions.

The SEC requests comments on all aspects of the proposals. Comments are due to the SEC within 60 days after publication of the proposals in the Federal Register.