CFTC Staff Clarifies Requirements For Margin Model Usage

The CFTC Market Participants Division ("MPD") clarified certain requirements applicable to swap dealers using models to calculate certain aspects of the CFTC capital requirements.

In Letter 21-14, the MPD responded to inquiries about the use of models for purposes of regulatory capital requirements under CFTC Rules 1.17 ("Minimum financial requirements for futures commission merchants and introducing brokers") and 23.101 ("Minimum financial requirements for swap dealers and major swap participants"). (Note: the relevant capital rules will require compliance from October 6, 2021 for the September 2020 amendments to capital requirements.) The MPD said that:

• For purposes of determining capital requirements, dually registered futures commission merchants and swap dealers ("FCM/SDs") and standalone swap dealers are not required to receive approval from the CFTC or NFA prior to using a model for calculating the initial margin on uncleared swaps. The staff noted that