Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants, 45569-45594 [2024-10342]

Download as PDF Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations Issued in Fort Worth, Texas, on May 20, 2024. Martin A. Skinner, Acting Manager, Operations Support Group, ATO Central Service Center. [FR Doc. 2024–11344 Filed 5–22–24; 8:45 am] BILLING CODE 4910–13–P COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 23 RIN 3038–AF33 Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants Table of Contents Commodity Futures Trading Commission. ACTION: Final rule. AGENCY: The Commodity Futures Trading Commission (‘‘Commission’’ or ‘‘CFTC’’) is adopting amendments to certain of the Commission’s regulations that impose minimum capital requirements and financial reporting obligations on swap dealers (‘‘SDs’’) and major swap participants (‘‘MSPs’’). The Commission is adopting amendments consistent with previously issued staff letters addressing the Tangible Net Worth Capital Approach for calculating capital under the applicable Commission regulation and alternative financial reporting by SDs subject to the capital requirements of a prudential regulator. The Commission is also adopting amendments to certain of its regulations applicable to SDs, in areas including the required timing of certain notifications, the process for approval of subordinated debt for capital, and the revision of financial reporting forms to conform to the rules. The amendments are intended to facilitate SDs’ compliance with the Commission’s financial reporting obligations and minimum capital requirements. DATES: Effective date: This rule is effective June 24, 2024. Compliance date: September 30, 2024. The compliance date applies to all financial reports with an ‘‘as of’’ reporting date of September 30, 2024 or later, to allow for sufficient time to effectuate amendments discussed herein. lotter on DSK11XQN23PROD with RULES1 SUMMARY: FOR FURTHER INFORMATION CONTACT: Amanda L. Olear, Director, 202–418– 5283, aolear@cftc.gov; Thomas Smith, Deputy Director, 202–418–5495, tsmith@cftc.gov; Joshua Beale, Associate Director, 202–418–5446, jbeale@ cftc.gov; Jennifer Bauer, Special VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 Counsel, 202–418–5472, jbauer@ cftc.gov; Maria Aguilar-Rocha, Special Counsel, 202–418–5840, maguilarrocha@cftc.gov; Andrew Pai, AttorneyAdvisor, 646–746–9893, apai@cftc.gov; Christine McKeveny, Attorney-Advisor, 646–746–3923, cmckeveny@cftc.gov; Market Participants Division; Lihong McPhail, Research Economist, 202–418– 5722, lmcphail@cftc.gov, Office of the Chief Economist; Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. SUPPLEMENTARY INFORMATION: I. Background II. Amendments to Commission Regulations A. CFTC Staff Letters and Other Amendments 1. Amendments to Tangible Net Worth Capital Approach—CFTC Staff Letter No. 21–15 2. Amendments to Bank SD Financial Reporting Requirements—CFTC Staff Letter No. 21–18 3. Amendments Regarding Financial Reporting and Other Requirements of SDs a. Amendments to Schedules in Financial Reporting b. Changes to Public Disclosure Requirements c. Changes to Form 1–FR–FCM d. Additional Cross References To Clarify Applicable Market and Credit Risk Charges B. Other Amendments 1. Notice of Substantial Reduction in Capital 2. Subordinated Debt Approval 3. Statement of No Material Difference III. Related Matters A. Regulatory Flexibility Act B. Paperwork Reduction Act 1. Background 2. OMB Collection 3038–0024— Regulations and Forms Pertaining to Financial Integrity of the Market Place; Margin Requirements for SDs/MSPs C. Section 15(b) Antitrust Laws IV. Cost-Benefit Considerations A. Background B. CFTC Staff Letters and Other Amendments 1. Benefits 2. Costs 3. Section 15(a) Factors a. Protection of Market Participants and the Public b. Efficiency, Competitiveness, and Financial Integrity of Swap Markets c. Price Discovery d. Sound Risk Management Practices e. Other Public Interest Considerations C. Other Amendments 1. Benefits 2. Costs 3. Section 15(a) Factors a. Protection of Market Participants and the Public b. Efficiency, Competitiveness, and Financial Integrity of Swaps Markets PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 45569 c. Price Discovery d. Sound Risk Management Practices e. Other Public Interest Considerations I. Background Section 4s(e) of the Commodity Exchange Act (‘‘CEA’’ or the ‘‘Act’’) requires the Commission to adopt minimum capital and margin requirements for SDs and MSPs.1 On September 15, 2020, the Commission issued final rules adopting such requirements under part 23 of the Commission’s regulations (the ‘‘Final Rule’’ or the ‘‘Final Rules’’).2 The Final Rules became effective on November 16, 2020, with an extended compliance date of October 6, 2021 (‘‘2021 Compliance Date’’).3 The Final Rules imposed capital requirements on SDs and MSPs that are not subject to a prudential regulator (‘‘nonbank SDs’’ and ‘‘nonbank MSPs,’’ respectively).4 The Final Rules included a detailed capital model application process whereby eligible nonbank SDs and nonbank MSPs could apply to the Commission, or a registered futures association (‘‘RFA’’) of which they are a member, for approval.5 The Final Rules also adopted a capital comparability determination process for certain eligible foreign domiciled nonbank SDs and nonbank MSPs to seek substituted compliance for the Commission’s capital and financial reporting requirements.6 Further, the Final Rules adopted detailed financial reporting, recordkeeping and notification requirements, including limited financial reporting requirements for SDs and MSPs subject to the capital requirements of a prudential regulator (‘‘bank SDs’’ and ‘‘bank MSPs,’’ 17 U.S.C. 6s(e). Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020) (the ‘‘Final Rule’’ or the ‘‘Final Rules’’). Commission regulations referred to herein are found at 17 CFR chapter I. Commission regulations are accessible on the Commission’s website at https://www.cftc.gov. 3 Id. 4 Id. The term ‘‘prudential regulator’’ is defined as the Board of Governors of the Federal Reserve System (‘‘Federal Reserve Board’’); the Office of the Comptroller of the Currency (‘‘OCC’’); the Federal Deposit Insurance Corporation (‘‘FDIC’’); the Farm Credit Administration; and the Federal Housing Finance Agency. Section 1a(39) of the CEA, 7 U.S.C. 1a(39). 5 See generally Final Rules, 85 FR 57467. The three methods discussed in detail in the Final Rules include the Bank-Based Capital Approach, the Tangible Net Worth Capital Approach, and the Net Liquid Assets Capital Approach (as defined therein). Each method permits the use of models upon approval of the Commission or an RFA and determines the frequency and type of financial reporting information to be provided to the Commission by each nonbank SD and nonbank MSP. 6 17 CFR 23.106. 2 Capital E:\FR\FM\23MYR1.SGM 23MYR1 lotter on DSK11XQN23PROD with RULES1 45570 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations respectively).7 The Final Rules also included amendments to existing capital rules for futures commission merchants (‘‘FCMs’’) to provide explicit additional capital requirements for proprietary positions in swaps and security-based swaps that are not cleared by a clearing organization.8 Finally, the Final Rules required that financial reports and notices be filed with both the Commission and the NFA 9 and explicitly recognized NFA’s ability to adopt standardized forms and processes to carry out the Commission’s financial reporting and notification requirements for SDs.10 In the period leading up to the 2021 Compliance Date, Commission, NFA, and SEC staff worked together to develop a process for collecting financial reports and responding to market participant inquiries regarding compliance with financial reporting and notice requirements. The Commission also approved NFA’s capital model requirements and review process,11 and NFA adopted new Financial Requirements Section 18,12 which included capital rules largely modeled after the Commission’s Final Rules, and published new standardized financial reporting forms FR–CSE–NLA and FR– CSE–BHC for use by nonbank SDs that are not also registered with the SEC.13 Commission staff also issued eight noaction and interpretive letters in response to inquiries from market participants regarding compliance with various capital and financial reporting obligations under the Final Rules.14 On December 15, 2023, the Commission proposed several amendments to the capital and financial reporting requirements of SDs and MSPs that are consistent with parts of the staff positions taken in two of the letters issued by Commission staff prior to the 2021 Compliance Date: CFTC Staff Letters No. 21–15 and 21–18 (‘‘CFTC Staff Letters’’),15 and that would make other technical and clarifying changes necessary to effectuate the Final Rules’ purpose (the ‘‘Proposal’’).16 CFTC Staff Letter No. 21–15 17 provides the staff’s interpretation of the Tangible Net Worth Capital Approach for calculating capital under Commission regulation 23.101.18 CFTC Staff Letter No. 21–18 (further extended by CFTC Staff Letter No. 23– 11) sets out staff’s time-limited, noaction position regarding alternative financial reporting by SDs subject to the capital requirements of a prudential regulator.19 The technical and clarifying amendments proposed by the Commission included revisions to the required timing of certain notifications; modifications to the process for approval of subordinated debt for capital; and changes to financial reporting forms to conform to the rules.20 The purpose of the amendments is to facilitate compliance by SDs and MSPs with the Commission’s financial reporting and applicable minimum capital obligations. The comment period for the Proposal ended on February 13, 2024.21 The Commission received four substantive comment letters.22 In general, all of 7 Final Rules, 85 FR 57463. Bank SDs, which are not subject to the capital requirements of the Commission, are required to provide the Commission and National Futures Association (‘‘NFA’’) with limited financial information regarding the capital and swap positions of the firms. 17 CFR 23.105(p). 8 Id. 9 Id. at 57515. 10 Id. at 57518. 11 CFTC Staff Letter No. 21–03, Jan. 12, 2021, available at https://www.cftc.gov/csl/21-03/ download. 12 NFA section 18. 13 NFA submitted these rules for Commission review under section 17(j) of the CEA, 7 U.S.C. 21(j), on November 22, 2021, and the rules became effective on December 21, 2021. NFA Notice to Members I–21–45, available at https:// www.nfa.futures.org/news/newsNotice. asp?ArticleID=5437. 14 CFTC Staff Letter No. 21–15, June 29, 2021, available at https://www.cftc.gov/csl/21-15/ download; CFTC Staff Letter No. 21–18, Aug. 31, 2021, available at https://www.cftc.gov/csl/21-18/ download; CFTC Staff Letter No. 21–20, Sept. 30, 2021, available at https://www.cftc.gov/csl/21-20/ download; CFTC Staff Letter No. 21–21, Sept. 30, 2021, available at https://www.cftc.gov/csl/21-21/ download; CFTC Staff Letter No. 21–22, Sept. 30, 2021, available at https://www.cftc.gov/csl/21-22/ download; CFTC Staff Letter No. 21–23, Sept. 30, 2021, available at https://www.cftc.gov/csl/21-23/ download; CFTC Staff Letter No. 22–01, Jan. 5, 2022, available at https://www.cftc.gov/csl/22-01/ download; CFTC Staff Letter No. 22–02, Jan. 5, 2022, available at https://www.cftc.gov/csl/22-02/ download. 15 CFTC Staff Letter No. 21–18 was time-limited and set to expire on October 6, 2023. To permit time for the Commission to issue a proposed rulemaking and address any comments received, the Market Participants Division extended the expiration of the letter to the earlier of October 6, 2025 or the adoption of any revised financial reporting requirements for bank SDs under regulation 23.105(p). CFTC Staff Letter No. 23–11, July 10, 2023, available at https://www.cftc.gov/csl/23-11/ download. 16 Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants, 89 FR 2554 (Jan. 16, 2024) (designated above as ‘‘the Proposal’’). 17 CFTC Staff Letter No. 21–15. 18 17 CFR 23.101. 19 CFTC Staff Letter No. 21–18; CFTC Staff Letter No. 23–11. 20 See the Proposal, 89 FR 2561–2562. 21 Id. at 2555. 22 Letter from Stephanie Webster, Institute of International Bankers, Chris Young, International Swaps and Derivatives Association, and Kyle Brandon, Securities Industry and Financial Markets Association (Feb. 13, 2024) (‘‘IIB/ISDA/SIFMA Letter’’); Letter from Matthew J. Picardi, Shell Energy North America (U.S.) L.P., Shell Trading VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 these letters expressed general support for the proposed amendments.23 One commenter stated that it strongly supports the Commission’s proposed amendments, as they are intended to provide technical and other clarifying changes necessary to effectuate the Final Rule’s purpose.24 Another commenter stated that it applauds the Commission’s efforts to provide regulatory certainty and consistency through the codification of the CFTC Staff Letters and amendments to the Tangible Net Worth Capital Approach for nonbank SDs.25 Specifically, as to the amendments consistent with parts of CFTC Staff Letters No. 21–15 and 21–18, discussed in further detail below, one commenter stated that such amendments enhance the transparency and clarity of the SD capital regime and provide legal certainty and guidance for SDs, while improving transactional efficiency by avoiding the need for oneoff staff letters.26 This commenter further stated that these amendments also facilitate the implementation and enforcement of the capital and financial reporting requirements and promote compliance and cooperation.27 After considering the comments, the Commission is adopting the Proposal subject to certain changes as noted below.28 II. Amendments to Commission Regulations A. CFTC Staff Letters and Other Amendments 1. Amendments to Tangible Net Worth Capital Approach—CFTC Staff Letter No. 21–15 The Commission proposed amendments to certain of its part 23 regulations consistent with parts of interpretive CFTC Staff Letter No. 21–15 addressing the Tangible Net Worth Capital Approach for calculating capital under Commission regulation 23.101.29 The Commission’s Market Participants Division (the ‘‘Division’’) issued CFTC Staff Letter No. 21–15 on June 29, 2021, in response to concerns raised by Risk Management, LLC, and their affiliates (Feb. 13, 2024) (‘‘Shell Letter’’); Letter from Chris Barnard (Feb. 10, 2024) (‘‘Barnard Letter’’); and Letter from Michael Ravnitzky (Jan. 16, 2024) (‘‘Ravnitzky Letter’’). 23 See id. 24 IIB/ISDA/SIFMA Letter at 1–2. 25 Shell Letter at 2. 26 Ravnitzky Letter at 1. 27 Id. 28 Note that as of the effective date of this rulemaking, CFTC Staff Letters No. 21–15 and 21– 18 are hereby withdrawn and no longer in effect. These letters are superseded by the rules being adopted in this release. 29 17 CFR 23.101. E:\FR\FM\23MYR1.SGM 23MYR1 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations nonbank SDs intending to elect the Tangible Net Worth Capital Approach for calculating capital under Commission regulation 23.101 30 regarding the application of the eligibility test to different corporate structures.31 In CFTC Staff Letter No. 21–15, the Division issued its interpretation that the asset and revenue tests for ‘‘predominantly engaged in non-financial activities’’ could be assessed at the nonbank SD’s entity level or ultimate parent level and, further, such tests could be computed under International Financial Reporting Standards issued by the International Accounting Standards Board (‘‘IFRS’’) in lieu of generally accepted accounting principles as adopted in the United States (‘‘U.S. GAAP’’), if the entity was permitted to use IFRS for financial reporting.32 The Division also stated its position that supplemental position reporting for nonbank SDs meeting these qualifications may be filed on a quarterly basis along with the firm’s financial reports, as opposed to monthly.33 To ensure that the Tangible Net Worth Capital Approach may be utilized by eligible nonbank SDs as intended in the Final Rules, the Commission proposed amendments to definitions in Commission regulation 23.100 34 and in the periodicity of Commission regulation 23.105(l) 35 in the Proposal,36 which are consistent with the terms of CFTC Staff Letter No. 21–15. Specifically, the Commission proposed to amend the definitions in Commission regulation 23.100 of the terms ‘‘predominantly engaged in nonfinancial activities’’ and ‘‘tangible net worth’’ to explicitly permit the satisfaction of both the revenue and asset-based tests at the consolidated parent level of the nonbank SD and to clarify that ‘‘tangible net worth’’ may be determined under either U.S. GAAP or IFRS accounting standards.37 The Proposal clarified that the tests may be satisfied either at the level of the nonbank SD or at the level of the nonbank SD’s consolidated parent rather than seeming to exclude the consolidated parent of the nonbank SD, 30 17 CFR 23.101. Staff Letter No. 21–15. 32 Id. at 3–6. 33 Id. at 5–6. Compare 17 CFR 23.105(d) with 17 CFR 23.105(l), as the former includes monthly or quarterly periodicity as opposed to the latter only referring to monthly. 34 17 CFR 23.100. 35 17 CFR 23.105(l). 36 The Proposal, 89 FR 2556–2557. 37 Id. See 17 CFR 23.100 for the definition of the term ‘‘predominantly engaged in non-financial activities.’’ lotter on DSK11XQN23PROD with RULES1 31 CFTC VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 as addressed in CFTC Staff Letter No. 21–15 in response to questions raised by industry.38 The amendment to the definition of ‘‘tangible net worth’’ in Commission regulation 23.100 clarifies that ‘‘tangible net worth’’ may be determined under either applicable accounting standard, U.S. GAAP or IFRS.39 This amendment aligns and corrects the permitted use of IFRS in determining eligibility for the approach with the standard permitted and utilized by the nonbank SD in preparation of its financial statements.40 As discussed in the Final Rule, the Commission is generally comfortable with both U.S. GAAP and IFRS accounting standards in this context, as both of these accounting standards are designed to provide a complete, consistent, and comparable view of the financial condition of a company, especially as both standards continue to move toward greater convergence.41 The Commission received comments generally supporting the proposed amendments to the definitions of the terms ‘‘predominantly engaged in nonfinancial activities’’ and ‘‘tangible net worth’’ in Commission regulation 23.100.42 One commenter stated that the proposed amendments would recognize the financial strength and support of the parent company for the nonbank SD and align the capital requirement with the accounting standards and practices of the parent company.43 This commenter further stated that the proposed amendments would reduce regulatory burden and costs for some nonbank SDs, especially those that are predominantly engaged in non-financial activities and have a high level of tangible net worth.44 Another commenter stated that the proposed amendments are crucial to clarify and simplify the interpretation and implementation of the ‘‘tangible net worth’’ test for eligible nonbank SDs.45 The Commission agrees with the commenters and believes, as discussed above, that the proposed amendments will confirm its intention to permit consideration of the parent company in 38 Id. 39 Id. See 17 CFR 23.100 for the definition of the term ‘‘tangible net worth.’’ 40 Id. Nonbank SDs electing the Tangible Net Worth Capital Approach are currently permitted to use IFRS for their financial reporting obligations under Commission regulation 23.105 (17 CFR 23.105(d) and (e)). IFRS is also permitted as an acceptable reporting standard for all nonbank SDs provided that they otherwise do not prepare financial statements in accordance with U.S. GAAP. 41 Final Rules, 85 FR 57514. 42 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 43 Ravnitzky Letter at 1. 44 Id. 45 Barnard Letter at 2. PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 45571 the assessment of predominantly engaged in non-financial activities under the Final Rules. This approach, as identified in the Final Rules, permits the eligibility test to be applied at the consolidated entity level, which does not penalize a non-financial entity from establishing separate SD subsidiaries to provide financial services for the corporate group, including engaging in swaps on behalf of the corporate group.46 Further, the proposed amendment to allow nonbank SDs to utilize the same accounting standard permitted for their financial reporting comports with the purpose of the eligibility test. As such, the Commission is adopting the amendments to the definitions as proposed. The Commission also proposed to amend Commission regulation 23.105(l) 47 to require that each nonbank SD and nonbank MSP file Appendix B to subpart E of part 23 (‘‘Appendix B’’),48 which contains aggregate securities, commodities, and swap position information and certain credit exposure information, with the Commission and NFA on a quarterly or monthly basis in keeping with their routine financial reporting, rather than a monthly basis.49 This amendment would align that filing with the periodicity permitted as part of the nonbank SD’s or nonbank MSP’s routine financial report filings required by Commission regulation 23.105(d) 50 and would clarify that the information provided should be consistent with those financial report filings.51 46 Final Rules, 85 FR 57502. CFR 23.105(l). 48 Appendix B to subpart E of part 23. 49 The Proposal, 89 FR 2557. The Commission intended the swap position and credit information in Commission regulation 23.105(l) (17 CFR 23.105(l)) and Appendix B to be filed together with other financial information required by Commission regulation 23.105(d) (17 CFR 23.105(d)) as this information is supplementary to the financial statements as a whole and completes the routine financial reporting package. This approach is also consistent with how dually-registered SDs with the SEC complete the SEC’s Form X–17A–5 (‘‘FOCUS Report’’) Part II. SEC Form X–17A–5 FOCUS Report Part II, available at https://www.sec.gov/managefilings/forms-index/form-x-17a-5-2. 50 17 CFR 23.105(d). Commission regulation 23.105(d) permits nonbank SDs electing the Tangible Net Worth Capital Approach to file required financial reports quarterly, whereas nonbank SDs electing either the Bank Based Capital Approach or the Net Liquid Asset Capital Approach are required to file such information on a monthly basis. 51 The Proposal, 89 FR 2557. The Commission previously determined that nonbank SDs electing the Tangible Net Worth Capital Approach may engage in a wide variety of businesses and not be otherwise subject to any financial reporting. Thus, the Commission determined in the Final Rule that such SDs need only file financial reports quarterly and not monthly and may take a longer period of 47 17 E:\FR\FM\23MYR1.SGM Continued 23MYR1 45572 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations The Commission requested comment on the proposed amendment to Commission regulation 23.105(l) 52 to require that each nonbank SD and nonbank MSP file Appendix B with the Commission and NFA on the same quarterly or monthly basis, as applicable, that the firm files its financial information pursuant to Commission regulation 23.105(d).53 In response, the Commission received comments generally supporting the amendment.54 The Commission believes, as discussed above, that this amendment will align the filing of Appendix B with the same periodicity of nonbank SD financial reporting. As such, the Commission is adopting the amendment as proposed. 2. Amendments to Bank SD Financial Reporting Requirements—CFTC Staff Letter No. 21–18 lotter on DSK11XQN23PROD with RULES1 The Commission proposed amendments to certain of its part 23 regulations congruous with parts of CFTC Staff Letter No. 21–18 (and its successor, CFTC Staff Letter No. 23–11) regarding alternative financial reporting by SDs subject to the capital requirements of a prudential regulator.55 The Division issued CFTC Staff Letter No. 21–18 56 on August 31, 2021, in response to concerns by several bank SDs 57 regarding compliance with financial reporting requirements under Commission regulation 23.105(p).58 Bank SDs asserted that the financial reporting filing deadline adopted by the Commission preceded the financial reporting filing deadline imposed by prudential regulators, which conflicted with the Commission’s intent in the Final Rules that the reporting requirements of bank SDs and bank MSPs be consistent with the SEC requirements for bank security-based swap dealers (‘‘SBSDs’’) and bank major security-based swap participants (‘‘MSBSPs’’), to maintain equivalent financial reporting requirements for dually-registered firms.59 Several bank time to file audited financial reports. Final Rules, 85 FR 57514–57515. 52 17 CFR 23.105(l). 53 The Proposal, 89 FR 2557–2558. 54 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 55 The Proposal, 89 FR 2557–2558. 56 CFTC Staff Letter Staff No. 21–18. 57 Letter from Steven Kennedy, Institute of International Bankers and Kyle Brandon, Securities Industry and Financial Markets Association (Aug. 20, 2021) (the ‘‘ISDA–SIFMA Joint Request Letter’’). 58 17 CFR 23.105(p). 59 Commission regulation 23.105(p) requires bank SDs to report financial information within 30 calendar days of quarter-end. 17 CFR 23.105(p)(2). The Instructions for Preparation of Consolidated Reports of Condition and Income, Schedule RC–D, VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 SDs did not register as SBSDs, and therefore are subject only to limited financial reporting under the Commission’s rules.60 In certain instances, the financial reporting required by the prudential regulators for these bank SDs permit a longer period of time and utilize a different format than that adopted by the Commission. Some of these bank SDs are not required to file financial reports with a prudential regulator if the bank SDs are domiciled outside the United States and may instead be subject only to financial reporting of a home country supervisor. Moreover, although Appendix C to subpart E of part 23 (‘‘Appendix C’’) 61 was intended to capture line items on existing Federal Financial Institutions Examination Council (‘‘FFEIC’’) 62 Form 031 (‘‘Call Report’’) provided to prudential regulators, line items on specific schedules within the Call Report had either been removed, added, or otherwise changed since the Commission adopted Appendix C.63 CFTC Staff Letter No. 21–18, as extended under CFTC Staff Letter No. 23–11,64 articulates a position by the Division that it would not recommend that the Commission engage in an enforcement action against bank SDs providing the Commission with copies of financial reports that are required by, and filed with, their respective prudential or home country regulators, in lieu of complying with the substantive requirements of Appendix C, subject to certain conditions.65 CFTC Staff Letter No. 21–18 also contains a no-action position with respect to bank SDs filing comparable Call Report schedules with the Commission in lieu of the schedules contained in Appendix available at https://www.ffiec.gov/pdf/FFIEC_forms/ FFIEC031_FFIEC041_202303_i.pdf, however, permit a bank with more than one foreign office to submit its FFIEC 031 forms within 35 calendar days following quarter-end. Additionally, the SEC extended the filing deadline of FOCUS Report Part IIC for non-U.S. SBSDs subject to a prudential regulator from 30 to 35 days following quarter end, noting that ‘‘U.S. prudential regulators permit certain U.S. banks to file their financial reports 35 days after the quarter end.’’ Order Specifying the Manner and Format of Filing Unaudited Financial and Operational Information by Security-Based Swap Dealers and Major Security-Based Swap Participants That Are Not U.S. Persons and Are Relying on Substituted Compliance Determinations With Respect to Rule 18a–7, 86 FR 59208 (Oct. 26, 2021) at 59210. 60 17 CFR 23.105(p). 61 Appendix C to subpart E of part 23. 62 Federal Financial Institutions Examination Council, Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices—FFIEC 031, available at https:// www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_202203_ f.pdf. 63 ISDA–SIFMA Joint Request Letter at 3–4. 64 See supra note 15. 65 CFTC Staff Letter No. 21–18 at 4–5. PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 C, provided that the comparable schedules are filed with the Commission within the timeframe permitted by the prudential regulators for filing the schedules with the applicable home country regulator.66 CFTC Staff Letter No. 21–18 further provides that the Division would not recommend enforcement action against certain foreign-domiciled bank SDs (‘‘Non-U.S. bank SDs’’) that do not provide financial reports to a prudential regulator if they file with the Commission balance sheet and statement of regulatory capital information in accordance with applicable home country requirements in lieu of the schedules contained in Appendix C, so long as the financial information is in English, with balances converted to U.S. dollars, and the financial information is filed within 15 days of the earlier of the date such financial information is filed or required to be filed with the Non-U.S. bank SDs’ applicable home country regulator.67 Finally, the Division stated that it would not recommend enforcement action against dually-registered Non-U.S. bank SDs filing comparable SEC-required financial reports and schedules with the Commission in lieu of the schedules contained in Appendix C.68 The Commission also proposed to amend Commission regulation 23.105(p) 69 to add an exception to the financial reporting requirements for Non-U.S. bank SDs that do not submit financial reports to a prudential regulator.70 The amendment would permit Non-U.S. bank SDs to file with the Commission financial reports that are submitted to their respective home country regulator, provided the financial reports submitted to the Commission are translated into English with balances converted to U.S. dollars.71 These Non-U.S. bank SDs, however, would continue to be required to file specific swap position information set forth in Schedule 1 to Appendix C.72 Finally, these Non-U.S. bank SDs would be required to file with the Commission such reports no later than 90 calendar days following quarterend.73 This amendment would enable 66 Id. at 4–5, Condition 1. at 5, Conditions 2–4. 68 Id., Condition 5. In comparison to the SEC’s approach to similarly situated bank SBSDs, the Commission’s capital comparability process adopted in Commission regulation 23.106 (17 CFR 23.106) does not extend to bank SDs. 69 17 CFR 23.105(p). 70 The Proposal, 89 FR 2558. 71 Id. 72 Id. 73 Id. Note that the Commission did not propose and is not adopting the restriction in CFTC Staff 67 Id. E:\FR\FM\23MYR1.SGM 23MYR1 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 the Commission to collect such reports to support its ability to monitor the capital condition of all SDs, although the Commission does not establish the capital or margin requirements of bank SDs.74 The Commission requested comment on the proposed amendment to Commission regulation 23.105(p) 75 to add the exception discussed above to the financial reporting requirements for Non-U.S. bank SDs that do not submit financial reports to a prudential regulator.76 In response, the Commission received comments generally supporting the amendment.77 One commenter stated that it agreed that the proposed 90-day time period should permit the Non-U.S. bank SDs sufficient time to prepare and submit the financial reports that are submitted to their respective home country regulator, translated into English with balances converted to U.S. dollars, along with Schedule 1 to Appendix C.78 This commenter further stated that this approach allows the Commission to monitor the capital condition of such Non-U.S. bank SDs, although the Commission does not establish the capital or margin requirements of bank SDs.79 Another commenter stated that this amendment, and the one discussed immediately below, would simplify the compliance and reporting process for some SDs, especially those that are subject to the oversight of other regulators, such as prudential regulators, the SEC, or foreign regulators.80 This commenter further stated that this amendment would also avoid duplication, inconsistency, or conflict among different reporting requirements and standards.81 The Commission has considered the comments, and believes, as discussed above, that this amendment will align the financial reporting requirements of Non-U.S. bank SDs with those of their prudential regulators, while still maintaining the Commission’s ability to properly monitor the capital condition Letter No. 21–18 that Non-U.S. bank SDs be subject to home country capital standards in a G–20 jurisdiction. CFTC Staff Letter No. 21–18 at 3–5. 74 Id. at 2559. Section 4s(f) of the CEA requires SDs and MSPs, including those for which there is a prudential regulator, to make any reports regarding transactions and positions, as well as any reports regarding financial condition, that the Commission adopts by rule or regulation. 7 U.S.C. 6s(f). 75 17 CFR 23.105(p). 76 The Proposal, 89 FR 2558–2559. 77 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 78 IIB/ISDA/SIFMA Letter at 3. 79 Id. 80 Ravnitzky Letter at 1. 81 Id. VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 of all SDs, as these reports still provide the Commission with essentially the same critical financial data.82 As such, the Commission is adopting the amendment as proposed, with the exception of the modification of the word ‘‘approved’’ to ‘‘permitted’’ with respect to the use of acceptable accounting standards to recognize that certain regulatory authorities may not specifically issue an official approval of such standards. The Commission also proposed to add a definition of the term ‘‘Call Report’’ to Commission regulation 23.100 and to amend Commission regulation 23.105(p) 83 to permit bank SDs to file the relevant schedules under the Call Report (Schedule RC and Schedule RC– R), rather than replicating various line items from within those reports on a separately constructed balance sheet and statement of regulatory capital currently maintained in Appendix C.84 Schedule 1 of Appendix C, which contains relevant swap, mixed swap, and security-based swaps position information, would remain a required schedule to be provided by all bank SDs.85 This approach would permit the Commission to collect the necessary financial information to monitor the financial condition of bank SDs, even though it is prepared in accordance with prudential regulators’ guidance, while eliminating the necessity that bank SDs familiarize themselves with a new reporting form and prevent the Commission from having to routinely monitor and update its form when prudential regulators amend their 82 As noted in the Proposal, the Commission did not propose to include the restriction in CFTC Staff Letter No. 21–18 that Non-U.S. bank SDs be subject to home country capital standards in a G–20 jurisdiction. The Commission did not receive comment on this, and as indicated, to date all registered Non-U.S. bank SDs have met this criterion. The Proposal, 89 FR 2558. 83 17 CFR 23.105(p). 84 The Proposal, 89 FR 2558–2559. As adopted, Appendix C contains three schedules: 1. Statement of Financial Condition (balance sheet); 2. Statement of Regulatory Capital; and 3. Schedule 1. Both the Statement of Financial Condition and Statement of Regulatory Capital schedules within Appendix C are modeled off the FOCUS Report Part IIC as adopted by the SEC for bank SBSDs and contain specific line item references corresponding to the Call Report. See Final Rules, 85 FR 57566–57569. Following adoption of these schedules, changes were made to the underlying Call Reports making the schedules obsolete. The SEC has since proposed revisions to the FOCUS Report Part IIC to reflect these changes. See generally Electronic Submission of Certain Materials Under the Securities Exchange Act of 1934; Amendments Regarding the FOCUS Report, 88 FR 23920 (Apr. 18, 2023), available at https://www.federalregister.gov/documents/2023/ 04/18/2023-06330/electronic-submission-of-certainmaterials-under-the-securities-exchange-act-of1934-amendments (the ‘‘FOCUS Report Amendments’’). 85 Id. PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 45573 schedules.86 These changes are consistent with the terms of CFTC Staff Letter No. 21–18, which have resulted in the Commission and its staff receiving the requisite information to meaningfully oversee its population of bank SDs since 2021.87 In addition, and as mentioned above, these amendments would enable the Commission to collect such reports enabling it to continue to monitor the capital condition of all SDs, although the Commission does not establish the capital requirements of banks.88 The Commission requested comment on the added definition to Commission regulation 23.100 and the proposed amendment to Commission regulation 23.105(p) 89 to permit bank SDs to file the relevant schedules under the Call Report (Schedule RC and Schedule RC– R), rather than replicating various line items from within those reports on a separately constructed balance sheet and statement of regulatory capital currently maintained in Appendix C.90 In response, the Commission received comments generally supporting the amendment.91 One commenter stated that it agreed that the above-described approach, which is consistent with the conditions in CFTC Staff Letter No. 21– 18, has resulted in the Commission and its staff receiving the requisite information to meaningfully oversee its population of bank SDs since 2021.92 This commenter further stated that it supported the proposed evergreen approach that provides for U.S. bank SDs to submit the relevant portions of the Call Report, as updated by U.S. prudential regulators from time to time, noting that it will avoid the need to periodically update the Commission’s forms to ensure the cross references align with the current version of the Call Report.93 The Commission agrees with commenters and believes, as discussed above, that this amendment will align the financial reporting requirements of bank SDs with those of their prudential regulators, while still maintaining the Commission’s ability to monitor the capital condition of all SDs. As such, the Commission is adopting the definition of Call Report and the amendment as proposed. The Commission also proposed to amend Commission regulation 86 Id. 87 Id. 88 Id. 89 17 CFR 23.105(p). Proposal, 89 FR 2559. 91 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 92 IIB/ISDA/SIFMA Letter at 4. 93 Id. 90 The E:\FR\FM\23MYR1.SGM 23MYR1 45574 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations 23.105(p)(7) 94 to require a bank SD or bank MSP that is also registered with the SEC as an SBSD or MSBSP and files a quarterly Form X–17A–5 FOCUS Report Part IIC with the SEC pursuant to 17 CFR 240.18a–7,95 to file such Form X–17A–5 FOCUS Report Part IIC with the Commission in lieu of the Call Report.96 Such a dual-registrant would be required to file the form with the Commission when it files the form with the SEC, but no later than 30 calendar days from the date the report is made. The Commission requested comment on the proposed amendment to Commission regulation 23.105(p)(7) to require such dual-registered bank SD or bank MSP to file Form X–17A–5 FOCUS Report Part IIC with the Commission in lieu of the Call Report when it files the form with the SEC, but no later than 30 calendar days from the date the report is made.97 One commenter stated that the 30-day deadline is inconsistent with the Commission’s alignment of the deadline for U.S. bank SDs that are not also SBSDs to submit the Call Report when required by the prudential regulators.98 This commenter further stated that the SEC aligned its deadline for all bank SBSDs to submit FOCUS Report Part IIC to the same 35-day deadline 99 and that the commenter believed that the Commission intended to align its deadline, along with the form of required reports, with those required by prudential regulators and the SEC.100 The commenter further suggested that the Commission should amend the rule text to reflect that intention and to make clear that the Commission requires bank SDs that are also SBSDs to submit to the Commission the same reports on the same day as they do to the SEC.101 After considering the comments, the Commission is adopting the amendment as proposed, with the exception of replacing the 30 calendar day requirement with 35 calendar days. The Commission believes providing an additional five days will not have 94 17 CFR 23.105(p)(7). CFR 240.18a–7. 96 The Proposal, 89 FR 2558. 97 Id. at 2558–2559. 98 IIB/ISDA/SIFMA Letter at 5. 99 Id. See SEC, Division of Trading and Markets letter on Financial Reporting requirements for Security-Based Swap Dealers and Major SecurityBased Swap Participants (Oct. 27, 2021) and Order Specifying the Manner and Format of Filing Unaudited Financial and Operational Information by Security-Based Swap Dealers and Major Security-Based Swap Participants That Are Not U.S. Persons and Are Relying on Substituted Compliance Determinations With Respect to Rule 18a–7, 86 FR 59208 (Oct. 26, 2021) at 59210. 100 Id. 101 Id. lotter on DSK11XQN23PROD with RULES1 95 17 VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 any negative impact on the Commission’s use of bank SD financial reporting, as the information will still be timely, and agrees with the commenter that aligning the time period to 35 calendar days after the report date in practical effect will allow dualregistrants to submit the reports to the Commission on the same day as they do to the SEC, which comports with the Commission’s intent.102 The Commission, however, is not adopting the specific regulatory text suggested by the commenter, because adopting such text would eliminate any specific timeframe other than by reference to as permitted by the SEC. Although the Commission intends to allow dualregistrants to submit reports on the same day, the Commission believes this approach will permit the Commission to evaluate any potential longer reporting time periods that may be prospectively adopted by the SEC. As such, the Commission is adopting the amendment as proposed, with the revision discussed above. basis.110 This has resulted in several nonbank SDs filing each of the schedules to Appendix B without having received capital model approval.111 Hence, in current form, Commission regulations 23.105(k) and (l),112 as well as the titles of Schedules 2–4 of Appendix B, could more explicitly indicate that all of the information within the schedules included in Appendix B is required of all nonbank SDs, including those not authorized to use models.113 The Appendix B schedules are identical to corresponding schedules found in SEC’s FOCUS Report required to be completed by both SBSDs and certain broker dealers (‘‘BDs’’).114 To the extent practicable, the Commission intends to align financial reporting requirements, including those listed in textual form in Commission regulation 23.105(k) 115 and in the finalized schedules part of Appendix B, with the reporting requirements finalized by the SEC pertaining to SBSDs, MSBSPs, and BDs.116 This is also consistent with the Commission’s general approach 3. Amendments Regarding Financial permitting dually-registered BDs and Reporting and Other Requirements of SBSDs to file SEC Form FOCUS Report SDs Part II in lieu of their requirements a. Amendments to Schedules in under Commission regulations Financial Reporting 23.105(d) and (e),117 and for those The Commission proposed to amend dually-registered SBSDs subject to the the scope of Commission regulation capital rules of a prudential regulator 23.105(k) 103 and the heading and scope under Commission regulation of Commission regulation 23.105(l),104 23.105(p).118 as well as the titles of certain schedules NFA has also adopted nearly identical included in Appendix B,105 to further capital and financial reporting clarify that these reporting obligations requirements for its member nonbank are applicable to all nonbank SDs and SDs and nonbank MSPs.119 The nonbank MSPs.106 Commission finalized NFA rules mandate the use of regulation 23.105(k) 107 lists both model- comprehensive standardized forms for specific information that nonbank SDs financial reporting by member nonbank must report as well as a description of SDs and nonbank MSPs that are not the same type of exposure information otherwise able to file an SEC Form as reflected in the schedules to 110 The Proposal, 89 FR 2559. Appendix B.108 Commission regulation 111 Id. 23.105(l),109 however, requires all 112 17 CFR 23.105(k) and (l). nonbank SDs, including those not 113 The Proposal, 89 FR 2559. To further approved to use models, to complete the complicate matters, the heading and first paragraph Appendix B schedules on a monthly to Commission regulation 23.105(k) (17 CFR 102 The Proposal, 89 FR 2560. CFR 23.105(k). 104 17 CFR 23.105(l). 105 Appendix B is comprised of 4 individual schedules: SCHEDULE 1—AGGREGATE SECURITIES, COMMODITIES AND SWAPS POSITIONS; SCHEDULE 2—CREDIT CONCENTRATION REPORT FOR FIFTEEN LARGEST EXPOSURES IN DERIVATIVES; SCHEDULE 3—PORTFOLIO SUMMARY OF DERIVATIVES EXPOSURES BY INTERNAL CREDIT RATING; and SCHEDULE 4— GEOGRAPHIC DISTRIBUTION OF DERIVATIVES EXPOSURES FOR TEN LARGEST COUNTRIES. 106 The Proposal, 89 FR 2559. 107 17 CFR 23.105(k). 108 The Proposal, 89 FR 2559. 109 17 CFR 23.105(l). 103 17 PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 23.105(k)) both indicate that this provision only applies to SDs approved to use internal models to calculate market risk and credit risk for calculating capital under Commission regulation 23.102(d) (17 CFR 23.102(d)). 114 See FOCUS Report Amendments. 115 17 CFR 23.105(k). 116 See Final Rules, 85 FR 57519. 117 17 CFR 23.105(d) and (e). 118 17 CFR 23.105(p). As indicated in the Final Rule, the Commission has a long history of permitting SEC registrants to meet their financial statement filing obligations with the Commission by submitting required SEC forms in lieu of the CFTC’s forms, which reduces the burden on duallyregistered firms by not requiring two separate financial reporting requirements. See Final Rules, 85 FR 57515. 119 NFA section 18. E:\FR\FM\23MYR1.SGM 23MYR1 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations FOCUS Report Part II.120 These new NFA forms, FR–CSE–NLA and FR–CSE– BHC, include each of the required schedules found in Appendix B. All the information listed in textual form in paragraph (k)(1)(v) of Commission regulation 23.105 121 can be found in specific schedules found in Appendix B.122 The Commission proposed Appendix B, which is now part of NFA’s adopted forms, to be the primary mechanism for firms to provide the required information listed in Commission regulation 23.105(k).123 The amendment to Commission regulation 23.105(k) 124 clarifies that Appendix B schedules are required to be completed by all nonbank SDs and nonbank MSPs as intended by the Final Rule, and is consistent with that required by the SEC and NFA.125 Further, the Commission’s proposed amendment to Commission regulation 23.105(l) 126 and the headings of certain schedules in Appendix B would make clear that these schedules must be reported at the same periodicity as the financial reporting of each respective nonbank SD, either monthly or quarterly as applicable, and that all of the schedules are required for all nonbank SDs, not just those authorized to use models.127 The Commission requested comment on the proposed amendments to revise the scope of Commission regulation 23.105(k) 128 and the heading and scope of Commission regulation 23.105(l),129 as well as the titles of certain schedules included in Appendix B.130 In response, the Commission received comments generally supporting the amendments.131 The Commission believes, as discussed above, that these 120 NFA section 18(e). CFR 23.105(k)(1)(v). 122 For example, Commission regulation 23.105(k)(1)(v)(B) (17 CFR 23.105(k)(1)(v)(B)) requires that all model-approved SDs file the ‘‘Current exposure (including commitments) listed by counterparty for the 15 largest exposures,’’ which is also found in Schedule 2 to Appendix B. Similarly, the information listed in textual form in Commission regulations 23.105(k)(1)(i)–(v) (17 CFR 23.105(k)(1)(i)–(v)) corresponds verbatim to the textual requirements found in SEC rule 18a–7(a)(3). See 17 CFR 240.18a–7(a)(3). 123 17 CFR 23.105(k). As discussed in the Final Rule, the Commission may (and subsequently has) approved additional procedures developed by an RFA, which could include standard forms or procedures necessary to carry out the Commission’s filing requirements. See Final Rules, 85 FR 57518. 124 17 CFR 23.105(k). 125 The Proposal, 89 FR 2560. 126 17 CFR 23.105(l). 127 The Proposal, 89 FR 2559. 128 17 CFR 23.105(k). 129 17 CFR 23.105(l). 130 The Proposal, 89 FR 2559–2560. 131 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. lotter on DSK11XQN23PROD with RULES1 121 17 VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 amendments will make clear that these reporting obligations apply to all nonbank SDs and nonbank MSPs, as intended in the Final Rule. As such, the Commission is adopting the amendments as proposed. b. Changes to Public Disclosure Requirements The Commission proposed to amend Commission regulation 23.105(i) 132 to align the public disclosure of unaudited financial information with the periodicity permitted by routine financial filings in Commission regulation 23.105(d),133 and to remove reference to a statement in both the unaudited and audited information disclosing the amounts of minimum regulatory capital and the amount of its minimum regulatory capital requirement computed in accordance with Commission regulation 23.101.134 Currently, paragraphs (i)(l)(ii) and (i)(2)(ii) of Commission regulation 23.105 require a nonbank SD or nonbank MSP to publicly disclose on its website a statement of the amount of the nonbank SD’s or nonbank MSP’s regulatory capital and its minimum capital requirement.135 This information is required to be disclosed as of the nonbank SD’s or nonbank MSP’s fiscal year-end, and as of six months after the firm’s fiscal year-end. The Commission proposed to revise Commission regulation 23.105(i)(1)(i) 136 to include the footnotes to the unaudited Statement of Financial Condition in the required disclosures.137 The Commission also proposed to revise Commission regulations 23.105(i)(1)(ii) and (i)(2)(ii) 138 to replace the word ‘‘statement’’ with ‘‘amounts’’ to indicate that required capital information does not need to exist in a standalone statement or form.139 To the extent practicable, the Commission indicated its intention was to align its requirements with those required of BDs and SBSDs by the SEC 140 and determined that the information, regardless of its format, contained in the footnotes accompanying the financial statements should ordinarily satisfy the requirements for disclosing minimum regulatory capital.141 132 17 CFR 23.105(i). CFR 23.105(d). 134 The Proposal, 89 FR 2560; 17 CFR 23.101. 135 17 CFR 23.105(i)(1)(ii) and (i)(2)(ii). 136 17 CFR 23.105(i)(1)(i). 137 The Proposal, 89 FR 2560. 138 17 CFR 23.105(i)(1)(ii) and (i)(2)(ii). 139 The Proposal, 89 FR 2560. 140 See 17 CFR 240.18a–7(b). 141 The Proposal, 89 FR 2560. 133 17 PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 45575 The Commission requested comment on the proposed amendments to Commission regulation 23.105(i) 142 to align the public disclosure of unaudited financial information with the periodicity permitted by routine financial filings in Commission regulation 23.105(d),143 and to remove reference to a statement in both the unaudited and audited information disclosing the amounts of minimum regulatory capital and the amount of its minimum regulatory capital requirement computed in accordance with Commission regulation 23.101.144 In response, the Commission received comments generally supporting the amendments.145 The Commission believes, as discussed above, that these amendments will align the periodicity of different financial reporting requirements of nonbank SDs and create flexibility as to the format for disclosing minimum regulatory capital. As such, the Commission is adopting the amendments as proposed. c. Changes to Form 1–FR–FCM The Commission proposed to amend Form 1–FR–FCM to add new lines 22.A.vi through vii. to the Statement of the Computation of the Minimum Capital Requirements schedule (‘‘Statement of Minimum Capital Schedule’’) to include the 2 percent of uncleared swap margin capital requirement under Commission regulation 1.17(a)(1)(i)(B)(2).146 The Commission also proposed to amend Form 1–FR–FCM to add the specific market risk charges for swaps and security-based swaps as new lines 16.D. of the Statement of Minimum Capital Schedule.147 Commission regulation 1.10 requires all FCMs to submit a Form 1–FR–FCM when they file for registration as an FCM and periodically following registration.148 Form 1–FR–FCM includes, among other things, the Statement of Minimum Capital Schedule as a supplementary schedule.149 In the Final Rule, the Commission added a 2 percent of uncleared swap margin capital requirement to the risk-based net capital requirement for FCMs that are also registered as SDs (‘‘FCM–SDs’’), and adopted specific market risk charges for 142 17 CFR 23.105(i). CFR 23.105(d). 144 The Proposal, 89 FR 2560; 17 CFR 23.101. 145 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 146 The Proposal, 89 FR 2560; 17 CFR 1.17(a)(1)(i)(B)(2). 147 Id. 148 17 CFR 1.10. 149 CFTC Form 1–FR–FCM at 6–8. 143 17 E:\FR\FM\23MYR1.SGM 23MYR1 45576 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations uncleared swaps in the FCM net capital requirements in Commission regulation 1.17.150 Further, FCMs dually-registered as BDs are permitted to file the SEC’s FOCUS Report Part II in lieu of the Commission’s Form 1–FR–FCM in reporting net capital.151 On March 22, 2023, the SEC proposed to amend its FOCUS Report Part II to include the Commission’s net capital changes adopted for FCM–SDs, including the addition of the 2 percent uncleared swap margin to the risk-based net capital requirement of FCM–SDs.152 The Commission proposed the amendments to Form 1–FR–FCM to more explicitly require disclosure of the 2 percent amount and conform with the SEC’s proposal as well as to provide important information to assist the Commission in monitoring compliance of FCM–SD with the capital requirements adopted in the Final Rule.153 This information is important to the Commission in monitoring the Final Rules, as reporting the 2 percent amount enables the Commission to confirm that the FCM– SD is complying with its capital requirement.154 The Commission requested comment on the proposed amendments to Form 1–FR–FCM to add new lines to the form to include the 2 percent of uncleared swap margin capital requirement under Commission regulation 1.17(a)(1)(i)(B)(2) 155 and to add specific disclosure of the haircuts for swaps and security-based swaps in the computation of net capital on the form.156 In response, the Commission received comments generally supporting the amendments.157 The Commission believes, as discussed above, that these amendments will ensure the collection of information that is important to the Commission in monitoring the Final Rules and will align the specific items within the Form 1–FR–FCM Statement of Minimum Capital Schedule with comparable schedules within the FOCUS Report Part II utilized by dualregistered BD or SBSDs. As such, the Commission is adopting the amendments to the Form 1–FR–FCM as proposed. lotter on DSK11XQN23PROD with RULES1 150 17 CFR 1.17(a)(1)(i)(B)(2) and (c)(5)(iii). See generally Final Rules, 85 FR 57473–57476 and 57562. 151 17 CFR 1.10(h). 152 See generally FOCUS Report Amendments. 153 The Proposal, 89 FR 2561. 154 Id. 155 17 CFR 1.17(a)(1)(i)(B)(2). 156 The Proposal, 89 FR 2560–2561. 157 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 d. Additional Cross References To Clarify Applicable Market and Credit Risk Charges The Commission proposed to add new language to Commission regulations 23.103(a)(1) and (c)(1) 158 to clarify that the same standardized market and credit risk charges are applicable to nonbank SDs electing the Tangible Net Worth Capital Approach as are applicable to all other nonbank SDs not approved to use models.159 Commission regulation 23.103(b) 160 provides that nonbank SDs electing the Tangible Net Worth Capital Approach or Net Liquid Assets Capital Approach are required to compute standardized market risk charges contained in SEC Rule 18a–1 161 and Commission regulation 1.17,162 as applicable. Commission regulation 23.103(c) 163 also provides that a nonbank SD electing the Net Liquid Assets Capital Approach must compute its standardized credit risk charge in accordance with SEC Rule 18a–1 164 or Commission regulation 1.17,165 as applicable, but fails to provide a reference for nonbank SDs electing the Tangible Net Worth Capital Approach.166 Because standardized credit risk charges were intended to be the same for nonbank SDs using the Tangible Net Worth Capital Approach or the Net Liquid Assets Capital Approach, the Commission proposed to amend Commission regulations 23.103(a)(1) and (c)(1) 167 to correct this omission by directing nonbank SDs electing the Tangible Net Worth Capital Approach to compute standardized credit risk charges in accordance with SEC Rule 18a–1 168 or Commission regulation 1.17,169 as applicable.170 Similarly, the Commission proposed to amend Commission regulation 23.102(d) 171 to correct the applicable cross reference in order to make it 158 17 CFR 23.103(a)(1) and (c)(1). Proposal, 89 FR 2560. 160 17 CFR 23.103(b). 161 17 CFR 240.18a–1. 162 17 CFR 1.17. 163 17 CFR 23.103(c). 164 17 CFR 240.18a–1. 165 17 CFR 1.17. 166 SDs electing to use the Tangible Net Worth Capital Approach are required to meet a minimum capital requirement which includes, among other things, $20 million plus the amount of the SD’s market risk exposure requirement and its credit risk exposure requirement associated with the SD’s swap and related hedge positions that are part of the SD’s swap dealing activities. 17 CFR 23.101(a)(2)(ii)(A). 167 17 CFR 23.103(a)(1) and (c)(1). 168 17 CFR 240.18a–1. 169 17 CFR 1.17. 170 The Proposal, 89 FR 2561. 171 17 CFR 23.102(d). 159 The PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 clearer that either 12 CFR part 217 or Appendix A to subpart E of part 23 (‘‘Appendix A’’) 172 should be utilized as applicable by the nonbank SD depending on the respective capital approach elected.173 The Commission requested comment on the proposed amendments to Commission regulations 23.103(a)(1) and (c)(1) 174 to clarify that the same standardized market and credit risk charges are applicable to nonbank SDs electing the Tangible Net Worth Capital Approach as are applicable to all other nonbank SDs not approved to use models, as well as the amendments to Commission regulation 23.102(d) 175 to correct the applicable cross reference in order to make it clearer that either 12 CFR part 217 or Appendix A should be utilized as applicable by the nonbank SD depending on the respective capital approach elected.176 In response, the Commission received comments generally supporting the amendments.177 The Commission believes, as discussed above, that these amendments will provide clarity on the applicable market and credit risk charges as well as which regulatory reference (12 CFR part 217 or Appendix A) should be utilized depending on the elected capital approach by the SD, as intended by the Final Rule. As such, the Commission is adopting the amendments as proposed. B. Other Amendments 1. Notice of Substantial Reduction in Capital The Commission proposed to amend Commission regulation 23.105(c)(4) 178 to add a two-business day reporting timeframe to the requirement for a nonbank SD to file notice of a substantial reduction in capital.179 Currently, Commission regulation 23.105(c)(4), which requires nonbank SDs and nonbank MSPs to provide notice of a substantial reduction in capital as compared to the last reported in a financial report, does not specify a timeframe for the notice filing.180 The Commission requested comment on the proposed amendment to Commission regulation 23.105(c)(4) 181 to add a two-business day reporting 172 Appendix 173 The A to subpart E of part 23. Proposal, 89 FR 2561; Final Rules, 85 FR 57506. 174 17 CFR 23.103(a)(1) and (c)(1). 175 17 CFR 23.102(d). 176 The Proposal, 89 FR 2561. 177 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 178 17 CFR 23.105(c)(4). 179 The Proposal, 89 FR 2561. 180 17 CFR 23.105(c)(4). 181 17 CFR 23.105(c)(4). E:\FR\FM\23MYR1.SGM 23MYR1 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations timeframe to the requirement for a nonbank SD to file notice of a substantial reduction in capital.182 In response, the Commission received comments generally supporting the amendments.183 One commenter stated that the addition of a concrete reporting timeframe will provide regulatory certainty regarding when such a filing is due and align it with current FCM capital reduction notification timing requirements.184 The Commission agrees with commenters and believes that the amendment will align with the two-business day reporting timeframe applied to FCMs and provide regulatory certainty as to when the notification is required, while still making the notice timely. As such, the Commission is adopting the amendment as proposed. 2. Subordinated Debt Approval The Commission proposed to amend Commission regulations 23.101(a)(1)(i)(B) and add 23.101(a)(1)(ii)(D) 185 to establish that using subordinated debt as regulatory capital is subject to the approval of either an RFA of which the nonbank SD is a member or the Commission.186 The nonbank SD capital requirements for both the Bank-Based Capital Approach and the Net Liquid Assets Capital Approach permit the use of subordinated debt as capital in order to align with the permitted use of subordinated debt under the FCM net capital requirements.187 The requirements for qualifying subordinated debt were adopted by the SEC in its capital rule for SBSDs and were included by reference by the Commission for other nonbank SDs in the Bank-Based Capital Approach.188 Commission staff received questions regarding the process for approving subordinated debt for nonbank SDs not also registered with the SEC because the Final Rule did not articulate a process.189 To address this omission, NFA adopted Financial Requirements Rule Section 18(d).190 Under the existing framework, NFA already 182 The Proposal, 89 FR 2561. IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 184 Ravnitzky Letter at 2. 185 17 CFR 23.101(a)(1)(i)(B) and (a)(1)(ii)(D). 186 The Proposal, 89 FR 2561–2562. 187 17 CFR 1.17(h). 188 17 CFR 23.101(a)(1). 189 The Proposal, 89 FR 2561–2562. 190 See generally NFA Interpretative Notice 9078 (Feb. 18, 2021), available at https:// www.nfa.futures.org/rulebooksql/rules.aspx? Section=9&RuleID=9078#:∼:text=In%20order%20 to%20permit%20these%20non-SEC%20 registered%20SD,NFA%27s%20preapproval%20of%20the%20subordinated %20debt%20loan%20agreement. lotter on DSK11XQN23PROD with RULES1 183 See VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 approves subordinated loan agreements for net capital agreements for nonbank SDs that are not dually-registered with the SEC. Similarly, although nonbank SDs that are dually-registered with the SEC are able to obtain SEC approval on subordinated debt,191 nonbank SDs that elect either the Bank-Based Capital Approach or the Net Liquid Assets Capital Approach but are not registered with the SEC, do not have an approval process for the use of subordinated debt under the Commission’s rules. As discussed in the Final Rule,192 when adopting the permissive use of subordinated debt in establishing minimum regulatory capital, the Commission has long approved a process for FCMs to obtain subordinated debt approval from their Designated Self-Regulatory Organizations (‘‘DSROs’’), including the NFA.193 The Commission proposed to permit NFA to administer the approval process for nonbank SDs because of the NFA’s extensive history and experience as a DSRO administering a subordinated debt approval program for FCMs.194 The Commission requested comment on the proposed amendment to Commission regulations 23.101(a)(1)(i)(B) and addition of 23.101(a)(1)(ii)(D) 195 to establish that using subordinated debt as regulatory capital is subject to the approval of either an RFA of which the nonbank SD is a member or the Commission.196 In response, the Commission received comments generally supporting the amendments.197 The Commission believes that this amendment will address the omission discussed above and that NFA has the history, experience and resources to adequately perform the review, approval and ongoing assessment of nonbank SDs’ permitted use of subordinated debt. As 191 Nonbanks SDs that are duly-registered as SBSDs typically elect under Commission regulation 23.101(a)(1)(ii) (17 CFR 23.101(a)(1)(ii)) to maintain net capital by complying with § 240.18a–1d, and are independently subject to such requirements, including the subordinated-debt approval process, by their registration as a SBSD with the SEC. 17 CFR 240.18a–1d. 192 Final Rules, 85 FR 57495. 193 See Miscellaneous Rule Deletions, Amendments or Clarifications, 57 FR 20633, 20634 (May 14, 1992). The subordinated debt approval program for FCMs administered by NFA has been in place for over 30 years. In addition, the NFA, as the only registered futures association under the CEA, is specifically required to adopt capital requirements on its members, including SDs, and to implement a program to audit and enforce the compliance with such requirements in accordance with section 17(p)(2) of the CEA, 7 U.S.C. 21(p)(2). 194 The Proposal, 89 FR 2562. 195 17 CFR 23.101(a)(1)(i)(B) and (a)(1)(ii)(D). 196 The Proposal, 89 FR 2561–2562. 197 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 45577 such, the Commission is adopting the amendment as proposed. 3. Statement of No Material Difference The Commission proposed to amend Commission regulation 23.105(e)(4)(v) 198 for nonbank SDs and nonbank MSPs to explicitly require a statement, if applicable, that there are no material differences between the audited annual report and the unaudited annual report of the same date.199 The Commission also proposed to amend Commission regulation 23.105(e)(6),200 to more explicitly require nonbank SDs and nonbank MSPs also registered as FCMs to fully comply with the requirements of Commission regulation 1.16.201 Commission regulation 23.105(e) 202 requires nonbank SDs and nonbank MSPs to submit an annual audited financial report with the Commission and with NFA.203 Included with the financial report is, among other things, a reconciliation of any material differences from the unaudited financial reports prepared as of the nonbank SD’s or nonbank MSP’s year-end date. For instances in which no material differences exist between the unaudited and audited year-end financial statements, however, Commission regulation 1.10(d)(2)(vi) 204 requires FCMs to include a statement indicating that no such differences exist. Currently, Commission regulation 23.105(e) 205 does not provide for such a statement in this parallel provision for audits of nonbank SDs or nonbank MSPs. The Commission proposed to amend Commission regulation 23.105(e)(4)(v) 206 so that when nonbank SDs and nonbank MSPs file their audited annual report, a statement that there are no material differences between the audited annual report and the unaudited annual report is included, if no such differences exist.207 The Commission requested comment on the proposed amendment to Commission regulation 23.105(e)(4)(v) 208 to require nonbank SDs and nonbank MSPs to explicitly provide a statement, if applicable, that there are no material differences between the audited annual report and the unaudited annual report of the same 198 17 CFR 23.105(e)(4)(v). Proposal, 89 FR 2562. 200 17 CFR 23.105(e)(6). 201 17 CFR 1.16. 202 17 CFR 23.105(e). 203 17 CFR 23.105(e). 204 17 CFR 1.10(d)(2)(vi). 205 17 CFR 23.105(e). 206 17 CFR 23.105(e)(4)(v). 207 The Proposal, 89 FR 2562. 208 17 CFR 23.105(e)(4)(v). 199 The E:\FR\FM\23MYR1.SGM 23MYR1 45578 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations date.209 In response, the Commission received comments generally supporting the amendments.210 One commenter stated that requiring a specific statement that no material differences exist when none are otherwise reported will provide more complete and meaningful information to users of the financial reports and align the filing approach for auditors of nonbank SDs and nonbank MSPs with that of FCMs.211 The Commission agrees with commenters and believes that these amendments will enhance the reliability of the annual reports by ensuring auditors assess the materiality of any discovered audit differences, and that nonbank SDs and nonbank MSPs also registered as FCMs fully comply with FCM annual report requirements. As such, the Commission is adopting the amendments to Commission regulation 23.105(e) 212 as proposed. III. Related Matters A. Regulatory Flexibility Act The Regulatory Flexibility Act (‘‘RF Act’’) requires that Federal agencies consider whether the regulations they propose will have a significant economic impact on a substantial number of small entities, and if so, provide a regulatory flexibility analysis respecting the impact.213 This rulemaking would affect the obligations of SDs, MSPs, and FCMs. The Commission has previously determined that SDs, MSPs, and FCMs are not small entities for purposes of the RF Act.214 Therefore, the requirements of the RF Act do not apply to those entities. Accordingly, for the reasons stated above, the Commission has determined that this rulemaking will not have a significant economic impact on a substantial number of small entities. Therefore, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the Commission regulations being published today by this Federal Register release will not have a significant economic impact on a substantial number of small entities. 209 The Proposal, 89 FR 2562. IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 211 Barnard Letter at 2. 212 17 CFR 23.105(e). 213 5 U.S.C. 601 et seq. 214 Policy Statement and Establishment of Definitions of ‘‘Small Entities’’ for Purposes of the Regulatory Flexibility Act, 47 FR 18618 (Apr. 30, 1982) (FCMs) and Registration of Swap Dealers and Major Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (SDs and MSPs). lotter on DSK11XQN23PROD with RULES1 210 See VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 B. Paperwork Reduction Act 1. Background The Paperwork Reduction Act of 1995 (‘‘PRA’’) 215 imposes certain requirements on Federal agencies, including the Commission, in connection with conducting or sponsoring any ‘‘collection of information’’ as defined by the PRA. Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number from the Office of Management and Budget (‘‘OMB’’). The PRA is intended, in part, to minimize the paperwork burden created for individuals, businesses, and other persons as a result of the collection of information by federal agencies, and to ensure the greatest possible benefit and utility of information created, collected, maintained, used, shared, and disseminated by or for the federal government. The PRA applies to all information, regardless of form or format, whenever the federal government is obtaining, causing to be obtained, or soliciting information, and includes required disclosure to third parties or the public, of facts or opinions, when the information collection calls for answers to identical questions posed to, or identical reporting or recordkeeping requirements imposed on, ten or more persons. The final rulemaking modifies an existing collection of information previously approved by OMB and for which the Commission has received an OMB control number: OMB control number 3038–0024, ‘‘Regulations and Forms Pertaining to Financial Integrity of the Market Place; Margin Requirements for SDs/MSPs’’ (OMB Collection 3038–0024).216 The responses to this collection of information are mandatory. The Commission does not believe the Final Rule as adopted imposes any other new collections of information that require approval of OMB under the PRA. The Commission did not receive any comments regarding its PRA burden analysis in the preamble to the Proposal. The Commission is revising collection number 3038–0024 to reflect the adoption of amendments to parts 1 and 23 of its regulations, as discussed below. 2. OMB Collection 3038–0024— Regulations and Forms Pertaining to Financial Integrity of the Market Place; Margin Requirements for SDs/MSPs As of March 2024, there are approximately 107 SDs and no MSPs registered with the Commission that may be impacted by this rulemaking and, in particular, the collection of information discussed below. Commission regulation 23.105 217 requires that each SD and MSP maintain certain specified records, report certain financial information, and notify or request permission from the Commission under certain specified circumstances, in each case, as provided in the Commission regulation. For example, the Commission regulation requires generally that SDs and MSPs maintain current books and records, provide notice to the Commission of regulatory capital deficiencies and related documentation, provide notice of certain other events specified in the rule, and file financial reports and related materials with the Commission (including the information in Appendices B and C, as applicable). Commission regulation 23.105 218 also requires the SD or MSP to furnish information about its custodians that hold margin for uncleared swap transactions and the amounts of margin so held, and for SDs approved to use models (as discussed above), provide additional information regarding such models, as further described in Commission regulation 23.105(k).219 The Commission estimates that there are 31 SD firms required to fulfill their financial reporting, recordkeeping, and notification obligations under Commission regulations 23.105(a)– (n) 220 because they are not subject to a prudential regulator, not already registered as an FCM, and not duallyregistered as a SBSD. The Commission does not anticipate that its estimates of burden associated with these obligations will change as a result of any of the amendments to Commission regulation 23.105 221 adopted herein. Commission regulation 23.105(p) 222 and its accompanying Appendix C impose quarterly financial reporting and notification obligations on SDs subject to a prudential regulator. Approximately 55 of the 107 registered SDs are subject to a prudential regulator. The Commission has previously estimated that these reporting and notification 217 17 215 44 U.S.C. 3501 et seq. 216 For the previously approved estimates, see ICR Reference No. 202207–3038–001, available at https://www.reginfo.gov/public/do/PRAViewICR? ref_nbr=202207-3038-001. PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 CFR 23.105. 218 Id. 219 17 CFR 23.105(k). CFR 23.105(a)–(n). 221 17 CFR 23.105. 222 17 CFR 23.105(p). 220 17 E:\FR\FM\23MYR1.SGM 23MYR1 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 requirements impose an ongoing burden of 33 hours annually. This results in a total aggregate burden of 1,815 hours annually. The Commission estimates this burden will remain unchanged by the amendments to Commission regulation 23.105(p) 223 adopted herein, as the burden associated with requirements to file quarterly financial reporting and notifications previously were based on these entities filing their existing information contained in Call Reports along with Schedule 1 information. Under the amendments adopted herein, these obligations will remain the same for bank SDs, except for Non-U.S. bank SDs who will also still file existing financial reporting information as reported to their home country supervisor, along with Appendix C Schedule 1 information. C. Section 15(b) Antitrust Laws Section 15(b) of the CEA requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the purposes of the CEA, in issuing any order or adopting any Commission rule or regulation (including any exemption under section 4(c) or 4c(b)), or in requiring or approving any bylaw, rule, or regulation of a contract market or registered futures association established pursuant to section 17 of the CEA.224 The Commission believes that the public interest to be protected by the antitrust laws is generally to protect competition. The Commission has considered the rule to determine whether it is anticompetitive and has identified no anticompetitive effects. The Commission requested and received no comments on whether the proposed rule is anticompetitive and, if it is, what the anticompetitive effects are. Further, the Commission requested and received no comments on whether there are less anticompetitive means of achieving the relevant purposes of the Act that would otherwise be served by adopting the rule. Finally, the Commission requested and received no comments on whether the proposed rule implicates any other specific public interest to be protected by the antitrust laws. The Commission has determined that the rule is not anticompetitive and has no anticompetitive effects, and it has not identified any less anticompetitive means of achieving the purposes of the Act. As such, the Commission is adopting the rule as proposed subject to the modifications discussed herein. 223 Id. 224 7 U.S.C. 19(b). VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 IV. Cost Benefit Considerations A. Background Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its discretionary actions before promulgating a regulation under the CEA or issuing certain orders.225 Section 15(a) further specifies that the costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations (collectively, the ‘‘Section 15(a) Factors’’). In this cost benefit section, the Commission discusses the costs and benefits resulting from its discretionary determinations with respect to the Section 15(a) Factors.226 Section 4s(e) of the CEA, added by section 731 of the Dodd-Frank Act, provides the Commission with mandatory and discretionary rulemaking authority to adopt capital requirements for nonbank SDs and nonbank MSPs,227 as well as financial reporting requirements for SDs and MSPs.228 Section 4s(e) of the CEA requires the Commission to adopt minimum capital requirements for nonbank SDs and nonbank MSPs that are designed to help ensure their safety and soundness and are appropriate for the risk associated with the uncleared swaps held by such nonbank SD or nonbank MSP. In addition, section 4s(e)(2)(C) of the CEA, requires the Commission to establish capital requirements for nonbank SDs or nonbank MSPs that account for the risks associated with their entire swaps portfolio and all other activities conducted. Lastly, section 4s(e)(3)(D) of the CEA provides that the Commission, the prudential regulators, and the SEC, must ‘‘to the maximum extent practicable’’ establish and maintain comparable capital rules. Accordingly, this rulemaking includes certain capital and financial reporting requirements related to SDs and MSPs. The baseline for the Commission’s consideration of the costs and benefits of this rulemaking is the existing statutory and regulatory framework applicable to SDs and MSPs, including 225 7 U.S.C. 19(a). Commission notes that the costs and benefits considered in this proposed rulemaking, and highlighted below, have informed the policy choices described throughout this release. 227 Section 4s(e)(2)(B) of the CEA, 7 U.S.C. 6s(e)(2)(B). 228 Section 4s(f) of the CEA, 7 U.S.C. 6s(f). 226 The PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 45579 the capital and margin requirements for SDs and MSPs under subpart E of part 23. The Commission recognizes, however, that to the extent that SDs 229 have arranged their business in reliance on Division interpretations and noaction positions in CFTC Staff Letters No. 21–15 and 21–18, as extended under CFTC Staff Letter No. 23–11, the actual costs and benefits of this rulemaking may be mitigated. The Commission recognizes that the amendments adopted herein may impose costs. The Commission has endeavored to assess the expected costs and benefits of the amendments in quantitative terms, including PRArelated costs, where possible. In situations where the Commission is unable to quantify the costs and benefits, the Commission identifies and considers the costs and benefits of the rules in qualitative terms. The lack of data and information to estimate those costs and benefits is attributable in part to the nature of the amendments, which are tailored financial reporting requirements based on the specific businesses and types of SDs registered with the Commission. Further, SDs represent a wide diversity of business models catering towards different swap counterparties, from financial end users to commercial enterprises. As a result, the Commission expects each SD to have developed its corporate entity in a unique manner by employing different corporate cost structures, making it particularly difficult to estimate the quantitative impacts of both costs and benefits on each SD. As previously discussed, the Commission received four substantive comments expressing support for the Proposal.230 Commenters generally noted that the proposed amendments are beneficial for market participants and characterized them as helpful and practical accommodations that reflect the realities of the marketplace and facilitate compliance with the CFTC financial reporting requirements.231 Several commenters elaborated on specific benefits of the amendments, noting for instance that the proposed amendments would reduce regulatory burden and costs for some SDs, including those that are predominantly 229 Currently, there are no MSPs registered with the Commission and there have not been any MSPs registered with the Commission for several years. Thus, this section regarding the Commission’s consideration of the costs and benefits of this proposed rulemaking will only refer to SDs that may have relied on CFTC Staff Letters No. 21–15 and 21–18 and may benefit from the compliance exceptions set forth herein. 230 See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; Ravnitzky Letter. 231 See id. E:\FR\FM\23MYR1.SGM 23MYR1 45580 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 engaged in non-financial activities and have a high level of tangible net worth.232 longer be required to calculate asset and revenue tests separately between the entity and the ultimate parent level or compute such tests under U.S. GAAP B. CFTC Staff Letters and Other even if such entity was permitted to use Amendments IFRS. Further, these amendments would The Commission is adopting technical allow nonbank SDs meeting such amendments to its definitions in qualifications to file their supplemental Commission regulation 23.100 233 for position reports at the same time as ‘‘predominantly engaged in nonroutine financial reporting for all financial activities’’ and ‘‘tangible net nonbank SDs set forth within worth.’’ Further, the Commission is Commission regulation 23.105(d).239 adopting amendments to Commission Similarly, the amendments to regulation 23.105(p) 234 to add Commission regulation 23.105(p) 240 exceptions to the financial reporting that are consistent with the terms of requirements for Non-U.S. bank SDs, CFTC Staff Letter No. 21–18, as and permitting bank SDs to file the extended under CFTC Staff Letter No. relevant schedules under the Call 23–11, are expected to benefit bank SDs Report (Schedule RC and Schedule RC– by permitting: (1) Non-U.S. bank SDs to R) instead of as required by Appendix file reports by their home country C. In addition, the Commission is regulators subject to certain conditions; making a number of clarifying (2) bank SDs to file comparable Call amendments including: (1) amending Report schedules in accordance with, the heading and scope provisions of and within the timeframe permitted by, Commission regulation 23.105(k) 235 and the prudential regulators; (3) Non-U.S. the titles of certain schedules included bank SDs to file balance sheet and in Appendix B; (2) changing public statement of regulatory capital disclosure requirements under information in accordance with home Commission regulation 23.105(i); 236 (3) country requirements provided they are amending Form 1–FR–FCM to more in English, converted to U.S. dollars and accurately address net capital changes; filed within 90 calendar days following (4) adding language to Commission quarter-end; and (4) dually-registered 237 regulations 23.103(a) and (c)(1) to Non-U.S. bank SDs to file comparable clarify that standardized charges are the SEC-approved financial reports and same as applicable to all SDs not using schedules. The Commission anticipates the Bank-Based Capital Approach; and that these amendments will eliminate (5) amending the cross reference in duplicative and superfluous reporting Commission regulation 23.102(d) 238 to and streamline financial reporting for make clear that either 12 CFR part 217 both Non-U.S. and dually-registered or Appendix A should be utilized as bank SDs. applicable by the nonbank SD Lastly, the amendments regarding depending on the respective capital financial reporting and computation approach elected. include: (1) amendments to the heading and scope provision of Commission 1. Benefits regulations 23.105(k) and (l); 241 (2) The amendments to definitions of titles of certain schedules included in ‘‘predominantly engaged in nonAppendix B; (3) alignment of the public financial activities’’ and ‘‘tangible net disclosure of unaudited financial worth’’ aligning the regulatory text with information with the periodicity the terms of CFTC Staff Letter No. 21– permitted by routine financial filings in 15 are intended to ensure that the Commission regulation 23.105(d),242 Tangible Net Worth Capital Approach and to remove reference to a statement can be utilized by certain nonbank SDs disclosing the amounts of minimum as was originally intended in the Final regulatory capital; (4) amending Form Rule. These amendments are expected 1–FR–FCM to add the 2 percent of to benefit certain nonbank SDs by uncleared swap margin capital ensuring clear and effective compliance requirement and swaps and securitywith regulatory requirements under the Tangible Net Worth Capital Approach as based swaps haircuts; and (5) addition of clarifying language to Commission amended, ultimately reducing 243 to operational costs for such nonbank SDs. regulations 23.103(a)(1) and (c)(1) provide additional clarity to registrants In particular, nonbank SDs would no that the same standardized market and credit risk charges are applicable to 232 Ravnitzky Letter at 1. 233 17 CFR 23.100. CFR 23.105(p). 235 17 CFR 23.105(k). 236 17 CFR 23.105(i). 237 17 CFR 23.103(a) and (c)(1). 238 17 CFR 23.102(d). CFR 23.105(d). CFR 23.105(p). 241 17 CFR 23.105(k) and (l). 242 17 CFR 23.105(d). 243 17 CFR 23.103(a)(1) and (c)(1). 15:49 May 22, 2024 2. Costs The Commission generally does not anticipate any costs associated with the above amendments as they are intended to streamline and clarify existing financial reporting and capital requirements. Of the above, only the amendments to Commission regulation 23.105(l) 244 would impose additional financial reporting requirements on nonbank SDs and nonbank MSPs not approved to use models to file Schedules 2–4 of Appendix B. Currently, there are 8 nonbank SDs not approved to use models that are not currently filing Schedules 2–4 of Appendix B, but that would be required to do so under the amendments to Commission regulation 23.105(l).245 The information required under Appendix B is nearly identical in all material respects to corresponding forms found in the SEC Form FOCUS Report Part II, as well as the capital and financial reporting requirements by the NFA for its member nonbank SDs and nonbank MSPs. Thus, the Commission has determined that these nonbank SDs already have developed policies, procedures, and systems to aggregate, monitor, and track their swap activities and risks as is required under Schedules 2–4 of Appendix B, which should mitigate some of the burdens of the additional reporting and recordkeeping requirements. Finally, the amendments to Commission regulation 23.105(k) 246 clarify that nonbank SDs and nonbank MSPs approved to use models may comply with the requirements to provide specific financial information required by Commission regulation 23.105(k) 247 by filing Appendix B. Such nonbank SDs and nonbank MSPs have already been filing Appendix B with the Commission, and thus the Commission has determined that the amendments to 239 17 234 17 VerDate Sep<11>2014 nonbank SDs utilizing the Tangible Net Worth Capital Approach as are applicable to all other nonbank SDs if not approved to use models. These amendments are meant to clarify what was originally intended in the Final Rule or what is already included within the existing Commission regulations, as well as align the schedules as currently required by the SEC and the NFA. The Commission anticipates that these amendments will remove uncertainty amongst SDs about the type of form and the extent of detail that they should be reporting. 240 17 Jkt 262001 PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 244 17 CFR 23.105(l). 245 Id. 246 17 CFR 23.105(k). 247 Id. E:\FR\FM\23MYR1.SGM 23MYR1 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations Commission regulation 23.105(k) 248 would not impose any additional burden for such nonbank SDs and nonbank MSPs. 3. Section 15(a) Factors The following is a discussion of the cost and benefit considerations of this rulemaking, as it relates to the five broad areas of market and public concern identified in section 15(a) of the CEA: (1) protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of swaps markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. lotter on DSK11XQN23PROD with RULES1 a. Protection of Market Participants and the Public The rules adopted herein are intended to enhance the clarity of financial reporting and computation requirements by revising the language of the regulations with respect to the type of forms and the tests that SDs should be using as part of their financial reporting process. The changes to the computation of tangible net worth are anticipated to benefit the public by allowing investors to monitor tangible net worth at the consolidated parent’s level, and the financial reporting requirements for both bank SDs and nonbank SDs set out in this rulemaking should help the Commission and market participants monitor and assess the financial condition of such SDs more accurately and as was intended in the Final Rule. These amendments are also intended to harmonize financial reporting requirements with those of the prudential regulators, and the SEC, through which market participants and the Commission can gain a clearer and more directly comparable understanding of the financial reports received. Clarifying rules should safeguard both market participants and the public by improving transparency and reducing ambiguity. b. Efficiency, Competitiveness, and Financial Integrity of Swaps Markets In this rulemaking, the Commission seeks to promote efficiency and financial integrity of the swaps market by streamlining many of the financial reporting requirements. For example, the amendments to Commission regulation 23.105(p) 249 permit certain bank SDs to file with the Commission comparable Call Report schedules in accordance with, and within the timeframe permitted by, the prudential regulators that they currently file with the prudential regulators, or comparable SEC-approved financial reports and schedules, as applicable. The amendments to Commission regulation 23.105(p) 250 would also allow certain Non-U.S. bank SDs to file with the Commission what they currently file with their respective home country regulators, subject to certain conditions. In addition, the amendments to Commission regulation 23.105(k) 251 are meant to ensure that the information listed in Appendix B is completed by all nonbank SDs and nonbank MSPs as was intended, and is consistent with that required by the SEC and NFA, and the amendments to Form 1–FR–FCM are meant to harmonize with the SEC’s requirements in its FOCUS Report Part II. Harmonizing requirements should foster a more level playing field, ultimately promoting trust and integrity within the market. The Commission anticipates that these amendments will promote greater operational efficiencies for both bank and nonbank SDs that are already regulated, either prudentially or through comparable foreign regulators, as they may be able to avoid creating duplicative compliance and operational infrastructures. The amendments should allow the Commission to monitor the financial integrity of swaps markets more clearly and efficiently, including in the case of any default or financial contagion. Lastly, the Commission is amending the definition of ‘‘predominantly engaged in non-financial activities’’ as used in the Tangible Net Worth Capital Approach by permitting entities to determine whether they are predominantly engaged in non-financial activities at either the parent or subsidiary level to be consistent with the Commission’s intention in the Final Rule.252 As discussed above, this amendment properly calibrates the wording of the definition in establishing eligibility for the Tangible Net Worth Capital Approach by assessing nonfinancial activities at a consolidated parent level. In doing so, it clarifies the Commission’s intention to permit more entities that are predominately engaged in non-financial activities to be eligible for the Tangible Net Worth Capital Approach, thereby creating greater market efficiency. c. Price Discovery The Commission anticipates that the amendments adopted herein may 248 Id. 249 17 251 17 CFR 23.105(p). VerDate Sep<11>2014 15:49 May 22, 2024 d. Sound Risk Management Practices The Commission has determined that, as a result of the adopted reporting and recordkeeping requirements, SDs may more effectively track their trading and risk exposure in swaps and other financial activities. To the extent that these SDs can better monitor and track their risks, the Commission anticipates that this should help them better manage risk within the entity. e. Other Public Interest Considerations The Commission has not identified any additional public interest considerations related to the costs and benefits of the rule. C. Other Amendments The Commission is adopting a number of clarifying amendments intended to align with existing Commission regulations, including: (1) amending Commission regulation 23.105(c)(4) 253 to add a two-business days reporting timeframe to the requirement for nonbank SD notice filing of a substantial reduction in capital; (2) amending Commission regulations 23.101(a)(1)(i)(B) and 23.101(a)(1)(ii)(C) 254 to establish that the use of subordinated debt as regulatory capital is subject to the approval of either an RFA of which the nonbank SD is a member, or the Commission; and (3) amending Commission regulation 23.105(e)(4)(v) 255 for SDs and MSPs to include an explicit statement, if applicable, that there are no material differences between the audited annual report and the unaudited annual report of the same date. 1. Benefits The amendments to the notice requirements in Commission regulation 23.105(c)(4) 256 would add a twobusiness day requirement for nonbank SDs filing a notice of substantial PO 00000 CFR 23.105(c)(4). CFR 23.101(a)(1)(i)(B) and (a)(1)(ii)(C). 255 17 CFR 23.105(e)(4)(v). 256 17 CFR 23.105(c)(4). 254 17 CFR 23.105(k). Rules, 85 FR 57502. 252 Final Jkt 262001 enhance price discovery. By clarifying financial reporting and computation requirements and harmonizing reporting practices, a more efficient operating environment would be created for SDs, which are important intermediaries within the swaps markets. This improved data quality reported to regulators has the potential to enhance supervision, leading to improved market quality. Consequently, this could lead to a more effective and accurate price discovery process. 253 17 250 Id. Frm 00025 Fmt 4700 Sfmt 4700 45581 E:\FR\FM\23MYR1.SGM 23MYR1 45582 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations reduction in capital. The Commission has determined that adding a reporting timeframe to the notice requirement will enhance compliance by providing regulatory certainty to nonbank SDs of when such a filing is due. The amendments to Commission regulation 23.101(a)(1)(i)(B) 257 would establish that the use of subordinated debt as regulatory capital is subject to the approval of either an RFA of which the nonbank SD is a member, or the Commission. The amendments should further provide regulatory clarity by establishing the process for approving subordinated debt for nonbank SDs, which was not explicitly articulated in the Final Rule and had led to uncertainty among nonbank SDs. Lastly, the amendments to Commission regulation 23.105(e)(4)(v) 258 would require that the SDs and MSPs include an explicit statement, if applicable, of no material differences between the audited and the unaudited annual report of the same date. Doing so should not only align the filing approach for auditors of SDs with that of FCMs, but also enhance the reliability of such annual reports by encouraging auditors to more rigorously assess the materiality of reporting any discovered audit findings. 2. Costs The Commission does not anticipate that compliance with the above amendments will lead to any significant costs. The amendments to Commission regulations 23.105(c)(4) and 23.105(e)(4)(v) 259 are meant to align the financial reporting requirements of SDs with that of FCMs. Based on the Commission’s experience with existing filings and discussions with registered SDs, the Commission has determined that the registrants will be able to file necessary information within the timeframe provided. The amendments to Commission regulation 23.101(a)(1)(i)(B) 260 are meant to establish a process of approving subordinated debt for nonbank SDs, and CFR 23.101(a)(1)(i)(B). CFR 23.105(e)(4)(v). 259 17 CFR 23.105(c)(4) and (e)(4)(v). 260 17 CFR 23.101(a)(1)(i)(B). as such they would not levy any additional costs to the nonbank SDs. 3. Section 15(a) Factors The following is a discussion of the cost and benefit considerations of the rulemaking as it relates to the aforementioned five broad areas of market and public concern identified in section 15(a) of the CEA. a. Protection of Market Participants and the Public The Commission anticipates that the amendment to Commission regulation 23.105(c)(4) 261 adopted herein should protect market participants and the public against possible market disruption by requiring that all SDs file a notice of a substantial reduction in capital within two business days after such an incident has occurred. Similarly, the amendments to Commission regulation 23.101(a)(1)(i)(B) 262 should provide market clarity on how subordinated debt is approved for consideration as capital, and the amendments to Commission regulation 23.105(e)(4)(v) 263 should allow the Commission and the public to effectively monitor cases where there are no material differences between the audited and unaudited annual report of the same date filed by nonbank SDs and nonbank MSPs. These amendments should enable market participants to have better insights into SD’s capital and financial positions. This, in turn, should enhance the protection of both market participants and the public. b. Efficiency, Competitiveness, and Financial Integrity of Swaps Markets The amendments adopted herein should improve the accuracy and completeness of nonbank SDs’ and nonbank MSPs’ financial reporting by imposing a two-business day deadline for notice of substantial reduction in capital, and an affirmative statement of no material differences between the audited and unaudited annual financial statement, as applicable. The 257 17 lotter on DSK11XQN23PROD with RULES1 258 17 VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 261 17 CFR 23.105(c)(4). CFR 23.101(a)(1)(i)(B). 263 17 CFR 23.105(e)(4)(v). 262 17 PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 establishment of a process for approving subordinated debt should lead to increased efficiency in how such subordinated debt is monitored. Further, these amendments are also intended to harmonize financial reporting requirements with those of the prudential regulators, as well as the Commission’s existing framework regarding FCMs. Harmonizing requirements should foster a more level playing field, ultimately promoting trust and integrity within the market. c. Price Discovery The Commission anticipates that the amendments adopted herein will enhance price discovery. By improving financial reporting requirements for nonbank SDs and nonbank MSPs, a more efficient operating environment should be created for SDs, which are important intermediaries within the swaps markets. This improved data quality reported to regulators has the potential to enhance supervision, leading to improved market quality. Consequently, this could lead to a more effective and accurate price discovery process. d. Sound Risk Management Practices The Commission anticipates that the above amendments will lead to better risk management practices among SDs and MSPs, particularly by requiring them to monitor for potential reduction in capital and material differences between the audited and the unaudited annual financial statements. e. Other Public Interest Considerations The Commission has not identified any additional public interest considerations related to the costs and benefits of the rule. Note: The following appendix to this preamble pertains to a form that does not appear in the Code of Federal Regulations. Appendix to the Preamble—Adopted Revisions to Selected Section of Form 1–FR–FCM: Statement of the Computation of the Minimum Capital Requirements BILLING CODE 6351–01–P E:\FR\FM\23MYR1.SGM 23MYR1 45583 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations CFTC FORM 1-FR-FCM STA'TEMENT OF THE COMPUTATION OF THE MINIMUM CAPITAL REQUIREMENTS ASOF ~ 1. Ct.mmt 89El8 {IJllll8 3, line 211) _ _ _ _ laoool 2. ~ )ID U.S. """9rilg organi2&IDn sllook to hlllacl margin 1i'Slua _ _ _ _ _ I 30111 I 3. Netamanl ...... 4. Talal lfElbililialll lP&ge $. lina 32} 5. ____ 130301 -----1-1 DadUcllon8 from 1D1s1 lilal,llltie A. l..iabililiaa IIUhjad lo oatislsclDry IIUbmdinalion ag-..mlla B. C. {pege 5, iAe 31.AJ CataB! dafarrellin<xlma la:ltielilily {BBII n,gda1ian 1.17(c:)[4](lv)} Catai <U'AIIIII i - la:lt liahilly (-n,gda1ian 1.17(c:)[4}(v)) ----1:!(MOI D. Long lam! dllbtpun,uant 11> E Talal dadlJdiona '8dd lii1aa 5A - 5.D.) F. AdjllslBd lilbilliea (8Ubllm:l lina 5.E 1mm Ina 4) regulatioll 1.17(c:}(4l(vi) ti. ----~ ----~ ----~ - - - - I Net mpilal (lllllllmd f1n11 5.F. frum lina 3) 30ElO I 3090 ----1 _______ !:uoo II Chlfgil& Agalll&! Nl!II Cllplal ( - regu1S1im 1.17fc)IS)} 7.. Emaes of illMlf1llll5 paid an llBIIII IDIIIIIDditif oonliacl& IMlr _______ Is1111 ! ll5'II, of Iha market wlua of cammadiliea CDWllllld by 111111::h Clllltlacla 8. FIii& fllll"'Ul (515! of Iha market WIiia <If invanlDriea """'8f8d by ap!11'1 fulura8 conlracla Dr mm,Ddily apiimlS (no d!slgea 11pplicable l o ~.......... 1111 dalwarablll oo acoobadmarbtand -------1 I _____ ls ~I wllich-ca-.id bylultBNcanllBclll) 9. :1120 TW!lldy pamant (l!Xl'l6,) Eli! Iha mart.al WIiia <If llllCl:IWll!ld ~ or 1 1aaaer pan:en1age charga mr unoovmad balam:aa in &pllCilad li:nign mllllnlillll 10. Tan pamant(10'lli)of Iha marlral mia of llllll!madilliall ~ fiload pricemm,iilmenla and bwad canlmclia whm S111 lllMlhll! _ _ _ _ _ ls1@I by opan Muma mntracflll Dr lllllllmcdljlopllian& 11. TW!lldy pamant (l!Xl'5) llf Iha marHI WIiia of cmrmoditiaa unda!tying filoadprice mm,iilmenla andbwad canhclB lllhich sre not lllMlhlll lotter on DSK11XQN23PROD with RULES1 VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 PO 00000 Frm 00027 Fmt 4700 Sfmt 4725 E:\FR\FM\23MYR1.SGM 23MYR1 S1Sl) I ER23MY24.000</GPH> -------1 by open Muma mntracflll or lllllllmcdljl opllian& 45584 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations 12. Chalg!oaaaapacillaa In aacliarl 2'11).15c3-1(c)C2Xvl) ancl (',ii) agshlt &«Uriln awned by firm, fl1cludillg ~ l8plllllllll1li iimNllllmlllllB of domM!icanclfini!,I cmlamllnl' timdlic U.S. and Canadlall gi,ooan•1ant Dllliplian& A B. SIBIIB endMuniclpaloc-nmanlobligaliarl& c. Ollllillc:slasmdapoail, commaldalpapar D. ClllpOrlDobligatir,ns endbEriceni'aa:,aplBIIOIIII 13. 14. 11). E. samctsand-,anm F. 00-- fll9l1ltiiee G. TDIBI ChSlges (add limlto 12A • 12.F.) Chalg!oaaa apacillaa In 8IIClian 21Q.15c3-1(c)t2](iv)(f} A Agsinat IM!IWJillM pun:haaad llndllr S!JNllllllllB In nl8SII Ii. Agsinat llillalllllaa 11111d undar S!JNllllllllB In MjUdlalo9 ---1::1 Chalg!oa<lll IIBCUrillaa nplil>ns. aa Bpacliliad i n ~ Mll.151:3-f, AppandiltA Undllrmqlnad llCIIDll1Ddlly ·flllllra& and COlffllDdily q,fioll!I aDCllllnlB. emaunt in t!llldl llCIXIUII lllq1Jirad 11Dmaat ml!■lllansnca 111!1f1Jin n,quil-■I. llaali llm a-.n of cummt l118!pl csla In ll1at aca:rtml: and Iha smaunt of llliY nanr:umml: dalcil in the 8llCIUII A Clllllama: IIECllllll1la B. Nonal&lnmar IICllDUl1ll!I c. Onnibu& aca,mlB -i 16. Charges against open commodity and cleared OTC derivatives positions in proprietary accounts and swaps A. Uncovered exchange-traded futures, cleared OTC derivatives positions and granted options contracts B. C. lotter on DSK11XQN23PROD with RULES1 D. !3350! -----13360! ------- Ten percent (10%) of the market value of commodities which underlie commodity options not traded on a contract market carried long by the applicant or registrant which has value and such value increased adjusted net capital (this charge is limited to the value attributed to such options) - - - - - - - !3380! Commodity options which are traded on contract markets and carried long in proprietary accounts. Charge is the same as would be applied if the applicant or registrant was the grantor of the options (this charge is limited to the value attributed to such options) _ _ _ _ _ !3390! Haircuts on swaps and security-based swaps pursuant to 1.17(c)(5)(iii), (iv), (xv), and (xvi) (itemize to the subparagraph level on separate page) _ _ _ _ _ !3395! 17. Five percent (5%) of all unsecured receivables from foreign brokers ------- 18. Deficiency in collateral for secured demand notes ------- 19. Adjustment to eliminate benefits of consolidation (explain on separate page) ------- 20. Total charges (add lines 7 through 19) ------- VerDate Sep<11>2014 !3370! 15:49 May 22, 2024 Jkt 262001 PO 00000 Frm 00028 Fmt 4700 Sfmt 4725 E:\FR\FM\23MYR1.SGM 23MYR1 !3410! !3420! !3430! !3440! ER23MY24.001</GPH> percentage of margin requirements applicable to such contracts Less: equity in proprietary accounts included in liabilities 45585 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations Adjusted Net Capital Computation 21. Adjusted net capital (subtract line 20 from line 6) !3500! 22. Adjusted Net capital required A. Risk Based Capital Requirement Amount of Customer Risk Maintenance Margin ii Enter 8% of line 22.A.i iii Amount of Non-Customer Risk Maintenance Margin iv Enter 8% of line 22.A.iii V Enter the sum of 22.A.ii and 22.A.iv vi Total Uncleared Swap Margin, as applicable vii Enter 2% of line 22.A.vi viii Enter the sum of 22.A.v and 22.A.vii !3515! !3525! !3535! !3545! !3555! !3556! !3557! !3558! B. Minimum Dollar Amount Requirement !3565! C. Other NFA Requirement !3575! D. Adjusted Net Capital Requirement Enter the greater of lines 22.A.viii, 22.B. or 22.C ------- !3600! - - - - - - - !3610! 23. Excess adjusted net capital (line 21 less line 22.D.) Computation of Early Warning Level - - - - - - - !3620! 24. If the Minimum Adjusted Net Capital Requirement computed on line 22.D (Box 3600) is: • • • The Risk Based Requirement, enter 110% of line 22.A.viii. (3558), or The Minimum Dollar Requirement of $1,000,000, for FCMs, or $20,000,000 for FCMs registered as SDs, enter 150% of line 22.B. (3565), or The Minimum Dollar Requirement of $20,000,000 for FCMs offering or engaging in retail forex transactions or Retail Foreign Exchange Dealers ("RFED"), enter 110% of line 22.B. (3565), or • Other NFA Requirement of $20,000,000 plus five percent of the FCM's offering or engaging in retail forex transactions or RFED's total retail forex obligations in excess of $10,000,000, enter 110% of line 22.C. (3575), or • Any other NFA Requirement, enter 150% of line 22.C. (3575) This is your early warning capital level. If this amount is greater than the amount on line 21, you must immediately notify your DSRO and the Commission pursuant to section 1.12 of the regulations. Guaranteed Introducing Brokers BILLING CODE 6351–01–C List of Subjects in 17 CFR Part 23 Reporting and recordkeeping requirements, Swaps. lotter on DSK11XQN23PROD with RULES1 For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR part 23 as follows: PART 23—SWAP DEALERS AND MAJOR SWAP PARTICIPANTS 1. The authority citation for part 23 continues to read as follows: ■ Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b– 1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21. Section 23.160 also issued VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 under 7 U.S.C. 2(i); Sec. 721(b), Pub. L. 111– 203, 124 Stat. 1641 (2010). 2. Amend § 23.100 by adding, in alphabetical order, a definition of the term ‘‘Call Report’’ and revising the definitions of the terms ‘‘Predominantly engaged in non-financial activities’’ and ‘‘Tangible net worth’’ to read as follows: ■ § 23.100 Definitions applicable to capital requirements. * * * * * Call Report. This term means the Federal Financial Institutions Examination Council Form 031 that a swap dealer or major swap participant for which there is a prudential regulator PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 is required to file with its applicable prudential regulator. * * * * * Predominantly engaged in nonfinancial activities. A swap dealer is predominantly engaged in non-financial activities if: (1) The swap dealer’s consolidated annual gross financial revenues, or if the swap dealer is a wholly owned subsidiary, then the swap dealer’s consolidated parent’s annual gross financial revenues, in either of its two most recently completed fiscal years represents less than 15 percent of the swap dealer’s or the swap dealer’s consolidated parent’s consolidated gross E:\FR\FM\23MYR1.SGM 23MYR1 ER23MY24.002</GPH> 25. List all IBs with which guarantee agreements have been entered into by the FCM and which are currently in effect. See Attached. lotter on DSK11XQN23PROD with RULES1 45586 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations revenue in that fiscal year (‘‘15% revenue test’’), and (2) The consolidated total financial assets of the swap dealer, or if the swap dealer is wholly owned subsidiary, then the consolidated total financial assets of the swap dealer’s parent, at the end of its two most recently completed fiscal years represents less than 15 percent of the swap dealer’s or the swap dealer’s consolidated parent’s consolidated total assets as of the end of the fiscal year (‘‘15% asset test’’). (3) For purpose of computing the 15% revenue test or the 15% asset test, a swap dealer’s activities or swap dealer’s parent’s activities shall be deemed financial activities if such activities are defined as financial activities under 12 CFR 242.3 and appendix A to 12 CFR part 242, including lending, investing for others, safeguarding money or securities for others, providing financial or investment advisory services, underwriting or making markets in securities, providing securities brokerage services, and engaging as principal in investing and trading activities; provided, however, a swap dealer or a swap dealer’s consolidated parent may exclude from its financial activities accounts receivable resulting from non-financial activities. * * * * * Tangible net worth. This term means the net worth of a swap dealer or major swap participant as determined in accordance with U.S. generally accepted accounting principles, or International Financial Reporting Standards issued by the International Accounting Standards Board if the swap dealer or major swap participant is permitted under § 23.105(b) to prepare and maintain books and records in accordance with such standards, but in either case, excluding goodwill and other intangible assets. In determining net worth, all long and short positions in swaps, security-based swaps and related positions must be marked to their market value. A swap dealer or major swap participant must include in its computation of tangible net worth all liabilities or obligations of a subsidiary or affiliate that the swap dealer or major swap participant guarantees, endorses, or assumes either directly or indirectly. * * * * * ■ 3. Amend § 23.101 by revising paragraphs (a)(1)(i)(B), (a)(1)(ii)(B) and (C), and adding paragraph (a)(1)(ii)(D) to read as follows: § 23.101 Minimum financial requirements for swap dealers and major swap participants. (a)(1) * * * VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 (i) * * * (B) An aggregate of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital, all as defined under the bank holding company regulations in 12 CFR 217.20, equal to or greater than eight percent of the swap dealer’s BHC equivalent risk-weighted assets; provided, however, that the swap dealer must maintain a minimum of common equity tier 1 capital equal to six point five percent of its BHC equivalent riskweighted assets; provided further, that any capital that is subordinated debt under 12 CFR 217.20 and that is included in the swap dealer’s capital for purposes of this paragraph (a)(1)(i)(B) must qualify as subordinated debt under § 240.18a–1d of this title in accordance with a qualification determination of the Commission or a registered futures association of which the swap dealer is a member; * * * * * (ii) * * * (B) A swap dealer that uses internal models to compute market risk for its proprietary positions under § 240.18a– 1(d) of this title must calculate the total market risk as the sum of the VaR measure, stressed VaR measure, specific risk measure, comprehensive risk measure, and incremental risk measure of the portfolio of proprietary positions in accordance with § 23.102 and appendix A to subpart E of this part; (C) A swap dealer may recognize as a current asset, receivables from thirdparty custodians that maintain the swap dealer’s initial margin deposits associated with uncleared swap and security-based swap transactions pursuant to the margin rules of the Commission, the Securities and Exchange Commission, a prudential regulator, as defined in section 1a(39) of the Act, or a foreign jurisdiction that has received a margin Comparability Determination under § 23.160; and (D) The qualification of any subordinated debt used to meet any capital requirements shall be as determined by the Commission or a registered futures association of which the swap dealer is a member. * * * * * ■ 4. In § 23.102, revise paragraph (d) to read as follows: § 23.102 Calculation of market risk exposure requirement and credit risk exposure requirement using internal models. * * * * * (d) The Commission, or registered futures association upon obtaining the Commission’s determination that its requirements and model approval process are comparable to the PO 00000 Frm 00030 Fmt 4700 Sfmt 4700 Commission’s requirements and process, may approve or deny the application, or approve or deny an amendment to the application, in whole or in part, subject to any conditions or limitations the Commission or registered futures association may require, if the Commission or registered futures association finds the approval to be appropriate in the public interest, after determining, among other things, whether the applicant has met the requirements of this section. A swap dealer that has received Commission or registered futures association approval to compute market risk exposure requirements and credit risk exposure requirements pursuant to internal models must compute such charges in accordance with paragraph (c) of this section. * * * * * ■ 5. In § 23.103, revise paragraphs (a)(1) and (c)(1) to read as follows: § 23.103 Calculation of market risk exposure requirement and credit risk requirement when models are not approved. (a) * * * (1) Computes its regulatory capital requirements under § 23.101(a)(1)(ii) or (a)(2), and * * * * * (c) * * * (1) A swap dealer that computes regulatory capital under § 23.101(a)(1)(ii) or (a)(2) shall compute counterparty credit risk charges using the applicable standardized credit risk charges set forth in § 240.18a–1 of this title and § 1.17 of this chapter for such positions. * * * * * ■ 6. In § 23.105, revise paragraphs (c)(2) and (4), (d)(2) through (4), (e)(4)(v), (e)(6), (i)(1)(i) and (ii), (i)(2)(ii), (k)(1) introductory text, (l), and (p)(2) and (7) to read as follows: § 23.105 Financial recordkeeping, reporting and notification requirements for swap dealers and major swap participants. * * * * * (c) * * * (2) A swap dealer or major swap participant who knows or should have known that its regulatory capital at any time is less than 120 percent of its minimum regulatory capital requirement as determined under § 23.101, or less than the amounts identified in § 1.12(b) of this chapter for a swap dealer or major swap participant that is also a futures commission merchant, must provide written notice to the Commission and to the registered futures association of which it is a E:\FR\FM\23MYR1.SGM 23MYR1 lotter on DSK11XQN23PROD with RULES1 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations member to that effect within 24 hours of such event. * * * * * (4) A swap dealer or major swap participant must provide written notice within two business days to the Commission and to the registered futures association of which it is a member of a substantial reduction in capital as compared to that last reported in a financial report filed with the Commission pursuant to this section. The notice shall be provided if the swap dealer or major swap participant experiences a 30 percent or more decrease in the amount of capital that the swap dealer or major swap participant holds in excess of its regulatory capital requirement as computed under § 23.101. * * * * * (d) * * * (2) The financial reports required by this section must be prepared in the English language and be denominated in United States dollars. The financial reports shall include a statement of financial condition, a statement of income/loss, a statement of changes in liabilities subordinated to the claims of general creditors, a statement of changes in ownership equity, a statement demonstrating compliance with and calculation of the applicable regulatory capital requirement under § 23.101, and such further material information as may be necessary to make the required statements not misleading. The monthly or quarterly report and schedules must be prepared in accordance with generally accepted accounting principles as established in the United States; provided, however, that a swap dealer or major swap participant that is not otherwise required to prepare financial statements in accordance with U.S. generally accepted accounting principles, may prepare the monthly or quarterly report and schedules required by this section in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. (3) A swap dealer or major swap participant that is also registered with the Securities and Exchange Commission as a broker or dealer, security-based swap dealer, or a major security-based swap participant and files a monthly Form X–17A–5 FOCUS Report Part II with the Securities and Exchange Commission pursuant to § 240.18a–7 or 240.17a–5 of this title, as applicable, must file such Form X–17A– 5 FOCUS Report Part II with the Commission and with the registered futures association in lieu of the financial reports required under VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 paragraphs (d)(1) and (2) of this section. The swap dealer or major swap participant must file the form with the Commission and registered futures association when it files the Form X– 17A–5 FOCUS Report Part II with the Securities and Exchange Commission; provided, however, that the swap dealer or major swap participant must file the Form X–17A–5 FOCUS Report Part II with the Commission and registered futures association no later than 17 business days after the end of each month. (4) A swap dealer or major swap participant that is also registered with the Commission as a futures commission merchant must file a Form 1–FR–FCM or such other form as the futures commission merchant is permitted to file under § 1.10 of this chapter, in lieu of the monthly financial reports required under paragraphs (d)(1) and (2) of this section. (e) * * * (4) * * * (v) A reconciliation of any material differences from the unaudited financial report prepared as of the swap dealer’s or major swap participant’s year-end date under paragraph (d) of this section and the swap dealer’s or major swap participant’s annual financial report prepared under this paragraph (e) or, if no material differences exist, a statement so indicating; and * * * * * (6) A swap dealer or major swap participant that is also registered with the Commission as a futures commission merchant must file an audited Form 1–FR–FCM or such other form as the futures commission merchant is permitted to file under § 1.10 of this chapter, and must comply with the requirements of § 1.16 of this chapter, including filing a supplemental accountant’s report on material inadequacies concurrently with the audited annual report, in lieu of the annual financial report required under this paragraph (e). * * * * * (i) * * * (1) * * * (i) The statement of financial condition including applicable footnotes; and (ii) The amounts of the swap dealer’s or major swap participant’s regulatory capital and minimum regulatory capital requirement, computed in accordance with § 23.101. * * * * * (2) * * * (ii) The amounts of the swap dealer’s or major swap participant’s regulatory capital as of the fiscal year-end and its PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 45587 minimum regulatory capital requirement, computed in accordance with § 23.101. * * * * * (k) * * * (1) A swap dealer that has received approval or filed an application for provisional approval under § 23.102(d) from the Commission, or from a registered futures association of which the swap dealer is a member, to use internal models to compute its market risk exposure requirement and credit risk exposure requirement in computing its regulatory capital under § 23.101 must file with the Commission and with the registered futures association of which the swap dealer is a member the specific information contained in appendix B to subpart E of this part and the following information within 17 business days of the end of each month or quarter as applicable: * * * * * (l) Additional position and counterparty reporting requirements for swap dealers and major swap participants not approved to use models. A swap dealer or major swap participant which is not subject to paragraph (k) of this section must provide the Commission and the registered futures association of which the swap dealer or major swap participant is a member, the additional specific information contained in appendix B to subpart E of this part on a monthly or quarterly basis as applicable to its required frequency of financial reporting under paragraph (d) of this section. * * * * * (p) * * * (2) Financial report and position information. (i) A swap dealer or major swap participant that files a Call Report with its applicable prudential regulator shall file Schedule RC—Balance Sheet and Schedule RC—R Regulatory Capital from its Call Report filed with the prudential regulator, and schedule 1 of appendix C to subpart E of this part, with the Commission on a quarterly basis. The swap dealer or major swap participant shall file the schedules with the Commission on the date the Call Report is due to be filed with the swap dealer’s or major swap participant’s prudential regulator. (ii) A swap dealer or major swap participant domiciled in a non-U.S. jurisdiction that is not required to file a Call Report by its applicable prudential regulator shall file a statement of financial condition and regulatory capital information containing comparable financial information as required by Schedule RC—Balance E:\FR\FM\23MYR1.SGM 23MYR1 45588 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES1 Sheet and Schedule RC—R Regulatory Capital of the Call Report, and shall file schedule 1 of appendix C to subpart E of this part, with the Commission on a quarterly basis. The statement of financial condition, regulatory capital information, and schedule 1 of appendix C to subpart E of this part shall be prepared and presented in accordance with the accounting standards permitted by the swap dealer’s or major swap participant’s home country regulatory authorities; provided, however, that the schedules and information must be in the English language with balances converted to U.S. dollars. The swap dealer or major swap participant shall file the statement of financial condition, regulatory capital information, and schedule 1 of VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 appendix C to subpart E of this part with the Commission no later than 90 calendar days after the end of the swap dealer’s or major swap participant’s fiscal quarter. * * * * * (7) A swap dealer or major swap participant that is subject to the capital requirements of a prudential regulator and is also registered with the Securities and Exchange Commission as a securitybased swap dealer or a major securitybased swap participant and files a quarterly Form X–17A–5 FOCUS Report Part IIC with the Securities and Exchange Commission pursuant to § 240.18a–7 of this title, must file such Form X–17A–5 FOCUS Report Part IIC with the Commission in lieu of the financial reports required under PO 00000 Frm 00032 Fmt 4700 Sfmt 4700 paragraph (p)(2) of this section. The swap dealer or major swap participant must file the form with the Commission when it files the Form X–17A–5 FOCUS Report Part IIC with the Securities and Exchange Commission; provided, however, that the swap dealer or major swap participant must file the Form X– 17A–5 FOCUS Report Part IIC with the Commission no later than 35 calendar days from the date the report is made. ■ 7. In appendix B to subpart E of part 23, revise the schedule headings of schedules 1, 2, 3, and 4, and republish the schedules, to read as follows: Appendix B to Subpart E of Part 23— Swap Dealer and Major Swap Participant Position Information BILLING CODE 6351–01–P E:\FR\FM\23MYR1.SGM 23MYR1 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations Reg. 23.105(k) and {I) Appendix 45589 SCHEDULE 1 -AGGREGATE SECURITIES, COMMODITIES, AND SWAPS POSITIONS Items on this page to be reported by: Swap Dealers (Authorized and not authorized to use models) Major Swap Participants (Authorized and not authorized to use models) B Aggregate Securities. Commodities. and Swaps Positions LONG/BOUGHT SHORT/SOLD 1. U.S. treasury securities............................................................................................ $ ~$ 2. U.S. government agency and U.S. government-sponsored enterprises................. $ ~$ ~ ~ A. Mortgage-backed securities issued by U.S. government agency and U.S. government-sponsored enterprises......................................................... $ 1180011$ l1aoo2I B. Debi securities issued by U.S. government agency and U.S. government-sponsored enterprises ................................................................. $ 1180031$ 1180041 3. Securities issued by states and political subdivisions in the U.S............................ $ ~$ ~ A. Debt securities................................................................................................... $ ~$ B. Equity securities ................................................................................................ $ ~$ 5. Money market instruments....................................................................................... $ ~$ 6. Private label mortgage backed securities................................................................ $ ~$ 7. Other asset-backed securities................................................................................. $ ~$ 8. Corporate obligations................................................................................................ $ lillQl 9. Stocks and warrants (other than arbitrage positions)............................................... $ ~$ 10. Arbitrage.................................................................................................................. $ ~$ 11. Spot commodities ................................................................................................... $ ~$ ~ ~ ~ ~ ~ ~ ~ ~ § 12. Other securities and commodities.......................................................................... $ ~$ ~ A. Equity................................................................................................................. $ ~$ B. Debi................................................................................................................... $ ~$ C. Other.................................................................................................................. $ ~$ ~ ~ ~ D. Total securities with no ready market .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ........................... $ 1127771$ 1127821 14. Total net securities and spot commodities (sum of Lines 1-12 and 13D).............. $ 1127781$ [m3) A. Cleared .. .. .. .. .. ..................... .. .. .. .. ..................... .. .. .. .. .................. .. .. .. .. ................ $ 1121061$ 1121141 B. Non-cleared....................................................................................................... $ 1121071$ [ill] A. Cleared .. .. .. .. .. ..................... .. .. .. .. ..................... .. .. .. .. .................. .. .. .. .. ................ $ 1121081$ 1121161 B. Non-cleared....................................................................................................... $ 1121091$ [2D] A. Cleared .. .. .. .. .. ..................... .. .. .. .. ..................... .. .. .. .. .................. .. .. .. .. ................ $ 1121101$ 1121181 B. Non-cleared....................................................................................................... $ 1121111$ 1121191 18. Other derivatives and options................................................................................. $ ~$ ~ 19. Counterparty netting ................ .. .. .. .. ................ .. .. .. .. .. ..................... .. .. .. .. ................ $ 1127791$ 1127841 20. Cash collateral netting .. .. .. .. .. .................................................................................. $ 1127801$ 1127851 21. Total derivative receivables and payables (sum of Lines 15-20) ........................... $ 1127811$ [ms) 22. Total net securities, commodities, and swaps positions (sum of Lines 14 and 21) .............................................................................................. $ ~$ ~ 4. Foreign securities $ 13. Securities with no ready market 15. Security-based swaps 16. Mixed swaps 17. Swaps NOTE: The information required to be reported within this form is intended to be identical to that required to be reported by Security Based Swap Dealers and Major Security Based Swap Participants under SEC FORM X-17a-5 FOCUS Report Part II. Please refer to FOCUS REPORT II INSTRUCTIONS and related interpretations published by the SEC in the preparation of this form. VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 PO 00000 Frm 00033 Fmt 4700 Sfmt 4725 E:\FR\FM\23MYR1.SGM 23MYR1 ER23MY24.003</GPH> lotter on DSK11XQN23PROD with RULES1 Name of firm: _ _ _ __ As of: _ _ _ _ _ __ 45590 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations Reg. 23.105(k) and (I) Appendix B SCHEDULE 2 - CREDIT CONCENTRATION REPORT FOR FIFTEEN LARGEST EXPOSURES IN DERIVATIVES Items on this page to be reported by: By Current Net Exposure Gross Replacement Value Receivable Payable Counteroartv Identifier (Gross Gain) (Gross Loss) Swap Dealers (Authorized and not authorized to use models) Major Swap Participants (Authorized and not authorized to use models) Net Replacement Value Current Net Exposure Current Net and Potential Exposure Margin Collected 1. 11212D $ lrn35 112167 $ w $ 112199 $ 2. 112121 $ 112136 $ M2152 $ M2168 $ li2i84 $ $ 3. 112122 $ 112137 $ 112153 $ 112169 $ 112185 $ $ $ li2186 $ $ li2i5i $ $ 4. lrn23 $ M2138 lrn70 lrn24 $ 112139 $ lrn54 lrn55 $ 5. $ l12m$ li2"i87 $ M2200 !12201 M2202 lm03 6. [12125 $ lrn40 lrn56 $ lrnn $ li2iai $ lm04 $ $ w $ $ $ 7. 112126 $ M2141 $ M2157 $ 8. W$ 112142 $ M2158 $ 9. 112126 $ 112143 $ fimg $ 112144 $ lrn59 lrneo $ 10. $ M2173 M2174 M2175 fi2176 11. [12130 $ 112145 $ li2i6i $ fi2m 12. 112131 $ 112146 $ 112162 $ 112178 $ w $ M2210 $ 13. 112132 $ 112147 $ 112163 $ 112179 $ 112195 $ 112211 $ 14. 112133 $ 112148 $ 112164 $ lrn49 lrn65 li2i96 li2i97 li2i96 1781: 112212 $ fi2134 $ !12180 fi21si $ 15. $ 112213 $ $ $ 1\11 other counterparties $ $ 112150 $ otals: II. $ 112166 $ $ 178'io$ By Current Net and Potential Exposure Gross Replacement Value Receivable Payable Counteroartv Identifier (Gross Gain) (Gross Loss) l7ai1 $ M2205 $ M2221 $ M2206 $ $ li2190 li2i9'i $ M2207 $ $ li2m $ fi22os $ $ ~ $ fi22og $ 112214 $ 112222 112m 112224 112225 112226 112227 112228 112m fimo 17814 $ li223i $ $ $ 112182 $ 17812 $ Net Replacement Value 112215 112216 112217 112216 112219 '12220 $ Current Net Exposure Current Net and Potential Exposure Margin Collected 1. [m32 $ 112247 $ lm64 $ fimi $ nma $ lm1s 2. 112233 $ 112248 $ 112265 $ $ 112299 $ 112316 $ 3. 112234 $ 112249 $ 112266 $ 112282 112283 $ 112317 $ 112235 $ M2250 $ 112267 $ 112284 $ $ 112318 $ $ M$ 112336 $ lmoc M2301 '12302 li2303 $ 4. $ 112337 $ li23Qi $ lm20 fimi $ nm 112336 $ $ 112322 $ 112339 lmoc M2307 $ M2323 $ M2340 $ 112324 $ $ nm $ 112325 $ $ '12309 $ $ lm1i li23i1 $ lm26 lm27 112341 112342 112343 $ Im« $ lm28 $ $ 112345 112346 112347 112348 5. lm36 $ M2251 $ 112266 $ M2285 $ 6. lm37 $ 112252 $ 7. lm36 112239 $ $ $ 112286 fi2287 112288 9. lm40 $ $ 10. $ $ 112273 $ 11. 112241 112242 lm53 112254 112255 112256 lm69 fimi 112271 lmn $ 112257 $ 112274 $ 12. [12243 $ lm58 $ lm75 $ 13. [12244 $ [1225! $ $ 14. [12245 $ !12260 lm76 lm77 15. 112246 $ 8. 1\11 other counterparties otals: $ $ $ $ $ $ $ M2289 M2290 $ $ $ $ 112261 $ M2278 $ li23i: $ M2329 $ 112262 112263 $ 112279 $ 112291 112292 112293 112294 112295 112296 $ 112313 $ M2330 $ $ lmao li2297$ M2314 $ 112331 $ $ $ $ $ $ 112332 112333 112334 112335 NOTE: The information required to be reported within this form is intended to be identical to that required to be reported by Security Based Swap Dealers and Major Security Based Swap Participants under SEC FORM X-17a-5 FOCUS Report Part II. Please refer to FOCUS REPORT II INSTRUCTIONS and related interpretations published by the SEC in the preparation of this form. VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 PO 00000 Frm 00034 Fmt 4700 Sfmt 4725 E:\FR\FM\23MYR1.SGM 23MYR1 ER23MY24.004</GPH> lotter on DSK11XQN23PROD with RULES1 Name of firm: _ _ __ As of: _ _ _ _ __ Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations Reg. 23.105(k) and (I) SCHEDULE 3 - PORTFOLIO SUMMARY OF DERIVATIVES EXPOSURES BY INTERNAL CREDIT RATING Appendix Items on this page to be reported by: B Internal Credit Rating Gross Replacement Value Receivable 2. ~ $ fi235c $ 3. 112351 4. fi'23a6 WI fi23aa' ri'246o li2424 $ [1'2461" $ 112425 $ $ $ fi2462' r12463 ri'2464' $ ri'2465' $ $ $ $ li25oo li25oi' $ li25o2 $ fi2466' fi2467' $ $ 112468 ri'2469' ri'wo $ M2503 M2504 li25o5 li'25o6 li25o? $ fi2471 fi24n $ M2508 M2509 $ $ $ fi2473' $ $ $ [1'2474' $ M2510 li25'i1 li2438 $ [12475 $ li25'i2 112439 $ $ M2440 $ $ 112441 112442 112443 112444 112445 $ fi2476' fi'24TT fi'wB $ fj"wg $ $ $ li2446 li2447 $ li2448 $ 112449 l12450 112451 '12452 M2453 112454 112455 112456 112457 112458 112459 17823 $ lm5; $ fi23ag $ li2426 $ 5. ~ $ fi23go $ 6. ~ $ fi23gi" $ 7. 11235: $ 112392 $ 112427 112428 112429 8. M235E $ fi2393' $ M2430 $ 9. M235i i1235E $ 112394 $ $ ~$ 11. ~ $ fi'23'oo $ 12. 112361 $ M2397 $ 13. M2361 $ fi23ga $ 14. $ fi23gg $ 15. li23fil fi2361 $ $ 16. fi23&i $ fi24oo fi24oi" 112431 112432 112433 112434 112435 112436 li2437 $ 10. $ 17. M23fil $ 112361 $ fi2462 fi2463 $ $ $ fi24'64 fi24'65 21. M236i li23fil i123fil $ fi24oo $ 22. li237i $ fi2467 $ 23. $ fi246a $ fi246g $ 25. 112371 112m fi2m $ 26. fj'mi $ 27. Mm $ 28. li2m $ 29. M2377 $ 30. $ 31. li2m fi2m fi24'io fi24'i"i" fi24'i2 fi'24'i'3 fi"24'14 fi24'i"s $ fi24'i6 $ 32. fi23ai $ $ 33. M2361 $ M2417 fi24'ia 34. $ fi24'ig $ 35. li23fil fi2361 $ 36. fi23a,i $ Unrated ~ $ $ !12420 112421 fi'2422' '7822' 19. 20. 24. Totals: Current Net and Potential Exposure 112497 li249s 112499 $ 18. Current Net Exposure $ 112423 $ Swap Dealers (Authorized and not authorized to use models) Major Swap Participants (Authorized and not authorized to use models) Net Replacement Value Payable $ 1. 45591 $ $ $ $ $ $ $ $ $ $ $ $ $ Margin Collected 112534 fi2535' $ M2536 fi2537' M2536 fi2539' $ 112572 li2573 112574 $ M2575 $ $ 112576 112577 fi2540' fi2541 $ 112578 $ 112542 112543 112544 $ M2579 M2580 $ 112581 112582 112545 M2546 $ 112583 $ $ $ fi2547' fi2548' M2584 M2585 li2586 $ fi254g $ ™7 112513 $ 11255G $ M2514 $ 11'2551" $ M2588 M2589 $ li25'i5 li25'i6 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ M2500 M2591 $ i12480 $ li25'i7 $ fi2552' fi2553' fi2554' $ 112592 $ fi'2481" fi2462' $ M2518 $ fi2555' $ $ $ 112593 112594 $ $ li259s $ $ M2556 fi2557' M2556 $ $ li25oo $ r12463 ri'2464' ri'2465' li25'i9 M2520 li252i' $ 112522 $ fi25sg $ ™7 $ fi2466' $ $ fi'256o $ M2598 $ fi'2487' fi24ss $ $ 112561 $ $ $ 11'2562' $ $ fi24sg $ 112523 li'2524 li'2525 li2526 $ fi'2563' $ WI s fi2564 $ 112599 M2600 li26oi li26o2 112528 $ $ $ fi2565' fi2566' $ M2605 $ $ 112567 112568 112569 fi'25m $ !12600 !12607 i12600 Imo$ fi'2571" $ M2609 $ $ $ $ " $ $ fi249'1 fi'2492' $ $ $ $ li'253"i' $ $ 112532 li'2533 $ $ 112493 112494 112495 fi'2496' M2529 11253D $ 17821" $ $ $ $ $ $ $ $ $ $ $ M2603 M2604 NOTE: The information required to be reported within this form is intended to be identical to that required to be reported by Security Based Swap Dealers and Major Security Based Swap Participants under SEC FORM X-17a-5 FOCUS Report Part II. Please refer to FOCUS REPORT II INSTRUCTIONS and related interpretations published by the SEC in the preparation of this form. VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 PO 00000 Frm 00035 Fmt 4700 Sfmt 4725 E:\FR\FM\23MYR1.SGM 23MYR1 ER23MY24.005</GPH> lotter on DSK11XQN23PROD with RULES1 Name of firm: _ _ __ As of: _ _ _ _ __ 45592 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations Reg. 23.105(k) and (I) Appendix B I. Country Country Items on this page to be reported by: By Current Net Exposure Gross Replacement Value Receivable Payable Totals: II. SCHEDULE 4-GEOGRAPHIC DISTRIBUTION OF DERIVATIVES EXPOSURES FOR TEN LARGEST COUNTRIES Swap Dealers (Authorized and not authorized to use models) Major Swap Participants (Authorized and not authorized to use models) Net Replacement Value Current Net Exposure Current Net and Potential Exposure Net Replacement Value Current Net Exposure Current Net and Potential Exposure Margin Collected $ By Current Net and Potential Exposure Gross Replacement Value Receivable Payable Totals: $ Margin Collected $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Name offirrr: _ _ __ As of: _ _ _ _ __ VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 PO 00000 Frm 00036 Fmt 4700 Sfmt 4725 E:\FR\FM\23MYR1.SGM 23MYR1 ER23MY24.006</GPH> lotter on DSK11XQN23PROD with RULES1 NOTE: The information required to be reported within this forrr is intended to be identical to that required to be reported by Security Based Swap Dealers and Major Security Based Swap Participants under SEC FORM X-17a-5 FOCUS Report Part II. Please refer to FOCUS REPORT II INSTRUCTIONS and related interpretations published by the SEC in the preparation of this forrr. 45593 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations 8. Revise appendix C to subpart E of part 23 to read as follows: Appendix C to Supbart E of Subpart of 23—Specific Position Information for Swap Dealers and Major Swap Participants Subjects to the Capital Requirements of a Prudential Regulator ■ Reg. 23.105(p) Appendix C SCHEDULE 1 -AGGREGATE SECURITY-BASED SWAP AND SWAP POSITIONS Items on this page to be reported by: Bank SDs Bank MSPs LONG/BOUGHT Aggregate Positions 1. Security-based swaps A. Cleared SHORT/SOLD $ !12801! $ !12809! $ !12802! $ !12810! $ !12803! $ !12811! $ !12804! $ !12812! $ !12805! $ !12813! $ !12806! $ !12814! 4. Other derivatives $ !12807! $ !12815! 5. Total (sum of Lines 1-4) $ !12808! $ !12816! B. Non-cleared 2. Mixed swaps A. Cleared B. Non-cleared 3. Swaps A. Cleared B. Non-cleared Name affirm: As of: NOTE: The information required to be reported within this form is intended to be identical to that required to be reported by Security Based Swap Dealers and Major Security Based Swap Participants under SEC FORM X-17A-5 FOCUS Report Part IIC. Please refer to FOCUS REPORT PART IIC INSTRUCTIONS and related interpretations published by the SEC in the preparation of this form. Issued in Washington, DC, on May 8, 2024, by the Commission. Christopher Kirkpatrick, Secretary of the Commission. NOTE: The following appendices will not appear in the Code of Federal Regulations. lotter on DSK11XQN23PROD with RULES1 Appendices to Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants— Commission Voting Summary, Chairman’s Statement, and Commissioners’ Statements Appendix 1—Commission Voting Summary On this matter, Chairman Behnam and Commissioners Johnson, Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No Commissioner voted in the negative. VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 Appendix 2—Statement of Support of Chairman Rostin Behnam I support the final rule to amend certain requirements in part 23 of the Commission’s regulations to facilitate compliance by swap dealers (SDs) and major swap participants (MSPs) with the CFTC’s financial reporting obligations and demonstrate compliance with the minimum capital requirements. The changes are intended to address specific issues identified during the implementation of the Commission’s 2020 final rule on capital and financial reporting requirements for SDs and MSPs,1 which serve as the cornerstone of the post-Dodd Frank Act reforms to ensure SDs and MSPs remain sufficiently capitalized. Although the amendments do not change the Commission’s capital framework for SDs and MSPs, these amendments serve as an 1 Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020). PO 00000 Frm 00037 Fmt 4700 Sfmt 4700 important step to ensure the Commission’s capital rule is strong, comprehensive, and clear. I thank the public for their comments on the proposal and staff in the Market Participants Division, Office of the General Counsel, and the Office of the Chief Economist for their work on the final rule. Appendix 3—Statement of Commissioner Kristin N. Johnson Today [April 29, 2024], the Commodity Futures Trading Commission (Commission or CFTC) adopts a final rule to amend certain of the Commission’s part 23 regulations. The Commission introduces updates that underscore the critical importance of capital and reporting rules in maintaining the integrity and stability of swaps markets and broader domestic and global derivatives markets. These regulations aim to mitigate known systemic risk concerns. These well-tailored regulations update capital requirements and financial reporting obligations for swap dealers (SDs) and major E:\FR\FM\23MYR1.SGM 23MYR1 ER23MY24.007</GPH> BILLING CODE 6351–01–C 45594 Federal Register / Vol. 89, No. 101 / Thursday, May 23, 2024 / Rules and Regulations swap participants (MSPs) (Final Rule).1 The Final Rule ensures compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Final Rule aligns with the statutory mandate established in the Dodd-Frank Act that requires the Commission to adopt and implement robust capital and reporting requirements in swaps markets. The Final Rule includes several technical corrections improved by consultation with the prudential regulators and the Securities and Exchange Commission (SEC) on the adoption and implementation of the Commission’s capital rules. Consequently, I support the Final Rule.2 CFTC Dodd-Frank Act Capital Adequacy Reforms The Commission introduced new capital and financial reporting requirements for SDs in 2020, as mandated by the Dodd-Frank Act.3 Section 4s(e) of the CEA introduced minimum capital requirements for SDs,4 and section 4s(f) of the CEA created financial reporting and recordkeeping requirements for all SDs.5 Bank SDs subject to regulation by a prudential regulator are required to comply with the minimum capital requirements adopted by the applicable prudential regulator, while non-bank SDs and securitybased swap dealers not subject to regulation by a prudential regulator are required to meet the minimum capital requirements of the Commission and SEC, respectively. Banking regulators and the SEC have adopted capital rules for swaps and security-based swaps activities. Given the complexities of our markets, the Commission regulates SDs that may also be regulated by prudential regulators and the SEC. The Commission’s overall capital approach permits SDs to select one of three methods to calculate their capital requirements, as permitted under the rule: the net liquid assets capital approach; the bank-based capital requirements; or the tangible net worth capital approach. The Commission’s capital approach evidences the Commission’s recognition of the complexity and interconnectedness of the derivatives markets. lotter on DSK11XQN23PROD with RULES1 Final Rule’s Codification of No-Action Letters The Commission published a Notice of Proposed Rulemaking (Proposed Rule) on January 16, 2024.6 The comment period for the proposal closed on February 13, 2024, 1 Since no MSP is currently registered with the Commission, in this statement, I will refer to SDs only. 2 Kristin N. Johnson, Commissioner, CFTC, Statement Regarding Notice of Proposed Rulemaking to Amend Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants (Dec. 15, 2023), https:// www.cftc.gov/PressRoom/SpeechesTestimony/ johnsonstatement121523b. 3 Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020). 4 7 U.S.C. 6s(e). 5 7 U.S.C. 6s(f). 6 Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants, 89 FR 2554 (Jan. 16, 2024). VerDate Sep<11>2014 15:49 May 22, 2024 Jkt 262001 and the Commission received 4 substantive comment letters, all of which expressed general support for the Proposed Rule. Other than two revisions to the timing for the submission of reports, the proposed amendments were adopted as proposed. My statement in support of the Proposed Rule details the amendments adopted today. The Commission is primarily codifying Interpretive Letter 21–15, which applies to commercial non-bank SDs, and No-Action Letter (NAL) 21–18, which was extended under NAL 23–11 and applies to bank SDs, including non-U.S. bank SDs. The Final Rule, which also addresses several other recommended amendments, is a result of collaboration with the banking regulators and the SEC. The Final Rule aims to harmonize processes, procedures, and forms for financial reports and notifications. Importantly, the amendments do not change the substantive capital requirements, ‘‘which serve as a cushion during times of severe market stress to ensure our registrants’ safety and soundness, protect the financial stability of our financial system, and prevent a run on our financial institutions.’’ 7 The amendments buttress the financial condition reporting requirements, as the Commission retains ‘‘visibility and insight into the business and financial health of our registrants and enables us to require corrective action and prevent a failure of a single entity or group of entities or segment of the derivatives market, which could raise system risk concerns.’’ 8 These are important policy considerations I mentioned in my statement supporting the Proposed Rule. Conclusion It is the Commission’s duty to ensure that the implementation of the capital reforms under the Dodd-Frank Act is effective yet sensible and practical, and the Final Rule does just that. I want to thank the Market Participants Division for the excellent work bringing forth this final rulemaking, in particular Joshua Beale, Jennifer Bauer, Maria Aguilar-Rocha, Andrew Pai, and Christine McKeveny. Appendix 4—Statement of Support of Commissioner Caroline D. Pham I support the Capital and Financial Reporting Requirements for Swap Dealers (SD) and Major Swap Participants (MSP) Final Rule (SD Financial Reporting Rule Amendments) because it aligns the timing of financial reporting for entities that have a bank regulator or are registered with the Securities and Exchange Commission (SEC). This simplifies the filing process for these reports to minimize unnecessary costs and administrative burdens. I would like to thank Jennifer Bauer, Andrew Pai, Maria AguilarRocha, Christine McKeveny, Josh Beale, Tom Smith, and Amanda Olear in the Market Participants Division for their work on the SD Financial Reporting Rule Amendments. I truly appreciate the time staff took to discuss my questions and concerns. However, I believe that the Commission should have taken an evergreen approach to 7 Johnson, supra note 2. 8 Id. PO 00000 Frm 00038 Fmt 4700 Sfmt 9990 SEC harmonization of the filing time period. The Commission proposed to amend Regulation 23.105(p)(7) 1 to include a 30-day deadline for dually-registered non-U.S. bank swap dealers and major swap participants to file comparable SEC-approved financial reports and schedules with the CFTC following the date on which the report is made.2 One comment letter pointed out that the 30-day deadline is inconsistent with the Commission’s alignment of the deadline for U.S. bank swap dealers and major swap participants that are not dually registered to submit the report when required by the prudential regulators, and that the SEC had aligned its deadline for all bank securitybased swap dealers to submit such reports to the same 35-day deadline.3 While the Commission agreed with the comment letter and extended the deadline to 35 days to allow dual registrants to submit the reports on the same day as they do with the SEC, the Commission should have made the deadline ‘‘on the date Form X–17A–5 FOCUS Report Part IIC is due to be filed with the [SEC].’’ 4 This would avoid the Commission having to do another rulemaking to harmonize if the SEC updates its FOCUS report filing deadlines in the future. This would have anticipated a future problem and adopted a forward-looking solution, rather than setting up an issue we may have to react to in the future. [FR Doc. 2024–10342 Filed 5–22–24; 8:45 am] BILLING CODE 6351–01–P 1 Existing Regulation 23.105(p)(7) allows swap dealers or major swap participants that are subject to rules of a prudential regulator and are also registered with the SEC as a security-based swap dealer or a major security-based swap participant, and files a quarterly Form X–17A–5 FOCUS Report Part IIC with the SEC pursuant to 17 CFR 240.18a– 7, to file such Form X–17A–5 FOCUS Report Part IIC with the CFTC in lieu of the financial reports required under Regulation 23.105(p)(2). The swap dealer or major swap participant must file the form with the Commission when it files the Form X– 17A–5 FOCUS Report Part IIC with the SEC, provided, however, that the swap dealer or major swap participant must file the Form X–17A–5 FOCUS Report Part IIC with the CFTC no later than 30 calendar days from the date the report is made. See 17 CFR 23.105(p)(7). 2 See Proposed Rule, Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants, 89 FR 2554, 2558 (Jan. 16, 2024), https://www.govinfo.gov/content/pkg/FR2024-01-16/pdf/2023-28649.pdf. 3 See Comment Letter, Institute of International Bankers (IIB), the International Swaps and Derivatives Association (ISDA), and the Securities Industry and Financial Markets Association (SIFMA), Capital Requirements for Swap Dealers and Major Swap Participants (RIN 3038–AD54), 5 (Feb. 13, 2024), https://comments.cftc.gov/ Handlers/PdfHandler.ashx?id=35181. 4 Id. at 7. E:\FR\FM\23MYR1.SGM 23MYR1

Agencies

Commodity Futures Trading Commission

[Federal Register Volume 89, Number 101 (Thursday, May 23, 2024)]
[Rules and Regulations]
[Pages 45569-45594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10342]


=======================================================================
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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 23

RIN 3038-AF33


Capital and Financial Reporting Requirements for Swap Dealers and 
Major Swap Participants

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is adopting amendments to certain of the Commission's 
regulations that impose minimum capital requirements and financial 
reporting obligations on swap dealers (``SDs'') and major swap 
participants (``MSPs''). The Commission is adopting amendments 
consistent with previously issued staff letters addressing the Tangible 
Net Worth Capital Approach for calculating capital under the applicable 
Commission regulation and alternative financial reporting by SDs 
subject to the capital requirements of a prudential regulator. The 
Commission is also adopting amendments to certain of its regulations 
applicable to SDs, in areas including the required timing of certain 
notifications, the process for approval of subordinated debt for 
capital, and the revision of financial reporting forms to conform to 
the rules. The amendments are intended to facilitate SDs' compliance 
with the Commission's financial reporting obligations and minimum 
capital requirements.

DATES: 
    Effective date: This rule is effective June 24, 2024.
    Compliance date: September 30, 2024. The compliance date applies to 
all financial reports with an ``as of'' reporting date of September 30, 
2024 or later, to allow for sufficient time to effectuate amendments 
discussed herein.

FOR FURTHER INFORMATION CONTACT: Amanda L. Olear, Director, 202-418-
5283, [email protected]; Thomas Smith, Deputy Director, 202-418-5495, 
[email protected]; Joshua Beale, Associate Director, 202-418-5446, 
[email protected]; Jennifer Bauer, Special Counsel, 202-418-5472, 
[email protected]; Maria Aguilar-Rocha, Special Counsel, 202-418-5840, 
[email protected]; Andrew Pai, Attorney-Advisor, 646-746-9893, 
[email protected]; Christine McKeveny, Attorney-Advisor, 646-746-3923, 
[email protected]; Market Participants Division; Lihong McPhail, 
Research Economist, 202-418-5722, [email protected], Office of the 
Chief Economist; Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Amendments to Commission Regulations
    A. CFTC Staff Letters and Other Amendments
    1. Amendments to Tangible Net Worth Capital Approach--CFTC Staff 
Letter No. 21-15
    2. Amendments to Bank SD Financial Reporting Requirements--CFTC 
Staff Letter No. 21-18
    3. Amendments Regarding Financial Reporting and Other 
Requirements of SDs
    a. Amendments to Schedules in Financial Reporting
    b. Changes to Public Disclosure Requirements
    c. Changes to Form 1-FR-FCM
    d. Additional Cross References To Clarify Applicable Market and 
Credit Risk Charges
    B. Other Amendments
    1. Notice of Substantial Reduction in Capital
    2. Subordinated Debt Approval
    3. Statement of No Material Difference
III. Related Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    1. Background
    2. OMB Collection 3038-0024--Regulations and Forms Pertaining to 
Financial Integrity of the Market Place; Margin Requirements for 
SDs/MSPs
    C. Section 15(b) Antitrust Laws
IV. Cost-Benefit Considerations
    A. Background
    B. CFTC Staff Letters and Other Amendments
    1. Benefits
    2. Costs
    3. Section 15(a) Factors
    a. Protection of Market Participants and the Public
    b. Efficiency, Competitiveness, and Financial Integrity of Swap 
Markets
    c. Price Discovery
    d. Sound Risk Management Practices
    e. Other Public Interest Considerations
    C. Other Amendments
    1. Benefits
    2. Costs
    3. Section 15(a) Factors
    a. Protection of Market Participants and the Public
    b. Efficiency, Competitiveness, and Financial Integrity of Swaps 
Markets
    c. Price Discovery
    d. Sound Risk Management Practices
    e. Other Public Interest Considerations

I. Background

    Section 4s(e) of the Commodity Exchange Act (``CEA'' or the 
``Act'') requires the Commission to adopt minimum capital and margin 
requirements for SDs and MSPs.\1\ On September 15, 2020, the Commission 
issued final rules adopting such requirements under part 23 of the 
Commission's regulations (the ``Final Rule'' or the ``Final 
Rules'').\2\ The Final Rules became effective on November 16, 2020, 
with an extended compliance date of October 6, 2021 (``2021 Compliance 
Date'').\3\ The Final Rules imposed capital requirements on SDs and 
MSPs that are not subject to a prudential regulator (``nonbank SDs'' 
and ``nonbank MSPs,'' respectively).\4\ The Final Rules included a 
detailed capital model application process whereby eligible nonbank SDs 
and nonbank MSPs could apply to the Commission, or a registered futures 
association (``RFA'') of which they are a member, for approval.\5\ The 
Final Rules also adopted a capital comparability determination process 
for certain eligible foreign domiciled nonbank SDs and nonbank MSPs to 
seek substituted compliance for the Commission's capital and financial 
reporting requirements.\6\ Further, the Final Rules adopted detailed 
financial reporting, recordkeeping and notification requirements, 
including limited financial reporting requirements for SDs and MSPs 
subject to the capital requirements of a prudential regulator (``bank 
SDs'' and ``bank MSPs,''

[[Page 45570]]

respectively).\7\ The Final Rules also included amendments to existing 
capital rules for futures commission merchants (``FCMs'') to provide 
explicit additional capital requirements for proprietary positions in 
swaps and security-based swaps that are not cleared by a clearing 
organization.\8\ Finally, the Final Rules required that financial 
reports and notices be filed with both the Commission and the NFA \9\ 
and explicitly recognized NFA's ability to adopt standardized forms and 
processes to carry out the Commission's financial reporting and 
notification requirements for SDs.\10\
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    \1\ 7 U.S.C. 6s(e).
    \2\ Capital Requirements of Swap Dealers and Major Swap 
Participants, 85 FR 57462 (Sept. 15, 2020) (the ``Final Rule'' or 
the ``Final Rules''). Commission regulations referred to herein are 
found at 17 CFR chapter I. Commission regulations are accessible on 
the Commission's website at https://www.cftc.gov.
    \3\ Id.
    \4\ Id. The term ``prudential regulator'' is defined as the 
Board of Governors of the Federal Reserve System (``Federal Reserve 
Board''); the Office of the Comptroller of the Currency (``OCC''); 
the Federal Deposit Insurance Corporation (``FDIC''); the Farm 
Credit Administration; and the Federal Housing Finance Agency. 
Section 1a(39) of the CEA, 7 U.S.C. 1a(39).
    \5\ See generally Final Rules, 85 FR 57467. The three methods 
discussed in detail in the Final Rules include the Bank-Based 
Capital Approach, the Tangible Net Worth Capital Approach, and the 
Net Liquid Assets Capital Approach (as defined therein). Each method 
permits the use of models upon approval of the Commission or an RFA 
and determines the frequency and type of financial reporting 
information to be provided to the Commission by each nonbank SD and 
nonbank MSP.
    \6\ 17 CFR 23.106.
    \7\ Final Rules, 85 FR 57463. Bank SDs, which are not subject to 
the capital requirements of the Commission, are required to provide 
the Commission and National Futures Association (``NFA'') with 
limited financial information regarding the capital and swap 
positions of the firms. 17 CFR 23.105(p).
    \8\ Id.
    \9\ Id. at 57515.
    \10\ Id. at 57518.
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    In the period leading up to the 2021 Compliance Date, Commission, 
NFA, and SEC staff worked together to develop a process for collecting 
financial reports and responding to market participant inquiries 
regarding compliance with financial reporting and notice requirements. 
The Commission also approved NFA's capital model requirements and 
review process,\11\ and NFA adopted new Financial Requirements Section 
18,\12\ which included capital rules largely modeled after the 
Commission's Final Rules, and published new standardized financial 
reporting forms FR-CSE-NLA and FR-CSE-BHC for use by nonbank SDs that 
are not also registered with the SEC.\13\ Commission staff also issued 
eight no-action and interpretive letters in response to inquiries from 
market participants regarding compliance with various capital and 
financial reporting obligations under the Final Rules.\14\
---------------------------------------------------------------------------

    \11\ CFTC Staff Letter No. 21-03, Jan. 12, 2021, available at 
https://www.cftc.gov/csl/21-03/download.
    \12\ NFA section 18.
    \13\ NFA submitted these rules for Commission review under 
section 17(j) of the CEA, 7 U.S.C. 21(j), on November 22, 2021, and 
the rules became effective on December 21, 2021. NFA Notice to 
Members I-21-45, available at https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=5437.
    \14\ CFTC Staff Letter No. 21-15, June 29, 2021, available at 
https://www.cftc.gov/csl/21-15/download; CFTC Staff Letter No. 21-
18, Aug. 31, 2021, available at https://www.cftc.gov/csl/21-18/download; CFTC Staff Letter No. 21-20, Sept. 30, 2021, available at 
https://www.cftc.gov/csl/21-20/download; CFTC Staff Letter No. 21-
21, Sept. 30, 2021, available at https://www.cftc.gov/csl/21-21/download; CFTC Staff Letter No. 21-22, Sept. 30, 2021, available at 
https://www.cftc.gov/csl/21-22/download; CFTC Staff Letter No. 21-
23, Sept. 30, 2021, available at https://www.cftc.gov/csl/21-23/download; CFTC Staff Letter No. 22-01, Jan. 5, 2022, available at 
https://www.cftc.gov/csl/22-01/download; CFTC Staff Letter No. 22-
02, Jan. 5, 2022, available at https://www.cftc.gov/csl/22-02/download.
---------------------------------------------------------------------------

    On December 15, 2023, the Commission proposed several amendments to 
the capital and financial reporting requirements of SDs and MSPs that 
are consistent with parts of the staff positions taken in two of the 
letters issued by Commission staff prior to the 2021 Compliance Date: 
CFTC Staff Letters No. 21-15 and 21-18 (``CFTC Staff Letters''),\15\ 
and that would make other technical and clarifying changes necessary to 
effectuate the Final Rules' purpose (the ``Proposal'').\16\ CFTC Staff 
Letter No. 21-15 \17\ provides the staff's interpretation of the 
Tangible Net Worth Capital Approach for calculating capital under 
Commission regulation 23.101.\18\ CFTC Staff Letter No. 21-18 (further 
extended by CFTC Staff Letter No. 23-11) sets out staff's time-limited, 
no-action position regarding alternative financial reporting by SDs 
subject to the capital requirements of a prudential regulator.\19\ The 
technical and clarifying amendments proposed by the Commission included 
revisions to the required timing of certain notifications; 
modifications to the process for approval of subordinated debt for 
capital; and changes to financial reporting forms to conform to the 
rules.\20\ The purpose of the amendments is to facilitate compliance by 
SDs and MSPs with the Commission's financial reporting and applicable 
minimum capital obligations.
---------------------------------------------------------------------------

    \15\ CFTC Staff Letter No. 21-18 was time-limited and set to 
expire on October 6, 2023. To permit time for the Commission to 
issue a proposed rulemaking and address any comments received, the 
Market Participants Division extended the expiration of the letter 
to the earlier of October 6, 2025 or the adoption of any revised 
financial reporting requirements for bank SDs under regulation 
23.105(p). CFTC Staff Letter No. 23-11, July 10, 2023, available at 
https://www.cftc.gov/csl/23-11/download.
    \16\ Capital and Financial Reporting Requirements for Swap 
Dealers and Major Swap Participants, 89 FR 2554 (Jan. 16, 2024) 
(designated above as ``the Proposal'').
    \17\ CFTC Staff Letter No. 21-15.
    \18\ 17 CFR 23.101.
    \19\ CFTC Staff Letter No. 21-18; CFTC Staff Letter No. 23-11.
    \20\ See the Proposal, 89 FR 2561-2562.
---------------------------------------------------------------------------

    The comment period for the Proposal ended on February 13, 2024.\21\ 
The Commission received four substantive comment letters.\22\ In 
general, all of these letters expressed general support for the 
proposed amendments.\23\ One commenter stated that it strongly supports 
the Commission's proposed amendments, as they are intended to provide 
technical and other clarifying changes necessary to effectuate the 
Final Rule's purpose.\24\ Another commenter stated that it applauds the 
Commission's efforts to provide regulatory certainty and consistency 
through the codification of the CFTC Staff Letters and amendments to 
the Tangible Net Worth Capital Approach for nonbank SDs.\25\ 
Specifically, as to the amendments consistent with parts of CFTC Staff 
Letters No. 21-15 and 21-18, discussed in further detail below, one 
commenter stated that such amendments enhance the transparency and 
clarity of the SD capital regime and provide legal certainty and 
guidance for SDs, while improving transactional efficiency by avoiding 
the need for one-off staff letters.\26\ This commenter further stated 
that these amendments also facilitate the implementation and 
enforcement of the capital and financial reporting requirements and 
promote compliance and cooperation.\27\ After considering the comments, 
the Commission is adopting the Proposal subject to certain changes as 
noted below.\28\
---------------------------------------------------------------------------

    \21\ Id. at 2555.
    \22\ Letter from Stephanie Webster, Institute of International 
Bankers, Chris Young, International Swaps and Derivatives 
Association, and Kyle Brandon, Securities Industry and Financial 
Markets Association (Feb. 13, 2024) (``IIB/ISDA/SIFMA Letter''); 
Letter from Matthew J. Picardi, Shell Energy North America (U.S.) 
L.P., Shell Trading Risk Management, LLC, and their affiliates (Feb. 
13, 2024) (``Shell Letter''); Letter from Chris Barnard (Feb. 10, 
2024) (``Barnard Letter''); and Letter from Michael Ravnitzky (Jan. 
16, 2024) (``Ravnitzky Letter'').
    \23\ See id.
    \24\ IIB/ISDA/SIFMA Letter at 1-2.
    \25\ Shell Letter at 2.
    \26\ Ravnitzky Letter at 1.
    \27\ Id.
    \28\ Note that as of the effective date of this rulemaking, CFTC 
Staff Letters No. 21-15 and 21-18 are hereby withdrawn and no longer 
in effect. These letters are superseded by the rules being adopted 
in this release.
---------------------------------------------------------------------------

II. Amendments to Commission Regulations

A. CFTC Staff Letters and Other Amendments

1. Amendments to Tangible Net Worth Capital Approach--CFTC Staff Letter 
No. 21-15
    The Commission proposed amendments to certain of its part 23 
regulations consistent with parts of interpretive CFTC Staff Letter No. 
21-15 addressing the Tangible Net Worth Capital Approach for 
calculating capital under Commission regulation 23.101.\29\ The 
Commission's Market Participants Division (the ``Division'') issued 
CFTC Staff Letter No. 21-15 on June 29, 2021, in response to concerns 
raised by

[[Page 45571]]

nonbank SDs intending to elect the Tangible Net Worth Capital Approach 
for calculating capital under Commission regulation 23.101 \30\ 
regarding the application of the eligibility test to different 
corporate structures.\31\ In CFTC Staff Letter No. 21-15, the Division 
issued its interpretation that the asset and revenue tests for 
``predominantly engaged in non-financial activities'' could be assessed 
at the nonbank SD's entity level or ultimate parent level and, further, 
such tests could be computed under International Financial Reporting 
Standards issued by the International Accounting Standards Board 
(``IFRS'') in lieu of generally accepted accounting principles as 
adopted in the United States (``U.S. GAAP''), if the entity was 
permitted to use IFRS for financial reporting.\32\ The Division also 
stated its position that supplemental position reporting for nonbank 
SDs meeting these qualifications may be filed on a quarterly basis 
along with the firm's financial reports, as opposed to monthly.\33\
---------------------------------------------------------------------------

    \29\ 17 CFR 23.101.
    \30\ 17 CFR 23.101.
    \31\ CFTC Staff Letter No. 21-15.
    \32\ Id. at 3-6.
    \33\ Id. at 5-6. Compare 17 CFR 23.105(d) with 17 CFR 23.105(l), 
as the former includes monthly or quarterly periodicity as opposed 
to the latter only referring to monthly.
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    To ensure that the Tangible Net Worth Capital Approach may be 
utilized by eligible nonbank SDs as intended in the Final Rules, the 
Commission proposed amendments to definitions in Commission regulation 
23.100 \34\ and in the periodicity of Commission regulation 23.105(l) 
\35\ in the Proposal,\36\ which are consistent with the terms of CFTC 
Staff Letter No. 21-15. Specifically, the Commission proposed to amend 
the definitions in Commission regulation 23.100 of the terms 
``predominantly engaged in non-financial activities'' and ``tangible 
net worth'' to explicitly permit the satisfaction of both the revenue 
and asset-based tests at the consolidated parent level of the nonbank 
SD and to clarify that ``tangible net worth'' may be determined under 
either U.S. GAAP or IFRS accounting standards.\37\ The Proposal 
clarified that the tests may be satisfied either at the level of the 
nonbank SD or at the level of the nonbank SD's consolidated parent 
rather than seeming to exclude the consolidated parent of the nonbank 
SD, as addressed in CFTC Staff Letter No. 21-15 in response to 
questions raised by industry.\38\ The amendment to the definition of 
``tangible net worth'' in Commission regulation 23.100 clarifies that 
``tangible net worth'' may be determined under either applicable 
accounting standard, U.S. GAAP or IFRS.\39\ This amendment aligns and 
corrects the permitted use of IFRS in determining eligibility for the 
approach with the standard permitted and utilized by the nonbank SD in 
preparation of its financial statements.\40\ As discussed in the Final 
Rule, the Commission is generally comfortable with both U.S. GAAP and 
IFRS accounting standards in this context, as both of these accounting 
standards are designed to provide a complete, consistent, and 
comparable view of the financial condition of a company, especially as 
both standards continue to move toward greater convergence.\41\
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    \34\ 17 CFR 23.100.
    \35\ 17 CFR 23.105(l).
    \36\ The Proposal, 89 FR 2556-2557.
    \37\ Id. See 17 CFR 23.100 for the definition of the term 
``predominantly engaged in non-financial activities.''
    \38\ Id.
    \39\ Id. See 17 CFR 23.100 for the definition of the term 
``tangible net worth.''
    \40\ Id. Nonbank SDs electing the Tangible Net Worth Capital 
Approach are currently permitted to use IFRS for their financial 
reporting obligations under Commission regulation 23.105 (17 CFR 
23.105(d) and (e)). IFRS is also permitted as an acceptable 
reporting standard for all nonbank SDs provided that they otherwise 
do not prepare financial statements in accordance with U.S. GAAP.
    \41\ Final Rules, 85 FR 57514.
---------------------------------------------------------------------------

    The Commission received comments generally supporting the proposed 
amendments to the definitions of the terms ``predominantly engaged in 
non-financial activities'' and ``tangible net worth'' in Commission 
regulation 23.100.\42\ One commenter stated that the proposed 
amendments would recognize the financial strength and support of the 
parent company for the nonbank SD and align the capital requirement 
with the accounting standards and practices of the parent company.\43\ 
This commenter further stated that the proposed amendments would reduce 
regulatory burden and costs for some nonbank SDs, especially those that 
are predominantly engaged in non-financial activities and have a high 
level of tangible net worth.\44\ Another commenter stated that the 
proposed amendments are crucial to clarify and simplify the 
interpretation and implementation of the ``tangible net worth'' test 
for eligible nonbank SDs.\45\ The Commission agrees with the commenters 
and believes, as discussed above, that the proposed amendments will 
confirm its intention to permit consideration of the parent company in 
the assessment of predominantly engaged in non-financial activities 
under the Final Rules. This approach, as identified in the Final Rules, 
permits the eligibility test to be applied at the consolidated entity 
level, which does not penalize a non-financial entity from establishing 
separate SD subsidiaries to provide financial services for the 
corporate group, including engaging in swaps on behalf of the corporate 
group.\46\ Further, the proposed amendment to allow nonbank SDs to 
utilize the same accounting standard permitted for their financial 
reporting comports with the purpose of the eligibility test. As such, 
the Commission is adopting the amendments to the definitions as 
proposed.
---------------------------------------------------------------------------

    \42\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
    \43\ Ravnitzky Letter at 1.
    \44\ Id.
    \45\ Barnard Letter at 2.
    \46\ Final Rules, 85 FR 57502.
---------------------------------------------------------------------------

    The Commission also proposed to amend Commission regulation 
23.105(l) \47\ to require that each nonbank SD and nonbank MSP file 
Appendix B to subpart E of part 23 (``Appendix B''),\48\ which contains 
aggregate securities, commodities, and swap position information and 
certain credit exposure information, with the Commission and NFA on a 
quarterly or monthly basis in keeping with their routine financial 
reporting, rather than a monthly basis.\49\ This amendment would align 
that filing with the periodicity permitted as part of the nonbank SD's 
or nonbank MSP's routine financial report filings required by 
Commission regulation 23.105(d) \50\ and would clarify that the 
information provided should be consistent with those financial report 
filings.\51\
---------------------------------------------------------------------------

    \47\ 17 CFR 23.105(l).
    \48\ Appendix B to subpart E of part 23.
    \49\ The Proposal, 89 FR 2557. The Commission intended the swap 
position and credit information in Commission regulation 23.105(l) 
(17 CFR 23.105(l)) and Appendix B to be filed together with other 
financial information required by Commission regulation 23.105(d) 
(17 CFR 23.105(d)) as this information is supplementary to the 
financial statements as a whole and completes the routine financial 
reporting package. This approach is also consistent with how dually-
registered SDs with the SEC complete the SEC's Form X-17A-5 (``FOCUS 
Report'') Part II. SEC Form X-17A-5 FOCUS Report Part II, available 
at https://www.sec.gov/manage-filings/forms-index/form-x-17a-5-2.
    \50\ 17 CFR 23.105(d). Commission regulation 23.105(d) permits 
nonbank SDs electing the Tangible Net Worth Capital Approach to file 
required financial reports quarterly, whereas nonbank SDs electing 
either the Bank Based Capital Approach or the Net Liquid Asset 
Capital Approach are required to file such information on a monthly 
basis.
    \51\ The Proposal, 89 FR 2557. The Commission previously 
determined that nonbank SDs electing the Tangible Net Worth Capital 
Approach may engage in a wide variety of businesses and not be 
otherwise subject to any financial reporting. Thus, the Commission 
determined in the Final Rule that such SDs need only file financial 
reports quarterly and not monthly and may take a longer period of 
time to file audited financial reports. Final Rules, 85 FR 57514-
57515.

---------------------------------------------------------------------------

[[Page 45572]]

    The Commission requested comment on the proposed amendment to 
Commission regulation 23.105(l) \52\ to require that each nonbank SD 
and nonbank MSP file Appendix B with the Commission and NFA on the same 
quarterly or monthly basis, as applicable, that the firm files its 
financial information pursuant to Commission regulation 23.105(d).\53\ 
In response, the Commission received comments generally supporting the 
amendment.\54\ The Commission believes, as discussed above, that this 
amendment will align the filing of Appendix B with the same periodicity 
of nonbank SD financial reporting. As such, the Commission is adopting 
the amendment as proposed.
---------------------------------------------------------------------------

    \52\ 17 CFR 23.105(l).
    \53\ The Proposal, 89 FR 2557-2558.
    \54\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
---------------------------------------------------------------------------

2. Amendments to Bank SD Financial Reporting Requirements--CFTC Staff 
Letter No. 21-18
    The Commission proposed amendments to certain of its part 23 
regulations congruous with parts of CFTC Staff Letter No. 21-18 (and 
its successor, CFTC Staff Letter No. 23-11) regarding alternative 
financial reporting by SDs subject to the capital requirements of a 
prudential regulator.\55\ The Division issued CFTC Staff Letter No. 21-
18 \56\ on August 31, 2021, in response to concerns by several bank SDs 
\57\ regarding compliance with financial reporting requirements under 
Commission regulation 23.105(p).\58\ Bank SDs asserted that the 
financial reporting filing deadline adopted by the Commission preceded 
the financial reporting filing deadline imposed by prudential 
regulators, which conflicted with the Commission's intent in the Final 
Rules that the reporting requirements of bank SDs and bank MSPs be 
consistent with the SEC requirements for bank security-based swap 
dealers (``SBSDs'') and bank major security-based swap participants 
(``MSBSPs''), to maintain equivalent financial reporting requirements 
for dually-registered firms.\59\ Several bank SDs did not register as 
SBSDs, and therefore are subject only to limited financial reporting 
under the Commission's rules.\60\ In certain instances, the financial 
reporting required by the prudential regulators for these bank SDs 
permit a longer period of time and utilize a different format than that 
adopted by the Commission. Some of these bank SDs are not required to 
file financial reports with a prudential regulator if the bank SDs are 
domiciled outside the United States and may instead be subject only to 
financial reporting of a home country supervisor. Moreover, although 
Appendix C to subpart E of part 23 (``Appendix C'') \61\ was intended 
to capture line items on existing Federal Financial Institutions 
Examination Council (``FFEIC'') \62\ Form 031 (``Call Report'') 
provided to prudential regulators, line items on specific schedules 
within the Call Report had either been removed, added, or otherwise 
changed since the Commission adopted Appendix C.\63\
---------------------------------------------------------------------------

    \55\ The Proposal, 89 FR 2557-2558.
    \56\ CFTC Staff Letter Staff No. 21-18.
    \57\ Letter from Steven Kennedy, Institute of International 
Bankers and Kyle Brandon, Securities Industry and Financial Markets 
Association (Aug. 20, 2021) (the ``ISDA-SIFMA Joint Request 
Letter'').
    \58\ 17 CFR 23.105(p).
    \59\ Commission regulation 23.105(p) requires bank SDs to report 
financial information within 30 calendar days of quarter-end. 17 CFR 
23.105(p)(2). The Instructions for Preparation of Consolidated 
Reports of Condition and Income, Schedule RC-D, available at https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_202303_i.pdf, 
however, permit a bank with more than one foreign office to submit 
its FFIEC 031 forms within 35 calendar days following quarter-end. 
Additionally, the SEC extended the filing deadline of FOCUS Report 
Part IIC for non-U.S. SBSDs subject to a prudential regulator from 
30 to 35 days following quarter end, noting that ``U.S. prudential 
regulators permit certain U.S. banks to file their financial reports 
35 days after the quarter end.'' Order Specifying the Manner and 
Format of Filing Unaudited Financial and Operational Information by 
Security-Based Swap Dealers and Major Security-Based Swap 
Participants That Are Not U.S. Persons and Are Relying on 
Substituted Compliance Determinations With Respect to Rule 18a-7, 86 
FR 59208 (Oct. 26, 2021) at 59210.
    \60\ 17 CFR 23.105(p).
    \61\ Appendix C to subpart E of part 23.
    \62\ Federal Financial Institutions Examination Council, 
Consolidated Reports of Condition and Income for a Bank with 
Domestic and Foreign Offices--FFIEC 031, available at https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_202203_f.pdf.
    \63\ ISDA-SIFMA Joint Request Letter at 3-4.
---------------------------------------------------------------------------

    CFTC Staff Letter No. 21-18, as extended under CFTC Staff Letter 
No. 23-11,\64\ articulates a position by the Division that it would not 
recommend that the Commission engage in an enforcement action against 
bank SDs providing the Commission with copies of financial reports that 
are required by, and filed with, their respective prudential or home 
country regulators, in lieu of complying with the substantive 
requirements of Appendix C, subject to certain conditions.\65\ CFTC 
Staff Letter No. 21-18 also contains a no-action position with respect 
to bank SDs filing comparable Call Report schedules with the Commission 
in lieu of the schedules contained in Appendix C, provided that the 
comparable schedules are filed with the Commission within the timeframe 
permitted by the prudential regulators for filing the schedules with 
the applicable home country regulator.\66\ CFTC Staff Letter No. 21-18 
further provides that the Division would not recommend enforcement 
action against certain foreign-domiciled bank SDs (``Non-U.S. bank 
SDs'') that do not provide financial reports to a prudential regulator 
if they file with the Commission balance sheet and statement of 
regulatory capital information in accordance with applicable home 
country requirements in lieu of the schedules contained in Appendix C, 
so long as the financial information is in English, with balances 
converted to U.S. dollars, and the financial information is filed 
within 15 days of the earlier of the date such financial information is 
filed or required to be filed with the Non-U.S. bank SDs' applicable 
home country regulator.\67\ Finally, the Division stated that it would 
not recommend enforcement action against dually-registered Non-U.S. 
bank SDs filing comparable SEC-required financial reports and schedules 
with the Commission in lieu of the schedules contained in Appendix 
C.\68\
---------------------------------------------------------------------------

    \64\ See supra note 15.
    \65\ CFTC Staff Letter No. 21-18 at 4-5.
    \66\ Id. at 4-5, Condition 1.
    \67\ Id. at 5, Conditions 2-4.
    \68\ Id., Condition 5. In comparison to the SEC's approach to 
similarly situated bank SBSDs, the Commission's capital 
comparability process adopted in Commission regulation 23.106 (17 
CFR 23.106) does not extend to bank SDs.
---------------------------------------------------------------------------

    The Commission also proposed to amend Commission regulation 
23.105(p) \69\ to add an exception to the financial reporting 
requirements for Non-U.S. bank SDs that do not submit financial reports 
to a prudential regulator.\70\ The amendment would permit Non-U.S. bank 
SDs to file with the Commission financial reports that are submitted to 
their respective home country regulator, provided the financial reports 
submitted to the Commission are translated into English with balances 
converted to U.S. dollars.\71\ These Non-U.S. bank SDs, however, would 
continue to be required to file specific swap position information set 
forth in Schedule 1 to Appendix C.\72\ Finally, these Non-U.S. bank SDs 
would be required to file with the Commission such reports no later 
than 90 calendar days following quarter-end.\73\ This amendment would 
enable

[[Page 45573]]

the Commission to collect such reports to support its ability to 
monitor the capital condition of all SDs, although the Commission does 
not establish the capital or margin requirements of bank SDs.\74\
---------------------------------------------------------------------------

    \69\ 17 CFR 23.105(p).
    \70\ The Proposal, 89 FR 2558.
    \71\ Id.
    \72\ Id.
    \73\ Id. Note that the Commission did not propose and is not 
adopting the restriction in CFTC Staff Letter No. 21-18 that Non-
U.S. bank SDs be subject to home country capital standards in a G-20 
jurisdiction. CFTC Staff Letter No. 21-18 at 3-5.
    \74\ Id. at 2559. Section 4s(f) of the CEA requires SDs and 
MSPs, including those for which there is a prudential regulator, to 
make any reports regarding transactions and positions, as well as 
any reports regarding financial condition, that the Commission 
adopts by rule or regulation. 7 U.S.C. 6s(f).
---------------------------------------------------------------------------

    The Commission requested comment on the proposed amendment to 
Commission regulation 23.105(p) \75\ to add the exception discussed 
above to the financial reporting requirements for Non-U.S. bank SDs 
that do not submit financial reports to a prudential regulator.\76\ In 
response, the Commission received comments generally supporting the 
amendment.\77\ One commenter stated that it agreed that the proposed 
90-day time period should permit the Non-U.S. bank SDs sufficient time 
to prepare and submit the financial reports that are submitted to their 
respective home country regulator, translated into English with 
balances converted to U.S. dollars, along with Schedule 1 to Appendix 
C.\78\ This commenter further stated that this approach allows the 
Commission to monitor the capital condition of such Non-U.S. bank SDs, 
although the Commission does not establish the capital or margin 
requirements of bank SDs.\79\ Another commenter stated that this 
amendment, and the one discussed immediately below, would simplify the 
compliance and reporting process for some SDs, especially those that 
are subject to the oversight of other regulators, such as prudential 
regulators, the SEC, or foreign regulators.\80\ This commenter further 
stated that this amendment would also avoid duplication, inconsistency, 
or conflict among different reporting requirements and standards.\81\ 
The Commission has considered the comments, and believes, as discussed 
above, that this amendment will align the financial reporting 
requirements of Non-U.S. bank SDs with those of their prudential 
regulators, while still maintaining the Commission's ability to 
properly monitor the capital condition of all SDs, as these reports 
still provide the Commission with essentially the same critical 
financial data.\82\ As such, the Commission is adopting the amendment 
as proposed, with the exception of the modification of the word 
``approved'' to ``permitted'' with respect to the use of acceptable 
accounting standards to recognize that certain regulatory authorities 
may not specifically issue an official approval of such standards.
---------------------------------------------------------------------------

    \75\ 17 CFR 23.105(p).
    \76\ The Proposal, 89 FR 2558-2559.
    \77\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
    \78\ IIB/ISDA/SIFMA Letter at 3.
    \79\ Id.
    \80\ Ravnitzky Letter at 1.
    \81\ Id.
    \82\ As noted in the Proposal, the Commission did not propose to 
include the restriction in CFTC Staff Letter No. 21-18 that Non-U.S. 
bank SDs be subject to home country capital standards in a G-20 
jurisdiction. The Commission did not receive comment on this, and as 
indicated, to date all registered Non-U.S. bank SDs have met this 
criterion. The Proposal, 89 FR 2558.
---------------------------------------------------------------------------

    The Commission also proposed to add a definition of the term ``Call 
Report'' to Commission regulation 23.100 and to amend Commission 
regulation 23.105(p) \83\ to permit bank SDs to file the relevant 
schedules under the Call Report (Schedule RC and Schedule RC-R), rather 
than replicating various line items from within those reports on a 
separately constructed balance sheet and statement of regulatory 
capital currently maintained in Appendix C.\84\ Schedule 1 of Appendix 
C, which contains relevant swap, mixed swap, and security-based swaps 
position information, would remain a required schedule to be provided 
by all bank SDs.\85\ This approach would permit the Commission to 
collect the necessary financial information to monitor the financial 
condition of bank SDs, even though it is prepared in accordance with 
prudential regulators' guidance, while eliminating the necessity that 
bank SDs familiarize themselves with a new reporting form and prevent 
the Commission from having to routinely monitor and update its form 
when prudential regulators amend their schedules.\86\ These changes are 
consistent with the terms of CFTC Staff Letter No. 21-18, which have 
resulted in the Commission and its staff receiving the requisite 
information to meaningfully oversee its population of bank SDs since 
2021.\87\ In addition, and as mentioned above, these amendments would 
enable the Commission to collect such reports enabling it to continue 
to monitor the capital condition of all SDs, although the Commission 
does not establish the capital requirements of banks.\88\
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    \83\ 17 CFR 23.105(p).
    \84\ The Proposal, 89 FR 2558-2559. As adopted, Appendix C 
contains three schedules: 1. Statement of Financial Condition 
(balance sheet); 2. Statement of Regulatory Capital; and 3. Schedule 
1. Both the Statement of Financial Condition and Statement of 
Regulatory Capital schedules within Appendix C are modeled off the 
FOCUS Report Part IIC as adopted by the SEC for bank SBSDs and 
contain specific line item references corresponding to the Call 
Report. See Final Rules, 85 FR 57566-57569. Following adoption of 
these schedules, changes were made to the underlying Call Reports 
making the schedules obsolete. The SEC has since proposed revisions 
to the FOCUS Report Part IIC to reflect these changes. See generally 
Electronic Submission of Certain Materials Under the Securities 
Exchange Act of 1934; Amendments Regarding the FOCUS Report, 88 FR 
23920 (Apr. 18, 2023), available at https://www.federalregister.gov/documents/2023/04/18/2023-06330/electronic-submission-of-certain-materials-under-the-securities-exchange-act-of-1934-amendments (the 
``FOCUS Report Amendments'').
    \85\ Id.
    \86\ Id.
    \87\ Id.
    \88\ Id.
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    The Commission requested comment on the added definition to 
Commission regulation 23.100 and the proposed amendment to Commission 
regulation 23.105(p) \89\ to permit bank SDs to file the relevant 
schedules under the Call Report (Schedule RC and Schedule RC-R), rather 
than replicating various line items from within those reports on a 
separately constructed balance sheet and statement of regulatory 
capital currently maintained in Appendix C.\90\ In response, the 
Commission received comments generally supporting the amendment.\91\ 
One commenter stated that it agreed that the above-described approach, 
which is consistent with the conditions in CFTC Staff Letter No. 21-18, 
has resulted in the Commission and its staff receiving the requisite 
information to meaningfully oversee its population of bank SDs since 
2021.\92\ This commenter further stated that it supported the proposed 
evergreen approach that provides for U.S. bank SDs to submit the 
relevant portions of the Call Report, as updated by U.S. prudential 
regulators from time to time, noting that it will avoid the need to 
periodically update the Commission's forms to ensure the cross 
references align with the current version of the Call Report.\93\ The 
Commission agrees with commenters and believes, as discussed above, 
that this amendment will align the financial reporting requirements of 
bank SDs with those of their prudential regulators, while still 
maintaining the Commission's ability to monitor the capital condition 
of all SDs. As such, the Commission is adopting the definition of Call 
Report and the amendment as proposed.
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    \89\ 17 CFR 23.105(p).
    \90\ The Proposal, 89 FR 2559.
    \91\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
    \92\ IIB/ISDA/SIFMA Letter at 4.
    \93\ Id.
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    The Commission also proposed to amend Commission regulation

[[Page 45574]]

23.105(p)(7) \94\ to require a bank SD or bank MSP that is also 
registered with the SEC as an SBSD or MSBSP and files a quarterly Form 
X-17A-5 FOCUS Report Part IIC with the SEC pursuant to 17 CFR 240.18a-
7,\95\ to file such Form X-17A-5 FOCUS Report Part IIC with the 
Commission in lieu of the Call Report.\96\ Such a dual-registrant would 
be required to file the form with the Commission when it files the form 
with the SEC, but no later than 30 calendar days from the date the 
report is made.
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    \94\ 17 CFR 23.105(p)(7).
    \95\ 17 CFR 240.18a-7.
    \96\ The Proposal, 89 FR 2558.
---------------------------------------------------------------------------

    The Commission requested comment on the proposed amendment to 
Commission regulation 23.105(p)(7) to require such dual-registered bank 
SD or bank MSP to file Form X-17A-5 FOCUS Report Part IIC with the 
Commission in lieu of the Call Report when it files the form with the 
SEC, but no later than 30 calendar days from the date the report is 
made.\97\ One commenter stated that the 30-day deadline is inconsistent 
with the Commission's alignment of the deadline for U.S. bank SDs that 
are not also SBSDs to submit the Call Report when required by the 
prudential regulators.\98\ This commenter further stated that the SEC 
aligned its deadline for all bank SBSDs to submit FOCUS Report Part IIC 
to the same 35-day deadline \99\ and that the commenter believed that 
the Commission intended to align its deadline, along with the form of 
required reports, with those required by prudential regulators and the 
SEC.\100\ The commenter further suggested that the Commission should 
amend the rule text to reflect that intention and to make clear that 
the Commission requires bank SDs that are also SBSDs to submit to the 
Commission the same reports on the same day as they do to the SEC.\101\ 
After considering the comments, the Commission is adopting the 
amendment as proposed, with the exception of replacing the 30 calendar 
day requirement with 35 calendar days.
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    \97\ Id. at 2558-2559.
    \98\ IIB/ISDA/SIFMA Letter at 5.
    \99\ Id. See SEC, Division of Trading and Markets letter on 
Financial Reporting requirements for Security-Based Swap Dealers and 
Major Security-Based Swap Participants (Oct. 27, 2021) and Order 
Specifying the Manner and Format of Filing Unaudited Financial and 
Operational Information by Security-Based Swap Dealers and Major 
Security-Based Swap Participants That Are Not U.S. Persons and Are 
Relying on Substituted Compliance Determinations With Respect to 
Rule 18a-7, 86 FR 59208 (Oct. 26, 2021) at 59210.
    \100\ Id.
    \101\ Id.
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    The Commission believes providing an additional five days will not 
have any negative impact on the Commission's use of bank SD financial 
reporting, as the information will still be timely, and agrees with the 
commenter that aligning the time period to 35 calendar days after the 
report date in practical effect will allow dual-registrants to submit 
the reports to the Commission on the same day as they do to the SEC, 
which comports with the Commission's intent.\102\ The Commission, 
however, is not adopting the specific regulatory text suggested by the 
commenter, because adopting such text would eliminate any specific 
timeframe other than by reference to as permitted by the SEC. Although 
the Commission intends to allow dual-registrants to submit reports on 
the same day, the Commission believes this approach will permit the 
Commission to evaluate any potential longer reporting time periods that 
may be prospectively adopted by the SEC. As such, the Commission is 
adopting the amendment as proposed, with the revision discussed above.
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    \102\ The Proposal, 89 FR 2560.
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3. Amendments Regarding Financial Reporting and Other Requirements of 
SDs
a. Amendments to Schedules in Financial Reporting
    The Commission proposed to amend the scope of Commission regulation 
23.105(k) \103\ and the heading and scope of Commission regulation 
23.105(l),\104\ as well as the titles of certain schedules included in 
Appendix B,\105\ to further clarify that these reporting obligations 
are applicable to all nonbank SDs and nonbank MSPs.\106\ Commission 
regulation 23.105(k) \107\ lists both model-specific information that 
nonbank SDs must report as well as a description of the same type of 
exposure information as reflected in the schedules to Appendix B.\108\ 
Commission regulation 23.105(l),\109\ however, requires all nonbank 
SDs, including those not approved to use models, to complete the 
Appendix B schedules on a monthly basis.\110\ This has resulted in 
several nonbank SDs filing each of the schedules to Appendix B without 
having received capital model approval.\111\ Hence, in current form, 
Commission regulations 23.105(k) and (l),\112\ as well as the titles of 
Schedules 2-4 of Appendix B, could more explicitly indicate that all of 
the information within the schedules included in Appendix B is required 
of all nonbank SDs, including those not authorized to use models.\113\
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    \103\ 17 CFR 23.105(k).
    \104\ 17 CFR 23.105(l).
    \105\ Appendix B is comprised of 4 individual schedules: 
SCHEDULE 1--AGGREGATE SECURITIES, COMMODITIES AND SWAPS POSITIONS; 
SCHEDULE 2--CREDIT CONCENTRATION REPORT FOR FIFTEEN LARGEST 
EXPOSURES IN DERIVATIVES; SCHEDULE 3--PORTFOLIO SUMMARY OF 
DERIVATIVES EXPOSURES BY INTERNAL CREDIT RATING; and SCHEDULE 4--
GEOGRAPHIC DISTRIBUTION OF DERIVATIVES EXPOSURES FOR TEN LARGEST 
COUNTRIES.
    \106\ The Proposal, 89 FR 2559.
    \107\ 17 CFR 23.105(k).
    \108\ The Proposal, 89 FR 2559.
    \109\ 17 CFR 23.105(l).
    \110\ The Proposal, 89 FR 2559.
    \111\ Id.
    \112\ 17 CFR 23.105(k) and (l).
    \113\ The Proposal, 89 FR 2559. To further complicate matters, 
the heading and first paragraph to Commission regulation 23.105(k) 
(17 CFR 23.105(k)) both indicate that this provision only applies to 
SDs approved to use internal models to calculate market risk and 
credit risk for calculating capital under Commission regulation 
23.102(d) (17 CFR 23.102(d)).
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    The Appendix B schedules are identical to corresponding schedules 
found in SEC's FOCUS Report required to be completed by both SBSDs and 
certain broker dealers (``BDs'').\114\ To the extent practicable, the 
Commission intends to align financial reporting requirements, including 
those listed in textual form in Commission regulation 23.105(k) \115\ 
and in the finalized schedules part of Appendix B, with the reporting 
requirements finalized by the SEC pertaining to SBSDs, MSBSPs, and 
BDs.\116\ This is also consistent with the Commission's general 
approach permitting dually-registered BDs and SBSDs to file SEC Form 
FOCUS Report Part II in lieu of their requirements under Commission 
regulations 23.105(d) and (e),\117\ and for those dually-registered 
SBSDs subject to the capital rules of a prudential regulator under 
Commission regulation 23.105(p).\118\
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    \114\ See FOCUS Report Amendments.
    \115\ 17 CFR 23.105(k).
    \116\ See Final Rules, 85 FR 57519.
    \117\ 17 CFR 23.105(d) and (e).
    \118\ 17 CFR 23.105(p). As indicated in the Final Rule, the 
Commission has a long history of permitting SEC registrants to meet 
their financial statement filing obligations with the Commission by 
submitting required SEC forms in lieu of the CFTC's forms, which 
reduces the burden on dually-registered firms by not requiring two 
separate financial reporting requirements. See Final Rules, 85 FR 
57515.
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    NFA has also adopted nearly identical capital and financial 
reporting requirements for its member nonbank SDs and nonbank 
MSPs.\119\ The finalized NFA rules mandate the use of comprehensive 
standardized forms for financial reporting by member nonbank SDs and 
nonbank MSPs that are not otherwise able to file an SEC Form

[[Page 45575]]

FOCUS Report Part II.\120\ These new NFA forms, FR-CSE-NLA and FR-CSE-
BHC, include each of the required schedules found in Appendix B. All 
the information listed in textual form in paragraph (k)(1)(v) of 
Commission regulation 23.105 \121\ can be found in specific schedules 
found in Appendix B.\122\ The Commission proposed Appendix B, which is 
now part of NFA's adopted forms, to be the primary mechanism for firms 
to provide the required information listed in Commission regulation 
23.105(k).\123\ The amendment to Commission regulation 23.105(k) \124\ 
clarifies that Appendix B schedules are required to be completed by all 
nonbank SDs and nonbank MSPs as intended by the Final Rule, and is 
consistent with that required by the SEC and NFA.\125\ Further, the 
Commission's proposed amendment to Commission regulation 23.105(l) 
\126\ and the headings of certain schedules in Appendix B would make 
clear that these schedules must be reported at the same periodicity as 
the financial reporting of each respective nonbank SD, either monthly 
or quarterly as applicable, and that all of the schedules are required 
for all nonbank SDs, not just those authorized to use models.\127\
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    \119\ NFA section 18.
    \120\ NFA section 18(e).
    \121\ 17 CFR 23.105(k)(1)(v).
    \122\ For example, Commission regulation 23.105(k)(1)(v)(B) (17 
CFR 23.105(k)(1)(v)(B)) requires that all model-approved SDs file 
the ``Current exposure (including commitments) listed by 
counterparty for the 15 largest exposures,'' which is also found in 
Schedule 2 to Appendix B. Similarly, the information listed in 
textual form in Commission regulations 23.105(k)(1)(i)-(v) (17 CFR 
23.105(k)(1)(i)-(v)) corresponds verbatim to the textual 
requirements found in SEC rule 18a-7(a)(3). See 17 CFR 240.18a-
7(a)(3).
    \123\ 17 CFR 23.105(k). As discussed in the Final Rule, the 
Commission may (and subsequently has) approved additional procedures 
developed by an RFA, which could include standard forms or 
procedures necessary to carry out the Commission's filing 
requirements. See Final Rules, 85 FR 57518.
    \124\ 17 CFR 23.105(k).
    \125\ The Proposal, 89 FR 2560.
    \126\ 17 CFR 23.105(l).
    \127\ The Proposal, 89 FR 2559.
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    The Commission requested comment on the proposed amendments to 
revise the scope of Commission regulation 23.105(k) \128\ and the 
heading and scope of Commission regulation 23.105(l),\129\ as well as 
the titles of certain schedules included in Appendix B.\130\ In 
response, the Commission received comments generally supporting the 
amendments.\131\ The Commission believes, as discussed above, that 
these amendments will make clear that these reporting obligations apply 
to all nonbank SDs and nonbank MSPs, as intended in the Final Rule. As 
such, the Commission is adopting the amendments as proposed.
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    \128\ 17 CFR 23.105(k).
    \129\ 17 CFR 23.105(l).
    \130\ The Proposal, 89 FR 2559-2560.
    \131\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
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b. Changes to Public Disclosure Requirements
    The Commission proposed to amend Commission regulation 23.105(i) 
\132\ to align the public disclosure of unaudited financial information 
with the periodicity permitted by routine financial filings in 
Commission regulation 23.105(d),\133\ and to remove reference to a 
statement in both the unaudited and audited information disclosing the 
amounts of minimum regulatory capital and the amount of its minimum 
regulatory capital requirement computed in accordance with Commission 
regulation 23.101.\134\ Currently, paragraphs (i)(l)(ii) and (i)(2)(ii) 
of Commission regulation 23.105 require a nonbank SD or nonbank MSP to 
publicly disclose on its website a statement of the amount of the 
nonbank SD's or nonbank MSP's regulatory capital and its minimum 
capital requirement.\135\ This information is required to be disclosed 
as of the nonbank SD's or nonbank MSP's fiscal year-end, and as of six 
months after the firm's fiscal year-end.
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    \132\ 17 CFR 23.105(i).
    \133\ 17 CFR 23.105(d).
    \134\ The Proposal, 89 FR 2560; 17 CFR 23.101.
    \135\ 17 CFR 23.105(i)(1)(ii) and (i)(2)(ii).
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    The Commission proposed to revise Commission regulation 
23.105(i)(1)(i) \136\ to include the footnotes to the unaudited 
Statement of Financial Condition in the required disclosures.\137\ The 
Commission also proposed to revise Commission regulations 
23.105(i)(1)(ii) and (i)(2)(ii) \138\ to replace the word ``statement'' 
with ``amounts'' to indicate that required capital information does not 
need to exist in a standalone statement or form.\139\ To the extent 
practicable, the Commission indicated its intention was to align its 
requirements with those required of BDs and SBSDs by the SEC \140\ and 
determined that the information, regardless of its format, contained in 
the footnotes accompanying the financial statements should ordinarily 
satisfy the requirements for disclosing minimum regulatory 
capital.\141\
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    \136\ 17 CFR 23.105(i)(1)(i).
    \137\ The Proposal, 89 FR 2560.
    \138\ 17 CFR 23.105(i)(1)(ii) and (i)(2)(ii).
    \139\ The Proposal, 89 FR 2560.
    \140\ See 17 CFR 240.18a-7(b).
    \141\ The Proposal, 89 FR 2560.
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    The Commission requested comment on the proposed amendments to 
Commission regulation 23.105(i) \142\ to align the public disclosure of 
unaudited financial information with the periodicity permitted by 
routine financial filings in Commission regulation 23.105(d),\143\ and 
to remove reference to a statement in both the unaudited and audited 
information disclosing the amounts of minimum regulatory capital and 
the amount of its minimum regulatory capital requirement computed in 
accordance with Commission regulation 23.101.\144\ In response, the 
Commission received comments generally supporting the amendments.\145\ 
The Commission believes, as discussed above, that these amendments will 
align the periodicity of different financial reporting requirements of 
nonbank SDs and create flexibility as to the format for disclosing 
minimum regulatory capital. As such, the Commission is adopting the 
amendments as proposed.
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    \142\ 17 CFR 23.105(i).
    \143\ 17 CFR 23.105(d).
    \144\ The Proposal, 89 FR 2560; 17 CFR 23.101.
    \145\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
---------------------------------------------------------------------------

c. Changes to Form 1-FR-FCM
    The Commission proposed to amend Form 1-FR-FCM to add new lines 
22.A.vi through vii. to the Statement of the Computation of the Minimum 
Capital Requirements schedule (``Statement of Minimum Capital 
Schedule'') to include the 2 percent of uncleared swap margin capital 
requirement under Commission regulation 1.17(a)(1)(i)(B)(2).\146\ The 
Commission also proposed to amend Form 1-FR-FCM to add the specific 
market risk charges for swaps and security-based swaps as new lines 
16.D. of the Statement of Minimum Capital Schedule.\147\
---------------------------------------------------------------------------

    \146\ The Proposal, 89 FR 2560; 17 CFR 1.17(a)(1)(i)(B)(2).
    \147\ Id.
---------------------------------------------------------------------------

    Commission regulation 1.10 requires all FCMs to submit a Form 1-FR-
FCM when they file for registration as an FCM and periodically 
following registration.\148\ Form 1-FR-FCM includes, among other 
things, the Statement of Minimum Capital Schedule as a supplementary 
schedule.\149\ In the Final Rule, the Commission added a 2 percent of 
uncleared swap margin capital requirement to the risk-based net capital 
requirement for FCMs that are also registered as SDs (``FCM-SDs''), and 
adopted specific market risk charges for

[[Page 45576]]

uncleared swaps in the FCM net capital requirements in Commission 
regulation 1.17.\150\ Further, FCMs dually-registered as BDs are 
permitted to file the SEC's FOCUS Report Part II in lieu of the 
Commission's Form 1-FR-FCM in reporting net capital.\151\ On March 22, 
2023, the SEC proposed to amend its FOCUS Report Part II to include the 
Commission's net capital changes adopted for FCM-SDs, including the 
addition of the 2 percent uncleared swap margin to the risk-based net 
capital requirement of FCM-SDs.\152\ The Commission proposed the 
amendments to Form 1-FR-FCM to more explicitly require disclosure of 
the 2 percent amount and conform with the SEC's proposal as well as to 
provide important information to assist the Commission in monitoring 
compliance of FCM-SD with the capital requirements adopted in the Final 
Rule.\153\ This information is important to the Commission in 
monitoring the Final Rules, as reporting the 2 percent amount enables 
the Commission to confirm that the FCM-SD is complying with its capital 
requirement.\154\
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    \148\ 17 CFR 1.10.
    \149\ CFTC Form 1-FR-FCM at 6-8.
    \150\ 17 CFR 1.17(a)(1)(i)(B)(2) and (c)(5)(iii). See generally 
Final Rules, 85 FR 57473-57476 and 57562.
    \151\ 17 CFR 1.10(h).
    \152\ See generally FOCUS Report Amendments.
    \153\ The Proposal, 89 FR 2561.
    \154\ Id.
---------------------------------------------------------------------------

    The Commission requested comment on the proposed amendments to Form 
1-FR-FCM to add new lines to the form to include the 2 percent of 
uncleared swap margin capital requirement under Commission regulation 
1.17(a)(1)(i)(B)(2) \155\ and to add specific disclosure of the 
haircuts for swaps and security-based swaps in the computation of net 
capital on the form.\156\ In response, the Commission received comments 
generally supporting the amendments.\157\ The Commission believes, as 
discussed above, that these amendments will ensure the collection of 
information that is important to the Commission in monitoring the Final 
Rules and will align the specific items within the Form 1-FR-FCM 
Statement of Minimum Capital Schedule with comparable schedules within 
the FOCUS Report Part II utilized by dual-registered BD or SBSDs. As 
such, the Commission is adopting the amendments to the Form 1-FR-FCM as 
proposed.
---------------------------------------------------------------------------

    \155\ 17 CFR 1.17(a)(1)(i)(B)(2).
    \156\ The Proposal, 89 FR 2560-2561.
    \157\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
---------------------------------------------------------------------------

d. Additional Cross References To Clarify Applicable Market and Credit 
Risk Charges
    The Commission proposed to add new language to Commission 
regulations 23.103(a)(1) and (c)(1) \158\ to clarify that the same 
standardized market and credit risk charges are applicable to nonbank 
SDs electing the Tangible Net Worth Capital Approach as are applicable 
to all other nonbank SDs not approved to use models.\159\ Commission 
regulation 23.103(b) \160\ provides that nonbank SDs electing the 
Tangible Net Worth Capital Approach or Net Liquid Assets Capital 
Approach are required to compute standardized market risk charges 
contained in SEC Rule 18a-1 \161\ and Commission regulation 1.17,\162\ 
as applicable. Commission regulation 23.103(c) \163\ also provides that 
a nonbank SD electing the Net Liquid Assets Capital Approach must 
compute its standardized credit risk charge in accordance with SEC Rule 
18a-1 \164\ or Commission regulation 1.17,\165\ as applicable, but 
fails to provide a reference for nonbank SDs electing the Tangible Net 
Worth Capital Approach.\166\ Because standardized credit risk charges 
were intended to be the same for nonbank SDs using the Tangible Net 
Worth Capital Approach or the Net Liquid Assets Capital Approach, the 
Commission proposed to amend Commission regulations 23.103(a)(1) and 
(c)(1) \167\ to correct this omission by directing nonbank SDs electing 
the Tangible Net Worth Capital Approach to compute standardized credit 
risk charges in accordance with SEC Rule 18a-1 \168\ or Commission 
regulation 1.17,\169\ as applicable.\170\
---------------------------------------------------------------------------

    \158\ 17 CFR 23.103(a)(1) and (c)(1).
    \159\ The Proposal, 89 FR 2560.
    \160\ 17 CFR 23.103(b).
    \161\ 17 CFR 240.18a-1.
    \162\ 17 CFR 1.17.
    \163\ 17 CFR 23.103(c).
    \164\ 17 CFR 240.18a-1.
    \165\ 17 CFR 1.17.
    \166\ SDs electing to use the Tangible Net Worth Capital 
Approach are required to meet a minimum capital requirement which 
includes, among other things, $20 million plus the amount of the 
SD's market risk exposure requirement and its credit risk exposure 
requirement associated with the SD's swap and related hedge 
positions that are part of the SD's swap dealing activities. 17 CFR 
23.101(a)(2)(ii)(A).
    \167\ 17 CFR 23.103(a)(1) and (c)(1).
    \168\ 17 CFR 240.18a-1.
    \169\ 17 CFR 1.17.
    \170\ The Proposal, 89 FR 2561.
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    Similarly, the Commission proposed to amend Commission regulation 
23.102(d) \171\ to correct the applicable cross reference in order to 
make it clearer that either 12 CFR part 217 or Appendix A to subpart E 
of part 23 (``Appendix A'') \172\ should be utilized as applicable by 
the nonbank SD depending on the respective capital approach 
elected.\173\
---------------------------------------------------------------------------

    \171\ 17 CFR 23.102(d).
    \172\ Appendix A to subpart E of part 23.
    \173\ The Proposal, 89 FR 2561; Final Rules, 85 FR 57506.
---------------------------------------------------------------------------

    The Commission requested comment on the proposed amendments to 
Commission regulations 23.103(a)(1) and (c)(1) \174\ to clarify that 
the same standardized market and credit risk charges are applicable to 
nonbank SDs electing the Tangible Net Worth Capital Approach as are 
applicable to all other nonbank SDs not approved to use models, as well 
as the amendments to Commission regulation 23.102(d) \175\ to correct 
the applicable cross reference in order to make it clearer that either 
12 CFR part 217 or Appendix A should be utilized as applicable by the 
nonbank SD depending on the respective capital approach elected.\176\ 
In response, the Commission received comments generally supporting the 
amendments.\177\ The Commission believes, as discussed above, that 
these amendments will provide clarity on the applicable market and 
credit risk charges as well as which regulatory reference (12 CFR part 
217 or Appendix A) should be utilized depending on the elected capital 
approach by the SD, as intended by the Final Rule. As such, the 
Commission is adopting the amendments as proposed.
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    \174\ 17 CFR 23.103(a)(1) and (c)(1).
    \175\ 17 CFR 23.102(d).
    \176\ The Proposal, 89 FR 2561.
    \177\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
---------------------------------------------------------------------------

B. Other Amendments

1. Notice of Substantial Reduction in Capital
    The Commission proposed to amend Commission regulation 23.105(c)(4) 
\178\ to add a two-business day reporting timeframe to the requirement 
for a nonbank SD to file notice of a substantial reduction in 
capital.\179\ Currently, Commission regulation 23.105(c)(4), which 
requires nonbank SDs and nonbank MSPs to provide notice of a 
substantial reduction in capital as compared to the last reported in a 
financial report, does not specify a timeframe for the notice 
filing.\180\
---------------------------------------------------------------------------

    \178\ 17 CFR 23.105(c)(4).
    \179\ The Proposal, 89 FR 2561.
    \180\ 17 CFR 23.105(c)(4).
---------------------------------------------------------------------------

    The Commission requested comment on the proposed amendment to 
Commission regulation 23.105(c)(4) \181\ to add a two-business day 
reporting

[[Page 45577]]

timeframe to the requirement for a nonbank SD to file notice of a 
substantial reduction in capital.\182\ In response, the Commission 
received comments generally supporting the amendments.\183\ One 
commenter stated that the addition of a concrete reporting timeframe 
will provide regulatory certainty regarding when such a filing is due 
and align it with current FCM capital reduction notification timing 
requirements.\184\ The Commission agrees with commenters and believes 
that the amendment will align with the two-business day reporting 
timeframe applied to FCMs and provide regulatory certainty as to when 
the notification is required, while still making the notice timely. As 
such, the Commission is adopting the amendment as proposed.
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    \181\ 17 CFR 23.105(c)(4).
    \182\ The Proposal, 89 FR 2561.
    \183\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
    \184\ Ravnitzky Letter at 2.
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2. Subordinated Debt Approval
    The Commission proposed to amend Commission regulations 
23.101(a)(1)(i)(B) and add 23.101(a)(1)(ii)(D) \185\ to establish that 
using subordinated debt as regulatory capital is subject to the 
approval of either an RFA of which the nonbank SD is a member or the 
Commission.\186\ The nonbank SD capital requirements for both the Bank-
Based Capital Approach and the Net Liquid Assets Capital Approach 
permit the use of subordinated debt as capital in order to align with 
the permitted use of subordinated debt under the FCM net capital 
requirements.\187\ The requirements for qualifying subordinated debt 
were adopted by the SEC in its capital rule for SBSDs and were included 
by reference by the Commission for other nonbank SDs in the Bank-Based 
Capital Approach.\188\ Commission staff received questions regarding 
the process for approving subordinated debt for nonbank SDs not also 
registered with the SEC because the Final Rule did not articulate a 
process.\189\ To address this omission, NFA adopted Financial 
Requirements Rule Section 18(d).\190\ Under the existing framework, NFA 
already approves subordinated loan agreements for net capital 
agreements for nonbank SDs that are not dually-registered with the SEC. 
Similarly, although nonbank SDs that are dually-registered with the SEC 
are able to obtain SEC approval on subordinated debt,\191\ nonbank SDs 
that elect either the Bank-Based Capital Approach or the Net Liquid 
Assets Capital Approach but are not registered with the SEC, do not 
have an approval process for the use of subordinated debt under the 
Commission's rules. As discussed in the Final Rule,\192\ when adopting 
the permissive use of subordinated debt in establishing minimum 
regulatory capital, the Commission has long approved a process for FCMs 
to obtain subordinated debt approval from their Designated Self-
Regulatory Organizations (``DSROs''), including the NFA.\193\
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    \185\ 17 CFR 23.101(a)(1)(i)(B) and (a)(1)(ii)(D).
    \186\ The Proposal, 89 FR 2561-2562.
    \187\ 17 CFR 1.17(h).
    \188\ 17 CFR 23.101(a)(1).
    \189\ The Proposal, 89 FR 2561-2562.
    \190\ See generally NFA Interpretative Notice 9078 (Feb. 18, 
2021), available at https://www.nfa.futures.org/rulebooksql/
rules.aspx?Section=9&RuleID=9078#:~:text=In%20order%20to%20permit%20t
hese%20non-SEC%20registered%20SD,NFA%27s%20pre-
approval%20of%20the%20subordinated%20debt%20loan%20agreement.
    \191\ Nonbanks SDs that are duly-registered as SBSDs typically 
elect under Commission regulation 23.101(a)(1)(ii) (17 CFR 
23.101(a)(1)(ii)) to maintain net capital by complying with Sec.  
240.18a-1d, and are independently subject to such requirements, 
including the subordinated-debt approval process, by their 
registration as a SBSD with the SEC. 17 CFR 240.18a-1d.
    \192\ Final Rules, 85 FR 57495.
    \193\ See Miscellaneous Rule Deletions, Amendments or 
Clarifications, 57 FR 20633, 20634 (May 14, 1992). The subordinated 
debt approval program for FCMs administered by NFA has been in place 
for over 30 years. In addition, the NFA, as the only registered 
futures association under the CEA, is specifically required to adopt 
capital requirements on its members, including SDs, and to implement 
a program to audit and enforce the compliance with such requirements 
in accordance with section 17(p)(2) of the CEA, 7 U.S.C. 21(p)(2).
---------------------------------------------------------------------------

    The Commission proposed to permit NFA to administer the approval 
process for nonbank SDs because of the NFA's extensive history and 
experience as a DSRO administering a subordinated debt approval program 
for FCMs.\194\ The Commission requested comment on the proposed 
amendment to Commission regulations 23.101(a)(1)(i)(B) and addition of 
23.101(a)(1)(ii)(D) \195\ to establish that using subordinated debt as 
regulatory capital is subject to the approval of either an RFA of which 
the nonbank SD is a member or the Commission.\196\ In response, the 
Commission received comments generally supporting the amendments.\197\ 
The Commission believes that this amendment will address the omission 
discussed above and that NFA has the history, experience and resources 
to adequately perform the review, approval and ongoing assessment of 
nonbank SDs' permitted use of subordinated debt. As such, the 
Commission is adopting the amendment as proposed.
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    \194\ The Proposal, 89 FR 2562.
    \195\ 17 CFR 23.101(a)(1)(i)(B) and (a)(1)(ii)(D).
    \196\ The Proposal, 89 FR 2561-2562.
    \197\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
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3. Statement of No Material Difference
    The Commission proposed to amend Commission regulation 
23.105(e)(4)(v) \198\ for nonbank SDs and nonbank MSPs to explicitly 
require a statement, if applicable, that there are no material 
differences between the audited annual report and the unaudited annual 
report of the same date.\199\ The Commission also proposed to amend 
Commission regulation 23.105(e)(6),\200\ to more explicitly require 
nonbank SDs and nonbank MSPs also registered as FCMs to fully comply 
with the requirements of Commission regulation 1.16.\201\ Commission 
regulation 23.105(e) \202\ requires nonbank SDs and nonbank MSPs to 
submit an annual audited financial report with the Commission and with 
NFA.\203\ Included with the financial report is, among other things, a 
reconciliation of any material differences from the unaudited financial 
reports prepared as of the nonbank SD's or nonbank MSP's year-end date.
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    \198\ 17 CFR 23.105(e)(4)(v).
    \199\ The Proposal, 89 FR 2562.
    \200\ 17 CFR 23.105(e)(6).
    \201\ 17 CFR 1.16.
    \202\ 17 CFR 23.105(e).
    \203\ 17 CFR 23.105(e).
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    For instances in which no material differences exist between the 
unaudited and audited year-end financial statements, however, 
Commission regulation 1.10(d)(2)(vi) \204\ requires FCMs to include a 
statement indicating that no such differences exist. Currently, 
Commission regulation 23.105(e) \205\ does not provide for such a 
statement in this parallel provision for audits of nonbank SDs or 
nonbank MSPs. The Commission proposed to amend Commission regulation 
23.105(e)(4)(v) \206\ so that when nonbank SDs and nonbank MSPs file 
their audited annual report, a statement that there are no material 
differences between the audited annual report and the unaudited annual 
report is included, if no such differences exist.\207\
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    \204\ 17 CFR 1.10(d)(2)(vi).
    \205\ 17 CFR 23.105(e).
    \206\ 17 CFR 23.105(e)(4)(v).
    \207\ The Proposal, 89 FR 2562.
---------------------------------------------------------------------------

    The Commission requested comment on the proposed amendment to 
Commission regulation 23.105(e)(4)(v) \208\ to require nonbank SDs and 
nonbank MSPs to explicitly provide a statement, if applicable, that 
there are no material differences between the audited annual report and 
the unaudited annual report of the same

[[Page 45578]]

date.\209\ In response, the Commission received comments generally 
supporting the amendments.\210\ One commenter stated that requiring a 
specific statement that no material differences exist when none are 
otherwise reported will provide more complete and meaningful 
information to users of the financial reports and align the filing 
approach for auditors of nonbank SDs and nonbank MSPs with that of 
FCMs.\211\ The Commission agrees with commenters and believes that 
these amendments will enhance the reliability of the annual reports by 
ensuring auditors assess the materiality of any discovered audit 
differences, and that nonbank SDs and nonbank MSPs also registered as 
FCMs fully comply with FCM annual report requirements. As such, the 
Commission is adopting the amendments to Commission regulation 
23.105(e) \212\ as proposed.
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    \208\ 17 CFR 23.105(e)(4)(v).
    \209\ The Proposal, 89 FR 2562.
    \210\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
    \211\ Barnard Letter at 2.
    \212\ 17 CFR 23.105(e).
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III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RF Act'') requires that Federal 
agencies consider whether the regulations they propose will have a 
significant economic impact on a substantial number of small entities, 
and if so, provide a regulatory flexibility analysis respecting the 
impact.\213\ This rulemaking would affect the obligations of SDs, MSPs, 
and FCMs. The Commission has previously determined that SDs, MSPs, and 
FCMs are not small entities for purposes of the RF Act.\214\ Therefore, 
the requirements of the RF Act do not apply to those entities.
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    \213\ 5 U.S.C. 601 et seq.
    \214\ Policy Statement and Establishment of Definitions of 
``Small Entities'' for Purposes of the Regulatory Flexibility Act, 
47 FR 18618 (Apr. 30, 1982) (FCMs) and Registration of Swap Dealers 
and Major Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (SDs 
and MSPs).
---------------------------------------------------------------------------

    Accordingly, for the reasons stated above, the Commission has 
determined that this rulemaking will not have a significant economic 
impact on a substantial number of small entities. Therefore, the 
Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 
U.S.C. 605(b), that the Commission regulations being published today by 
this Federal Register release will not have a significant economic 
impact on a substantial number of small entities.

B. Paperwork Reduction Act

1. Background
    The Paperwork Reduction Act of 1995 (``PRA'') \215\ imposes certain 
requirements on Federal agencies, including the Commission, in 
connection with conducting or sponsoring any ``collection of 
information'' as defined by the PRA. Under the PRA, an agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid control 
number from the Office of Management and Budget (``OMB''). The PRA is 
intended, in part, to minimize the paperwork burden created for 
individuals, businesses, and other persons as a result of the 
collection of information by federal agencies, and to ensure the 
greatest possible benefit and utility of information created, 
collected, maintained, used, shared, and disseminated by or for the 
federal government. The PRA applies to all information, regardless of 
form or format, whenever the federal government is obtaining, causing 
to be obtained, or soliciting information, and includes required 
disclosure to third parties or the public, of facts or opinions, when 
the information collection calls for answers to identical questions 
posed to, or identical reporting or recordkeeping requirements imposed 
on, ten or more persons.
---------------------------------------------------------------------------

    \215\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The final rulemaking modifies an existing collection of information 
previously approved by OMB and for which the Commission has received an 
OMB control number: OMB control number 3038-0024, ``Regulations and 
Forms Pertaining to Financial Integrity of the Market Place; Margin 
Requirements for SDs/MSPs'' (OMB Collection 3038-0024).\216\ The 
responses to this collection of information are mandatory. The 
Commission does not believe the Final Rule as adopted imposes any other 
new collections of information that require approval of OMB under the 
PRA.
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    \216\ For the previously approved estimates, see ICR Reference 
No. 202207-3038-001, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202207-3038-001.
---------------------------------------------------------------------------

    The Commission did not receive any comments regarding its PRA 
burden analysis in the preamble to the Proposal. The Commission is 
revising collection number 3038-0024 to reflect the adoption of 
amendments to parts 1 and 23 of its regulations, as discussed below.
2. OMB Collection 3038-0024--Regulations and Forms Pertaining to 
Financial Integrity of the Market Place; Margin Requirements for SDs/
MSPs
    As of March 2024, there are approximately 107 SDs and no MSPs 
registered with the Commission that may be impacted by this rulemaking 
and, in particular, the collection of information discussed below.
    Commission regulation 23.105 \217\ requires that each SD and MSP 
maintain certain specified records, report certain financial 
information, and notify or request permission from the Commission under 
certain specified circumstances, in each case, as provided in the 
Commission regulation. For example, the Commission regulation requires 
generally that SDs and MSPs maintain current books and records, provide 
notice to the Commission of regulatory capital deficiencies and related 
documentation, provide notice of certain other events specified in the 
rule, and file financial reports and related materials with the 
Commission (including the information in Appendices B and C, as 
applicable). Commission regulation 23.105 \218\ also requires the SD or 
MSP to furnish information about its custodians that hold margin for 
uncleared swap transactions and the amounts of margin so held, and for 
SDs approved to use models (as discussed above), provide additional 
information regarding such models, as further described in Commission 
regulation 23.105(k).\219\
---------------------------------------------------------------------------

    \217\ 17 CFR 23.105.
    \218\ Id.
    \219\ 17 CFR 23.105(k).
---------------------------------------------------------------------------

    The Commission estimates that there are 31 SD firms required to 
fulfill their financial reporting, recordkeeping, and notification 
obligations under Commission regulations 23.105(a)-(n) \220\ because 
they are not subject to a prudential regulator, not already registered 
as an FCM, and not dually-registered as a SBSD. The Commission does not 
anticipate that its estimates of burden associated with these 
obligations will change as a result of any of the amendments to 
Commission regulation 23.105 \221\ adopted herein.
---------------------------------------------------------------------------

    \220\ 17 CFR 23.105(a)-(n).
    \221\ 17 CFR 23.105.
---------------------------------------------------------------------------

    Commission regulation 23.105(p) \222\ and its accompanying Appendix 
C impose quarterly financial reporting and notification obligations on 
SDs subject to a prudential regulator. Approximately 55 of the 107 
registered SDs are subject to a prudential regulator. The Commission 
has previously estimated that these reporting and notification

[[Page 45579]]

requirements impose an ongoing burden of 33 hours annually. This 
results in a total aggregate burden of 1,815 hours annually. The 
Commission estimates this burden will remain unchanged by the 
amendments to Commission regulation 23.105(p) \223\ adopted herein, as 
the burden associated with requirements to file quarterly financial 
reporting and notifications previously were based on these entities 
filing their existing information contained in Call Reports along with 
Schedule 1 information. Under the amendments adopted herein, these 
obligations will remain the same for bank SDs, except for Non-U.S. bank 
SDs who will also still file existing financial reporting information 
as reported to their home country supervisor, along with Appendix C 
Schedule 1 information.
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    \222\ 17 CFR 23.105(p).
    \223\ Id.
---------------------------------------------------------------------------

C. Section 15(b) Antitrust Laws

    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least anticompetitive means of achieving the 
purposes of the CEA, in issuing any order or adopting any Commission 
rule or regulation (including any exemption under section 4(c) or 
4c(b)), or in requiring or approving any bylaw, rule, or regulation of 
a contract market or registered futures association established 
pursuant to section 17 of the CEA.\224\
---------------------------------------------------------------------------

    \224\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

    The Commission believes that the public interest to be protected by 
the antitrust laws is generally to protect competition. The Commission 
has considered the rule to determine whether it is anticompetitive and 
has identified no anticompetitive effects. The Commission requested and 
received no comments on whether the proposed rule is anticompetitive 
and, if it is, what the anticompetitive effects are. Further, the 
Commission requested and received no comments on whether there are less 
anticompetitive means of achieving the relevant purposes of the Act 
that would otherwise be served by adopting the rule. Finally, the 
Commission requested and received no comments on whether the proposed 
rule implicates any other specific public interest to be protected by 
the antitrust laws. The Commission has determined that the rule is not 
anticompetitive and has no anticompetitive effects, and it has not 
identified any less anticompetitive means of achieving the purposes of 
the Act. As such, the Commission is adopting the rule as proposed 
subject to the modifications discussed herein.

IV. Cost Benefit Considerations

A. Background

    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of its discretionary actions before promulgating a 
regulation under the CEA or issuing certain orders.\225\ Section 15(a) 
further specifies that the costs and benefits shall be evaluated in 
light of five broad areas of market and public concern: (1) protection 
of market participants and the public; (2) efficiency, competitiveness, 
and financial integrity of futures markets; (3) price discovery; (4) 
sound risk management practices; and (5) other public interest 
considerations (collectively, the ``Section 15(a) Factors''). In this 
cost benefit section, the Commission discusses the costs and benefits 
resulting from its discretionary determinations with respect to the 
Section 15(a) Factors.\226\
---------------------------------------------------------------------------

    \225\ 7 U.S.C. 19(a).
    \226\ The Commission notes that the costs and benefits 
considered in this proposed rulemaking, and highlighted below, have 
informed the policy choices described throughout this release.
---------------------------------------------------------------------------

    Section 4s(e) of the CEA, added by section 731 of the Dodd-Frank 
Act, provides the Commission with mandatory and discretionary 
rulemaking authority to adopt capital requirements for nonbank SDs and 
nonbank MSPs,\227\ as well as financial reporting requirements for SDs 
and MSPs.\228\ Section 4s(e) of the CEA requires the Commission to 
adopt minimum capital requirements for nonbank SDs and nonbank MSPs 
that are designed to help ensure their safety and soundness and are 
appropriate for the risk associated with the uncleared swaps held by 
such nonbank SD or nonbank MSP. In addition, section 4s(e)(2)(C) of the 
CEA, requires the Commission to establish capital requirements for 
nonbank SDs or nonbank MSPs that account for the risks associated with 
their entire swaps portfolio and all other activities conducted. 
Lastly, section 4s(e)(3)(D) of the CEA provides that the Commission, 
the prudential regulators, and the SEC, must ``to the maximum extent 
practicable'' establish and maintain comparable capital rules. 
Accordingly, this rulemaking includes certain capital and financial 
reporting requirements related to SDs and MSPs.
---------------------------------------------------------------------------

    \227\ Section 4s(e)(2)(B) of the CEA, 7 U.S.C. 6s(e)(2)(B).
    \228\ Section 4s(f) of the CEA, 7 U.S.C. 6s(f).
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    The baseline for the Commission's consideration of the costs and 
benefits of this rulemaking is the existing statutory and regulatory 
framework applicable to SDs and MSPs, including the capital and margin 
requirements for SDs and MSPs under subpart E of part 23. The 
Commission recognizes, however, that to the extent that SDs \229\ have 
arranged their business in reliance on Division interpretations and no-
action positions in CFTC Staff Letters No. 21-15 and 21-18, as extended 
under CFTC Staff Letter No. 23-11, the actual costs and benefits of 
this rulemaking may be mitigated.
---------------------------------------------------------------------------

    \229\ Currently, there are no MSPs registered with the 
Commission and there have not been any MSPs registered with the 
Commission for several years. Thus, this section regarding the 
Commission's consideration of the costs and benefits of this 
proposed rulemaking will only refer to SDs that may have relied on 
CFTC Staff Letters No. 21-15 and 21-18 and may benefit from the 
compliance exceptions set forth herein.
---------------------------------------------------------------------------

    The Commission recognizes that the amendments adopted herein may 
impose costs. The Commission has endeavored to assess the expected 
costs and benefits of the amendments in quantitative terms, including 
PRA-related costs, where possible. In situations where the Commission 
is unable to quantify the costs and benefits, the Commission identifies 
and considers the costs and benefits of the rules in qualitative terms. 
The lack of data and information to estimate those costs and benefits 
is attributable in part to the nature of the amendments, which are 
tailored financial reporting requirements based on the specific 
businesses and types of SDs registered with the Commission. Further, 
SDs represent a wide diversity of business models catering towards 
different swap counterparties, from financial end users to commercial 
enterprises. As a result, the Commission expects each SD to have 
developed its corporate entity in a unique manner by employing 
different corporate cost structures, making it particularly difficult 
to estimate the quantitative impacts of both costs and benefits on each 
SD.
    As previously discussed, the Commission received four substantive 
comments expressing support for the Proposal.\230\ Commenters generally 
noted that the proposed amendments are beneficial for market 
participants and characterized them as helpful and practical 
accommodations that reflect the realities of the marketplace and 
facilitate compliance with the CFTC financial reporting 
requirements.\231\ Several commenters elaborated on specific benefits 
of the amendments, noting for instance that the proposed amendments 
would reduce regulatory burden and costs for some SDs, including those 
that are predominantly

[[Page 45580]]

engaged in non-financial activities and have a high level of tangible 
net worth.\232\
---------------------------------------------------------------------------

    \230\ See IIB/ISDA/SIFMA Letter; Shell Letter; Barnard Letter; 
Ravnitzky Letter.
    \231\ See id.
    \232\ Ravnitzky Letter at 1.
---------------------------------------------------------------------------

B. CFTC Staff Letters and Other Amendments

    The Commission is adopting technical amendments to its definitions 
in Commission regulation 23.100 \233\ for ``predominantly engaged in 
non-financial activities'' and ``tangible net worth.'' Further, the 
Commission is adopting amendments to Commission regulation 23.105(p) 
\234\ to add exceptions to the financial reporting requirements for 
Non-U.S. bank SDs, and permitting bank SDs to file the relevant 
schedules under the Call Report (Schedule RC and Schedule RC-R) instead 
of as required by Appendix C. In addition, the Commission is making a 
number of clarifying amendments including: (1) amending the heading and 
scope provisions of Commission regulation 23.105(k) \235\ and the 
titles of certain schedules included in Appendix B; (2) changing public 
disclosure requirements under Commission regulation 23.105(i); \236\ 
(3) amending Form 1-FR-FCM to more accurately address net capital 
changes; (4) adding language to Commission regulations 23.103(a) and 
(c)(1) \237\ to clarify that standardized charges are the same as 
applicable to all SDs not using the Bank-Based Capital Approach; and 
(5) amending the cross reference in Commission regulation 23.102(d) 
\238\ to make clear that either 12 CFR part 217 or Appendix A should be 
utilized as applicable by the nonbank SD depending on the respective 
capital approach elected.
---------------------------------------------------------------------------

    \233\ 17 CFR 23.100.
    \234\ 17 CFR 23.105(p).
    \235\ 17 CFR 23.105(k).
    \236\ 17 CFR 23.105(i).
    \237\ 17 CFR 23.103(a) and (c)(1).
    \238\ 17 CFR 23.102(d).
---------------------------------------------------------------------------

1. Benefits
    The amendments to definitions of ``predominantly engaged in non-
financial activities'' and ``tangible net worth'' aligning the 
regulatory text with the terms of CFTC Staff Letter No. 21-15 are 
intended to ensure that the Tangible Net Worth Capital Approach can be 
utilized by certain nonbank SDs as was originally intended in the Final 
Rule. These amendments are expected to benefit certain nonbank SDs by 
ensuring clear and effective compliance with regulatory requirements 
under the Tangible Net Worth Capital Approach as amended, ultimately 
reducing operational costs for such nonbank SDs. In particular, nonbank 
SDs would no longer be required to calculate asset and revenue tests 
separately between the entity and the ultimate parent level or compute 
such tests under U.S. GAAP even if such entity was permitted to use 
IFRS. Further, these amendments would allow nonbank SDs meeting such 
qualifications to file their supplemental position reports at the same 
time as routine financial reporting for all nonbank SDs set forth 
within Commission regulation 23.105(d).\239\
---------------------------------------------------------------------------

    \239\ 17 CFR 23.105(d).
---------------------------------------------------------------------------

    Similarly, the amendments to Commission regulation 23.105(p) \240\ 
that are consistent with the terms of CFTC Staff Letter No. 21-18, as 
extended under CFTC Staff Letter No. 23-11, are expected to benefit 
bank SDs by permitting: (1) Non-U.S. bank SDs to file reports by their 
home country regulators subject to certain conditions; (2) bank SDs to 
file comparable Call Report schedules in accordance with, and within 
the timeframe permitted by, the prudential regulators; (3) Non-U.S. 
bank SDs to file balance sheet and statement of regulatory capital 
information in accordance with home country requirements provided they 
are in English, converted to U.S. dollars and filed within 90 calendar 
days following quarter-end; and (4) dually-registered Non-U.S. bank SDs 
to file comparable SEC-approved financial reports and schedules. The 
Commission anticipates that these amendments will eliminate duplicative 
and superfluous reporting and streamline financial reporting for both 
Non-U.S. and dually-registered bank SDs.
---------------------------------------------------------------------------

    \240\ 17 CFR 23.105(p).
---------------------------------------------------------------------------

    Lastly, the amendments regarding financial reporting and 
computation include: (1) amendments to the heading and scope provision 
of Commission regulations 23.105(k) and (l); \241\ (2) titles of 
certain schedules included in Appendix B; (3) alignment of the public 
disclosure of unaudited financial information with the periodicity 
permitted by routine financial filings in Commission regulation 
23.105(d),\242\ and to remove reference to a statement disclosing the 
amounts of minimum regulatory capital; (4) amending Form 1-FR-FCM to 
add the 2 percent of uncleared swap margin capital requirement and 
swaps and security-based swaps haircuts; and (5) addition of clarifying 
language to Commission regulations 23.103(a)(1) and (c)(1) \243\ to 
provide additional clarity to registrants that the same standardized 
market and credit risk charges are applicable to nonbank SDs utilizing 
the Tangible Net Worth Capital Approach as are applicable to all other 
nonbank SDs if not approved to use models. These amendments are meant 
to clarify what was originally intended in the Final Rule or what is 
already included within the existing Commission regulations, as well as 
align the schedules as currently required by the SEC and the NFA. The 
Commission anticipates that these amendments will remove uncertainty 
amongst SDs about the type of form and the extent of detail that they 
should be reporting.
---------------------------------------------------------------------------

    \241\ 17 CFR 23.105(k) and (l).
    \242\ 17 CFR 23.105(d).
    \243\ 17 CFR 23.103(a)(1) and (c)(1).
---------------------------------------------------------------------------

2. Costs
    The Commission generally does not anticipate any costs associated 
with the above amendments as they are intended to streamline and 
clarify existing financial reporting and capital requirements. Of the 
above, only the amendments to Commission regulation 23.105(l) \244\ 
would impose additional financial reporting requirements on nonbank SDs 
and nonbank MSPs not approved to use models to file Schedules 2-4 of 
Appendix B.
---------------------------------------------------------------------------

    \244\ 17 CFR 23.105(l).
---------------------------------------------------------------------------

    Currently, there are 8 nonbank SDs not approved to use models that 
are not currently filing Schedules 2-4 of Appendix B, but that would be 
required to do so under the amendments to Commission regulation 
23.105(l).\245\ The information required under Appendix B is nearly 
identical in all material respects to corresponding forms found in the 
SEC Form FOCUS Report Part II, as well as the capital and financial 
reporting requirements by the NFA for its member nonbank SDs and 
nonbank MSPs. Thus, the Commission has determined that these nonbank 
SDs already have developed policies, procedures, and systems to 
aggregate, monitor, and track their swap activities and risks as is 
required under Schedules 2-4 of Appendix B, which should mitigate some 
of the burdens of the additional reporting and recordkeeping 
requirements. Finally, the amendments to Commission regulation 
23.105(k) \246\ clarify that nonbank SDs and nonbank MSPs approved to 
use models may comply with the requirements to provide specific 
financial information required by Commission regulation 23.105(k) \247\ 
by filing Appendix B. Such nonbank SDs and nonbank MSPs have already 
been filing Appendix B with the Commission, and thus the Commission has 
determined that the amendments to

[[Page 45581]]

Commission regulation 23.105(k) \248\ would not impose any additional 
burden for such nonbank SDs and nonbank MSPs.
---------------------------------------------------------------------------

    \245\ Id.
    \246\ 17 CFR 23.105(k).
    \247\ Id.
    \248\ Id.
---------------------------------------------------------------------------

3. Section 15(a) Factors
    The following is a discussion of the cost and benefit 
considerations of this rulemaking, as it relates to the five broad 
areas of market and public concern identified in section 15(a) of the 
CEA: (1) protection of market participants and the public; (2) 
efficiency, competitiveness, and financial integrity of swaps markets; 
(3) price discovery; (4) sound risk management practices; and (5) other 
public interest considerations.
a. Protection of Market Participants and the Public
    The rules adopted herein are intended to enhance the clarity of 
financial reporting and computation requirements by revising the 
language of the regulations with respect to the type of forms and the 
tests that SDs should be using as part of their financial reporting 
process. The changes to the computation of tangible net worth are 
anticipated to benefit the public by allowing investors to monitor 
tangible net worth at the consolidated parent's level, and the 
financial reporting requirements for both bank SDs and nonbank SDs set 
out in this rulemaking should help the Commission and market 
participants monitor and assess the financial condition of such SDs 
more accurately and as was intended in the Final Rule. These amendments 
are also intended to harmonize financial reporting requirements with 
those of the prudential regulators, and the SEC, through which market 
participants and the Commission can gain a clearer and more directly 
comparable understanding of the financial reports received. Clarifying 
rules should safeguard both market participants and the public by 
improving transparency and reducing ambiguity.
b. Efficiency, Competitiveness, and Financial Integrity of Swaps 
Markets
    In this rulemaking, the Commission seeks to promote efficiency and 
financial integrity of the swaps market by streamlining many of the 
financial reporting requirements. For example, the amendments to 
Commission regulation 23.105(p) \249\ permit certain bank SDs to file 
with the Commission comparable Call Report schedules in accordance 
with, and within the timeframe permitted by, the prudential regulators 
that they currently file with the prudential regulators, or comparable 
SEC-approved financial reports and schedules, as applicable. The 
amendments to Commission regulation 23.105(p) \250\ would also allow 
certain Non-U.S. bank SDs to file with the Commission what they 
currently file with their respective home country regulators, subject 
to certain conditions. In addition, the amendments to Commission 
regulation 23.105(k) \251\ are meant to ensure that the information 
listed in Appendix B is completed by all nonbank SDs and nonbank MSPs 
as was intended, and is consistent with that required by the SEC and 
NFA, and the amendments to Form 1-FR-FCM are meant to harmonize with 
the SEC's requirements in its FOCUS Report Part II. Harmonizing 
requirements should foster a more level playing field, ultimately 
promoting trust and integrity within the market.
---------------------------------------------------------------------------

    \249\ 17 CFR 23.105(p).
    \250\ Id.
    \251\ 17 CFR 23.105(k).
---------------------------------------------------------------------------

    The Commission anticipates that these amendments will promote 
greater operational efficiencies for both bank and nonbank SDs that are 
already regulated, either prudentially or through comparable foreign 
regulators, as they may be able to avoid creating duplicative 
compliance and operational infrastructures. The amendments should allow 
the Commission to monitor the financial integrity of swaps markets more 
clearly and efficiently, including in the case of any default or 
financial contagion.
    Lastly, the Commission is amending the definition of 
``predominantly engaged in non-financial activities'' as used in the 
Tangible Net Worth Capital Approach by permitting entities to determine 
whether they are predominantly engaged in non-financial activities at 
either the parent or subsidiary level to be consistent with the 
Commission's intention in the Final Rule.\252\ As discussed above, this 
amendment properly calibrates the wording of the definition in 
establishing eligibility for the Tangible Net Worth Capital Approach by 
assessing non-financial activities at a consolidated parent level. In 
doing so, it clarifies the Commission's intention to permit more 
entities that are predominately engaged in non-financial activities to 
be eligible for the Tangible Net Worth Capital Approach, thereby 
creating greater market efficiency.
---------------------------------------------------------------------------

    \252\ Final Rules, 85 FR 57502.
---------------------------------------------------------------------------

c. Price Discovery
    The Commission anticipates that the amendments adopted herein may 
enhance price discovery. By clarifying financial reporting and 
computation requirements and harmonizing reporting practices, a more 
efficient operating environment would be created for SDs, which are 
important intermediaries within the swaps markets. This improved data 
quality reported to regulators has the potential to enhance 
supervision, leading to improved market quality. Consequently, this 
could lead to a more effective and accurate price discovery process.
d. Sound Risk Management Practices
    The Commission has determined that, as a result of the adopted 
reporting and recordkeeping requirements, SDs may more effectively 
track their trading and risk exposure in swaps and other financial 
activities. To the extent that these SDs can better monitor and track 
their risks, the Commission anticipates that this should help them 
better manage risk within the entity.
e. Other Public Interest Considerations
    The Commission has not identified any additional public interest 
considerations related to the costs and benefits of the rule.

C. Other Amendments

    The Commission is adopting a number of clarifying amendments 
intended to align with existing Commission regulations, including: (1) 
amending Commission regulation 23.105(c)(4) \253\ to add a two-business 
days reporting timeframe to the requirement for nonbank SD notice 
filing of a substantial reduction in capital; (2) amending Commission 
regulations 23.101(a)(1)(i)(B) and 23.101(a)(1)(ii)(C) \254\ to 
establish that the use of subordinated debt as regulatory capital is 
subject to the approval of either an RFA of which the nonbank SD is a 
member, or the Commission; and (3) amending Commission regulation 
23.105(e)(4)(v) \255\ for SDs and MSPs to include an explicit 
statement, if applicable, that there are no material differences 
between the audited annual report and the unaudited annual report of 
the same date.
---------------------------------------------------------------------------

    \253\ 17 CFR 23.105(c)(4).
    \254\ 17 CFR 23.101(a)(1)(i)(B) and (a)(1)(ii)(C).
    \255\ 17 CFR 23.105(e)(4)(v).
---------------------------------------------------------------------------

1. Benefits
    The amendments to the notice requirements in Commission regulation 
23.105(c)(4) \256\ would add a two-business day requirement for nonbank 
SDs filing a notice of substantial

[[Page 45582]]

reduction in capital. The Commission has determined that adding a 
reporting timeframe to the notice requirement will enhance compliance 
by providing regulatory certainty to nonbank SDs of when such a filing 
is due.
---------------------------------------------------------------------------

    \256\ 17 CFR 23.105(c)(4).
---------------------------------------------------------------------------

    The amendments to Commission regulation 23.101(a)(1)(i)(B) \257\ 
would establish that the use of subordinated debt as regulatory capital 
is subject to the approval of either an RFA of which the nonbank SD is 
a member, or the Commission. The amendments should further provide 
regulatory clarity by establishing the process for approving 
subordinated debt for nonbank SDs, which was not explicitly articulated 
in the Final Rule and had led to uncertainty among nonbank SDs.
---------------------------------------------------------------------------

    \257\ 17 CFR 23.101(a)(1)(i)(B).
---------------------------------------------------------------------------

    Lastly, the amendments to Commission regulation 23.105(e)(4)(v) 
\258\ would require that the SDs and MSPs include an explicit 
statement, if applicable, of no material differences between the 
audited and the unaudited annual report of the same date. Doing so 
should not only align the filing approach for auditors of SDs with that 
of FCMs, but also enhance the reliability of such annual reports by 
encouraging auditors to more rigorously assess the materiality of 
reporting any discovered audit findings.
---------------------------------------------------------------------------

    \258\ 17 CFR 23.105(e)(4)(v).
---------------------------------------------------------------------------

2. Costs
    The Commission does not anticipate that compliance with the above 
amendments will lead to any significant costs. The amendments to 
Commission regulations 23.105(c)(4) and 23.105(e)(4)(v) \259\ are meant 
to align the financial reporting requirements of SDs with that of FCMs. 
Based on the Commission's experience with existing filings and 
discussions with registered SDs, the Commission has determined that the 
registrants will be able to file necessary information within the 
timeframe provided. The amendments to Commission regulation 
23.101(a)(1)(i)(B) \260\ are meant to establish a process of approving 
subordinated debt for nonbank SDs, and as such they would not levy any 
additional costs to the nonbank SDs.
---------------------------------------------------------------------------

    \259\ 17 CFR 23.105(c)(4) and (e)(4)(v).
    \260\ 17 CFR 23.101(a)(1)(i)(B).
---------------------------------------------------------------------------

3. Section 15(a) Factors
    The following is a discussion of the cost and benefit 
considerations of the rulemaking as it relates to the aforementioned 
five broad areas of market and public concern identified in section 
15(a) of the CEA.
a. Protection of Market Participants and the Public
    The Commission anticipates that the amendment to Commission 
regulation 23.105(c)(4) \261\ adopted herein should protect market 
participants and the public against possible market disruption by 
requiring that all SDs file a notice of a substantial reduction in 
capital within two business days after such an incident has occurred. 
Similarly, the amendments to Commission regulation 23.101(a)(1)(i)(B) 
\262\ should provide market clarity on how subordinated debt is 
approved for consideration as capital, and the amendments to Commission 
regulation 23.105(e)(4)(v) \263\ should allow the Commission and the 
public to effectively monitor cases where there are no material 
differences between the audited and unaudited annual report of the same 
date filed by nonbank SDs and nonbank MSPs. These amendments should 
enable market participants to have better insights into SD's capital 
and financial positions. This, in turn, should enhance the protection 
of both market participants and the public.
---------------------------------------------------------------------------

    \261\ 17 CFR 23.105(c)(4).
    \262\ 17 CFR 23.101(a)(1)(i)(B).
    \263\ 17 CFR 23.105(e)(4)(v).
---------------------------------------------------------------------------

b. Efficiency, Competitiveness, and Financial Integrity of Swaps 
Markets
    The amendments adopted herein should improve the accuracy and 
completeness of nonbank SDs' and nonbank MSPs' financial reporting by 
imposing a two-business day deadline for notice of substantial 
reduction in capital, and an affirmative statement of no material 
differences between the audited and unaudited annual financial 
statement, as applicable. The establishment of a process for approving 
subordinated debt should lead to increased efficiency in how such 
subordinated debt is monitored. Further, these amendments are also 
intended to harmonize financial reporting requirements with those of 
the prudential regulators, as well as the Commission's existing 
framework regarding FCMs. Harmonizing requirements should foster a more 
level playing field, ultimately promoting trust and integrity within 
the market.
c. Price Discovery
    The Commission anticipates that the amendments adopted herein will 
enhance price discovery. By improving financial reporting requirements 
for nonbank SDs and nonbank MSPs, a more efficient operating 
environment should be created for SDs, which are important 
intermediaries within the swaps markets. This improved data quality 
reported to regulators has the potential to enhance supervision, 
leading to improved market quality. Consequently, this could lead to a 
more effective and accurate price discovery process.
d. Sound Risk Management Practices
    The Commission anticipates that the above amendments will lead to 
better risk management practices among SDs and MSPs, particularly by 
requiring them to monitor for potential reduction in capital and 
material differences between the audited and the unaudited annual 
financial statements.
e. Other Public Interest Considerations
    The Commission has not identified any additional public interest 
considerations related to the costs and benefits of the rule.

    Note: The following appendix to this preamble pertains to a form 
that does not appear in the Code of Federal Regulations.

Appendix to the Preamble--Adopted Revisions to Selected Section of Form 
1-FR-FCM: Statement of the Computation of the Minimum Capital 
Requirements

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BILLING CODE 6351-01-C

List of Subjects in 17 CFR Part 23

    Reporting and recordkeeping requirements, Swaps.

    For the reasons stated in the preamble, the Commodity Futures 
Trading Commission amends 17 CFR part 23 as follows:

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

0
1. The authority citation for part 23 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t, 
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21. Section 23.160 also 
issued under 7 U.S.C. 2(i); Sec. 721(b), Pub. L. 111-203, 124 Stat. 
1641 (2010).


0
2. Amend Sec.  23.100 by adding, in alphabetical order, a definition of 
the term ``Call Report'' and revising the definitions of the terms 
``Predominantly engaged in non-financial activities'' and ``Tangible 
net worth'' to read as follows:


Sec.  23.100  Definitions applicable to capital requirements.

* * * * *
    Call Report. This term means the Federal Financial Institutions 
Examination Council Form 031 that a swap dealer or major swap 
participant for which there is a prudential regulator is required to 
file with its applicable prudential regulator.
* * * * *
    Predominantly engaged in non-financial activities. A swap dealer is 
predominantly engaged in non-financial activities if:
    (1) The swap dealer's consolidated annual gross financial revenues, 
or if the swap dealer is a wholly owned subsidiary, then the swap 
dealer's consolidated parent's annual gross financial revenues, in 
either of its two most recently completed fiscal years represents less 
than 15 percent of the swap dealer's or the swap dealer's consolidated 
parent's consolidated gross

[[Page 45586]]

revenue in that fiscal year (``15% revenue test''), and
    (2) The consolidated total financial assets of the swap dealer, or 
if the swap dealer is wholly owned subsidiary, then the consolidated 
total financial assets of the swap dealer's parent, at the end of its 
two most recently completed fiscal years represents less than 15 
percent of the swap dealer's or the swap dealer's consolidated parent's 
consolidated total assets as of the end of the fiscal year (``15% asset 
test'').
    (3) For purpose of computing the 15% revenue test or the 15% asset 
test, a swap dealer's activities or swap dealer's parent's activities 
shall be deemed financial activities if such activities are defined as 
financial activities under 12 CFR 242.3 and appendix A to 12 CFR part 
242, including lending, investing for others, safeguarding money or 
securities for others, providing financial or investment advisory 
services, underwriting or making markets in securities, providing 
securities brokerage services, and engaging as principal in investing 
and trading activities; provided, however, a swap dealer or a swap 
dealer's consolidated parent may exclude from its financial activities 
accounts receivable resulting from non-financial activities.
* * * * *
    Tangible net worth. This term means the net worth of a swap dealer 
or major swap participant as determined in accordance with U.S. 
generally accepted accounting principles, or International Financial 
Reporting Standards issued by the International Accounting Standards 
Board if the swap dealer or major swap participant is permitted under 
Sec.  23.105(b) to prepare and maintain books and records in accordance 
with such standards, but in either case, excluding goodwill and other 
intangible assets. In determining net worth, all long and short 
positions in swaps, security-based swaps and related positions must be 
marked to their market value. A swap dealer or major swap participant 
must include in its computation of tangible net worth all liabilities 
or obligations of a subsidiary or affiliate that the swap dealer or 
major swap participant guarantees, endorses, or assumes either directly 
or indirectly.
* * * * *

0
3. Amend Sec.  23.101 by revising paragraphs (a)(1)(i)(B), 
(a)(1)(ii)(B) and (C), and adding paragraph (a)(1)(ii)(D) to read as 
follows:


Sec.  23.101   Minimum financial requirements for swap dealers and 
major swap participants.

    (a)(1) * * *
    (i) * * *
    (B) An aggregate of common equity tier 1 capital, additional tier 1 
capital, and tier 2 capital, all as defined under the bank holding 
company regulations in 12 CFR 217.20, equal to or greater than eight 
percent of the swap dealer's BHC equivalent risk-weighted assets; 
provided, however, that the swap dealer must maintain a minimum of 
common equity tier 1 capital equal to six point five percent of its BHC 
equivalent risk-weighted assets; provided further, that any capital 
that is subordinated debt under 12 CFR 217.20 and that is included in 
the swap dealer's capital for purposes of this paragraph (a)(1)(i)(B) 
must qualify as subordinated debt under Sec.  240.18a-1d of this title 
in accordance with a qualification determination of the Commission or a 
registered futures association of which the swap dealer is a member;
* * * * *
    (ii) * * *
    (B) A swap dealer that uses internal models to compute market risk 
for its proprietary positions under Sec.  240.18a-1(d) of this title 
must calculate the total market risk as the sum of the VaR measure, 
stressed VaR measure, specific risk measure, comprehensive risk 
measure, and incremental risk measure of the portfolio of proprietary 
positions in accordance with Sec.  23.102 and appendix A to subpart E 
of this part;
    (C) A swap dealer may recognize as a current asset, receivables 
from third-party custodians that maintain the swap dealer's initial 
margin deposits associated with uncleared swap and security-based swap 
transactions pursuant to the margin rules of the Commission, the 
Securities and Exchange Commission, a prudential regulator, as defined 
in section 1a(39) of the Act, or a foreign jurisdiction that has 
received a margin Comparability Determination under Sec.  23.160; and
    (D) The qualification of any subordinated debt used to meet any 
capital requirements shall be as determined by the Commission or a 
registered futures association of which the swap dealer is a member.
* * * * *

0
4. In Sec.  23.102, revise paragraph (d) to read as follows:


Sec.  23.102  Calculation of market risk exposure requirement and 
credit risk exposure requirement using internal models.

* * * * *
    (d) The Commission, or registered futures association upon 
obtaining the Commission's determination that its requirements and 
model approval process are comparable to the Commission's requirements 
and process, may approve or deny the application, or approve or deny an 
amendment to the application, in whole or in part, subject to any 
conditions or limitations the Commission or registered futures 
association may require, if the Commission or registered futures 
association finds the approval to be appropriate in the public 
interest, after determining, among other things, whether the applicant 
has met the requirements of this section. A swap dealer that has 
received Commission or registered futures association approval to 
compute market risk exposure requirements and credit risk exposure 
requirements pursuant to internal models must compute such charges in 
accordance with paragraph (c) of this section.
* * * * *

0
5. In Sec.  23.103, revise paragraphs (a)(1) and (c)(1) to read as 
follows:


Sec.  23.103  Calculation of market risk exposure requirement and 
credit risk requirement when models are not approved.

    (a) * * *
    (1) Computes its regulatory capital requirements under Sec.  
23.101(a)(1)(ii) or (a)(2), and
* * * * *
    (c) * * *
    (1) A swap dealer that computes regulatory capital under Sec.  
23.101(a)(1)(ii) or (a)(2) shall compute counterparty credit risk 
charges using the applicable standardized credit risk charges set forth 
in Sec.  240.18a-1 of this title and Sec.  1.17 of this chapter for 
such positions.
* * * * *

0
6. In Sec.  23.105, revise paragraphs (c)(2) and (4), (d)(2) through 
(4), (e)(4)(v), (e)(6), (i)(1)(i) and (ii), (i)(2)(ii), (k)(1) 
introductory text, (l), and (p)(2) and (7) to read as follows:


Sec.  23.105  Financial recordkeeping, reporting and notification 
requirements for swap dealers and major swap participants.

* * * * *
    (c) * * *
    (2) A swap dealer or major swap participant who knows or should 
have known that its regulatory capital at any time is less than 120 
percent of its minimum regulatory capital requirement as determined 
under Sec.  23.101, or less than the amounts identified in Sec.  
1.12(b) of this chapter for a swap dealer or major swap participant 
that is also a futures commission merchant, must provide written notice 
to the Commission and to the registered futures association of which it 
is a

[[Page 45587]]

member to that effect within 24 hours of such event.
* * * * *
    (4) A swap dealer or major swap participant must provide written 
notice within two business days to the Commission and to the registered 
futures association of which it is a member of a substantial reduction 
in capital as compared to that last reported in a financial report 
filed with the Commission pursuant to this section. The notice shall be 
provided if the swap dealer or major swap participant experiences a 30 
percent or more decrease in the amount of capital that the swap dealer 
or major swap participant holds in excess of its regulatory capital 
requirement as computed under Sec.  23.101.
* * * * *
    (d) * * *
    (2) The financial reports required by this section must be prepared 
in the English language and be denominated in United States dollars. 
The financial reports shall include a statement of financial condition, 
a statement of income/loss, a statement of changes in liabilities 
subordinated to the claims of general creditors, a statement of changes 
in ownership equity, a statement demonstrating compliance with and 
calculation of the applicable regulatory capital requirement under 
Sec.  23.101, and such further material information as may be necessary 
to make the required statements not misleading. The monthly or 
quarterly report and schedules must be prepared in accordance with 
generally accepted accounting principles as established in the United 
States; provided, however, that a swap dealer or major swap participant 
that is not otherwise required to prepare financial statements in 
accordance with U.S. generally accepted accounting principles, may 
prepare the monthly or quarterly report and schedules required by this 
section in accordance with International Financial Reporting Standards 
issued by the International Accounting Standards Board.
    (3) A swap dealer or major swap participant that is also registered 
with the Securities and Exchange Commission as a broker or dealer, 
security-based swap dealer, or a major security-based swap participant 
and files a monthly Form X-17A-5 FOCUS Report Part II with the 
Securities and Exchange Commission pursuant to Sec.  240.18a-7 or 
240.17a-5 of this title, as applicable, must file such Form X-17A-5 
FOCUS Report Part II with the Commission and with the registered 
futures association in lieu of the financial reports required under 
paragraphs (d)(1) and (2) of this section. The swap dealer or major 
swap participant must file the form with the Commission and registered 
futures association when it files the Form X-17A-5 FOCUS Report Part II 
with the Securities and Exchange Commission; provided, however, that 
the swap dealer or major swap participant must file the Form X-17A-5 
FOCUS Report Part II with the Commission and registered futures 
association no later than 17 business days after the end of each month.
    (4) A swap dealer or major swap participant that is also registered 
with the Commission as a futures commission merchant must file a Form 
1-FR-FCM or such other form as the futures commission merchant is 
permitted to file under Sec.  1.10 of this chapter, in lieu of the 
monthly financial reports required under paragraphs (d)(1) and (2) of 
this section.
    (e) * * *
    (4) * * *
    (v) A reconciliation of any material differences from the unaudited 
financial report prepared as of the swap dealer's or major swap 
participant's year-end date under paragraph (d) of this section and the 
swap dealer's or major swap participant's annual financial report 
prepared under this paragraph (e) or, if no material differences exist, 
a statement so indicating; and
* * * * *
    (6) A swap dealer or major swap participant that is also registered 
with the Commission as a futures commission merchant must file an 
audited Form 1-FR-FCM or such other form as the futures commission 
merchant is permitted to file under Sec.  1.10 of this chapter, and 
must comply with the requirements of Sec.  1.16 of this chapter, 
including filing a supplemental accountant's report on material 
inadequacies concurrently with the audited annual report, in lieu of 
the annual financial report required under this paragraph (e).
* * * * *
    (i) * * *
    (1) * * *
    (i) The statement of financial condition including applicable 
footnotes; and
    (ii) The amounts of the swap dealer's or major swap participant's 
regulatory capital and minimum regulatory capital requirement, computed 
in accordance with Sec.  23.101.
* * * * *
    (2) * * *
    (ii) The amounts of the swap dealer's or major swap participant's 
regulatory capital as of the fiscal year-end and its minimum regulatory 
capital requirement, computed in accordance with Sec.  23.101.
* * * * *
    (k) * * *
    (1) A swap dealer that has received approval or filed an 
application for provisional approval under Sec.  23.102(d) from the 
Commission, or from a registered futures association of which the swap 
dealer is a member, to use internal models to compute its market risk 
exposure requirement and credit risk exposure requirement in computing 
its regulatory capital under Sec.  23.101 must file with the Commission 
and with the registered futures association of which the swap dealer is 
a member the specific information contained in appendix B to subpart E 
of this part and the following information within 17 business days of 
the end of each month or quarter as applicable:
* * * * *
    (l) Additional position and counterparty reporting requirements for 
swap dealers and major swap participants not approved to use models. A 
swap dealer or major swap participant which is not subject to paragraph 
(k) of this section must provide the Commission and the registered 
futures association of which the swap dealer or major swap participant 
is a member, the additional specific information contained in appendix 
B to subpart E of this part on a monthly or quarterly basis as 
applicable to its required frequency of financial reporting under 
paragraph (d) of this section.
* * * * *
    (p) * * *
    (2) Financial report and position information. (i) A swap dealer or 
major swap participant that files a Call Report with its applicable 
prudential regulator shall file Schedule RC--Balance Sheet and Schedule 
RC--R Regulatory Capital from its Call Report filed with the prudential 
regulator, and schedule 1 of appendix C to subpart E of this part, with 
the Commission on a quarterly basis. The swap dealer or major swap 
participant shall file the schedules with the Commission on the date 
the Call Report is due to be filed with the swap dealer's or major swap 
participant's prudential regulator.
    (ii) A swap dealer or major swap participant domiciled in a non-
U.S. jurisdiction that is not required to file a Call Report by its 
applicable prudential regulator shall file a statement of financial 
condition and regulatory capital information containing comparable 
financial information as required by Schedule RC--Balance

[[Page 45588]]

Sheet and Schedule RC--R Regulatory Capital of the Call Report, and 
shall file schedule 1 of appendix C to subpart E of this part, with the 
Commission on a quarterly basis. The statement of financial condition, 
regulatory capital information, and schedule 1 of appendix C to subpart 
E of this part shall be prepared and presented in accordance with the 
accounting standards permitted by the swap dealer's or major swap 
participant's home country regulatory authorities; provided, however, 
that the schedules and information must be in the English language with 
balances converted to U.S. dollars. The swap dealer or major swap 
participant shall file the statement of financial condition, regulatory 
capital information, and schedule 1 of appendix C to subpart E of this 
part with the Commission no later than 90 calendar days after the end 
of the swap dealer's or major swap participant's fiscal quarter.
* * * * *
    (7) A swap dealer or major swap participant that is subject to the 
capital requirements of a prudential regulator and is also registered 
with the Securities and Exchange Commission as a security-based swap 
dealer or a major security-based swap participant and files a quarterly 
Form X-17A-5 FOCUS Report Part IIC with the Securities and Exchange 
Commission pursuant to Sec.  240.18a-7 of this title, must file such 
Form X-17A-5 FOCUS Report Part IIC with the Commission in lieu of the 
financial reports required under paragraph (p)(2) of this section. The 
swap dealer or major swap participant must file the form with the 
Commission when it files the Form X-17A-5 FOCUS Report Part IIC with 
the Securities and Exchange Commission; provided, however, that the 
swap dealer or major swap participant must file the Form X-17A-5 FOCUS 
Report Part IIC with the Commission no later than 35 calendar days from 
the date the report is made.

0
7. In appendix B to subpart E of part 23, revise the schedule headings 
of schedules 1, 2, 3, and 4, and republish the schedules, to read as 
follows:

Appendix B to Subpart E of Part 23--Swap Dealer and Major Swap 
Participant Position Information

BILLING CODE 6351-01-P

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[[Page 45593]]



0
8. Revise appendix C to subpart E of part 23 to read as follows:

Appendix C to Supbart E of Subpart of 23--Specific Position Information 
for Swap Dealers and Major Swap Participants Subjects to the Capital 
Requirements of a Prudential Regulator
[GRAPHIC] [TIFF OMITTED] TR23MY24.007

BILLING CODE 6351-01-C

    Issued in Washington, DC, on May 8, 2024, by the Commission.
Christopher Kirkpatrick,
Secretary of the Commission.

    NOTE: The following appendices will not appear in the Code of 
Federal Regulations.

Appendices to Capital and Financial Reporting Requirements for Swap 
Dealers and Major Swap Participants--Commission Voting Summary, 
Chairman's Statement, and Commissioners' Statements

Appendix 1--Commission Voting Summary

    On this matter, Chairman Behnam and Commissioners Johnson, 
Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No 
Commissioner voted in the negative.

Appendix 2--Statement of Support of Chairman Rostin Behnam

    I support the final rule to amend certain requirements in part 
23 of the Commission's regulations to facilitate compliance by swap 
dealers (SDs) and major swap participants (MSPs) with the CFTC's 
financial reporting obligations and demonstrate compliance with the 
minimum capital requirements. The changes are intended to address 
specific issues identified during the implementation of the 
Commission's 2020 final rule on capital and financial reporting 
requirements for SDs and MSPs,\1\ which serve as the cornerstone of 
the post-Dodd Frank Act reforms to ensure SDs and MSPs remain 
sufficiently capitalized. Although the amendments do not change the 
Commission's capital framework for SDs and MSPs, these amendments 
serve as an important step to ensure the Commission's capital rule 
is strong, comprehensive, and clear.
---------------------------------------------------------------------------

    \1\ Capital Requirements of Swap Dealers and Major Swap 
Participants, 85 FR 57462 (Sept. 15, 2020).
---------------------------------------------------------------------------

    I thank the public for their comments on the proposal and staff 
in the Market Participants Division, Office of the General Counsel, 
and the Office of the Chief Economist for their work on the final 
rule.

Appendix 3--Statement of Commissioner Kristin N. Johnson

    Today [April 29, 2024], the Commodity Futures Trading Commission 
(Commission or CFTC) adopts a final rule to amend certain of the 
Commission's part 23 regulations. The Commission introduces updates 
that underscore the critical importance of capital and reporting 
rules in maintaining the integrity and stability of swaps markets 
and broader domestic and global derivatives markets. These 
regulations aim to mitigate known systemic risk concerns.
    These well-tailored regulations update capital requirements and 
financial reporting obligations for swap dealers (SDs) and major

[[Page 45594]]

swap participants (MSPs) (Final Rule).\1\ The Final Rule ensures 
compliance with the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act). The Final Rule aligns with the 
statutory mandate established in the Dodd-Frank Act that requires 
the Commission to adopt and implement robust capital and reporting 
requirements in swaps markets. The Final Rule includes several 
technical corrections improved by consultation with the prudential 
regulators and the Securities and Exchange Commission (SEC) on the 
adoption and implementation of the Commission's capital rules. 
Consequently, I support the Final Rule.\2\
---------------------------------------------------------------------------

    \1\ Since no MSP is currently registered with the Commission, in 
this statement, I will refer to SDs only.
    \2\ Kristin N. Johnson, Commissioner, CFTC, Statement Regarding 
Notice of Proposed Rulemaking to Amend Capital and Financial 
Reporting Requirements for Swap Dealers and Major Swap Participants 
(Dec. 15, 2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement121523b.
---------------------------------------------------------------------------

CFTC Dodd-Frank Act Capital Adequacy Reforms

    The Commission introduced new capital and financial reporting 
requirements for SDs in 2020, as mandated by the Dodd-Frank Act.\3\ 
Section 4s(e) of the CEA introduced minimum capital requirements for 
SDs,\4\ and section 4s(f) of the CEA created financial reporting and 
recordkeeping requirements for all SDs.\5\ Bank SDs subject to 
regulation by a prudential regulator are required to comply with the 
minimum capital requirements adopted by the applicable prudential 
regulator, while non-bank SDs and security-based swap dealers not 
subject to regulation by a prudential regulator are required to meet 
the minimum capital requirements of the Commission and SEC, 
respectively. Banking regulators and the SEC have adopted capital 
rules for swaps and security-based swaps activities.
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    \3\ Capital Requirements of Swap Dealers and Major Swap 
Participants, 85 FR 57462 (Sept. 15, 2020).
    \4\ 7 U.S.C. 6s(e).
    \5\ 7 U.S.C. 6s(f).
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    Given the complexities of our markets, the Commission regulates 
SDs that may also be regulated by prudential regulators and the SEC. 
The Commission's overall capital approach permits SDs to select one 
of three methods to calculate their capital requirements, as 
permitted under the rule: the net liquid assets capital approach; 
the bank-based capital requirements; or the tangible net worth 
capital approach. The Commission's capital approach evidences the 
Commission's recognition of the complexity and interconnectedness of 
the derivatives markets.

Final Rule's Codification of No-Action Letters

    The Commission published a Notice of Proposed Rulemaking 
(Proposed Rule) on January 16, 2024.\6\ The comment period for the 
proposal closed on February 13, 2024, and the Commission received 4 
substantive comment letters, all of which expressed general support 
for the Proposed Rule. Other than two revisions to the timing for 
the submission of reports, the proposed amendments were adopted as 
proposed.
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    \6\ Capital and Financial Reporting Requirements for Swap 
Dealers and Major Swap Participants, 89 FR 2554 (Jan. 16, 2024).
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    My statement in support of the Proposed Rule details the 
amendments adopted today. The Commission is primarily codifying 
Interpretive Letter 21-15, which applies to commercial non-bank SDs, 
and No-Action Letter (NAL) 21-18, which was extended under NAL 23-11 
and applies to bank SDs, including non-U.S. bank SDs. The Final 
Rule, which also addresses several other recommended amendments, is 
a result of collaboration with the banking regulators and the SEC. 
The Final Rule aims to harmonize processes, procedures, and forms 
for financial reports and notifications.
    Importantly, the amendments do not change the substantive 
capital requirements, ``which serve as a cushion during times of 
severe market stress to ensure our registrants' safety and 
soundness, protect the financial stability of our financial system, 
and prevent a run on our financial institutions.'' \7\ The 
amendments buttress the financial condition reporting requirements, 
as the Commission retains ``visibility and insight into the business 
and financial health of our registrants and enables us to require 
corrective action and prevent a failure of a single entity or group 
of entities or segment of the derivatives market, which could raise 
system risk concerns.'' \8\ These are important policy 
considerations I mentioned in my statement supporting the Proposed 
Rule.
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    \7\ Johnson, supra note 2.
    \8\ Id.
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Conclusion

    It is the Commission's duty to ensure that the implementation of 
the capital reforms under the Dodd-Frank Act is effective yet 
sensible and practical, and the Final Rule does just that. I want to 
thank the Market Participants Division for the excellent work 
bringing forth this final rulemaking, in particular Joshua Beale, 
Jennifer Bauer, Maria Aguilar-Rocha, Andrew Pai, and Christine 
McKeveny.

Appendix 4--Statement of Support of Commissioner Caroline D. Pham

    I support the Capital and Financial Reporting Requirements for 
Swap Dealers (SD) and Major Swap Participants (MSP) Final Rule (SD 
Financial Reporting Rule Amendments) because it aligns the timing of 
financial reporting for entities that have a bank regulator or are 
registered with the Securities and Exchange Commission (SEC). This 
simplifies the filing process for these reports to minimize 
unnecessary costs and administrative burdens. I would like to thank 
Jennifer Bauer, Andrew Pai, Maria Aguilar-Rocha, Christine McKeveny, 
Josh Beale, Tom Smith, and Amanda Olear in the Market Participants 
Division for their work on the SD Financial Reporting Rule 
Amendments. I truly appreciate the time staff took to discuss my 
questions and concerns.
    However, I believe that the Commission should have taken an 
evergreen approach to SEC harmonization of the filing time period. 
The Commission proposed to amend Regulation 23.105(p)(7) \1\ to 
include a 30-day deadline for dually-registered non-U.S. bank swap 
dealers and major swap participants to file comparable SEC-approved 
financial reports and schedules with the CFTC following the date on 
which the report is made.\2\ One comment letter pointed out that the 
30-day deadline is inconsistent with the Commission's alignment of 
the deadline for U.S. bank swap dealers and major swap participants 
that are not dually registered to submit the report when required by 
the prudential regulators, and that the SEC had aligned its deadline 
for all bank security-based swap dealers to submit such reports to 
the same 35-day deadline.\3\
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    \1\ Existing Regulation 23.105(p)(7) allows swap dealers or 
major swap participants that are subject to rules of a prudential 
regulator and are also registered with the SEC as a security-based 
swap dealer or a major security-based swap participant, and files a 
quarterly Form X-17A-5 FOCUS Report Part IIC with the SEC pursuant 
to 17 CFR 240.18a-7, to file such Form X-17A-5 FOCUS Report Part IIC 
with the CFTC in lieu of the financial reports required under 
Regulation 23.105(p)(2). The swap dealer or major swap participant 
must file the form with the Commission when it files the Form X-17A-
5 FOCUS Report Part IIC with the SEC, provided, however, that the 
swap dealer or major swap participant must file the Form X-17A-5 
FOCUS Report Part IIC with the CFTC no later than 30 calendar days 
from the date the report is made. See 17 CFR 23.105(p)(7).
    \2\ See Proposed Rule, Capital and Financial Reporting 
Requirements for Swap Dealers and Major Swap Participants, 89 FR 
2554, 2558 (Jan. 16, 2024), https://www.govinfo.gov/content/pkg/FR-2024-01-16/pdf/2023-28649.pdf.
    \3\ See Comment Letter, Institute of International Bankers 
(IIB), the International Swaps and Derivatives Association (ISDA), 
and the Securities Industry and Financial Markets Association 
(SIFMA), Capital Requirements for Swap Dealers and Major Swap 
Participants (RIN 3038-AD54), 5 (Feb. 13, 2024), https://comments.cftc.gov/Handlers/PdfHandler.ashx?id=35181.
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    While the Commission agreed with the comment letter and extended 
the deadline to 35 days to allow dual registrants to submit the 
reports on the same day as they do with the SEC, the Commission 
should have made the deadline ``on the date Form X-17A-5 FOCUS 
Report Part IIC is due to be filed with the [SEC].'' \4\ This would 
avoid the Commission having to do another rulemaking to harmonize if 
the SEC updates its FOCUS report filing deadlines in the future. 
This would have anticipated a future problem and adopted a forward-
looking solution, rather than setting up an issue we may have to 
react to in the future.
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    \4\ Id. at 7.

[FR Doc. 2024-10342 Filed 5-22-24; 8:45 am]
BILLING CODE 6351-01-P

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