Responding to concerns about calculations of required capital, staff in the Commodity Futures Trading Commission (“CFTC”) Market Participants Division advised that futures commission merchants and swap dealers, or standalone swap dealers, may compute uncleared swap margin amounts via a model that hasn’t been approved by the CFTC or the National Futures Association (“NFA”) when determining minimum regulatory capital. This builds on the Market Participants Division’s approval of NFA’s request to approve swap dealer initial margin models granted in letter 21-03, by specifying one of the purposes for which an uncleared swap margin model needn’t receive NFA or CFTC staff approval. Specifically, if a futures commission merchant and swap dealer or standalone swap dealer calculates uncleared swap margin in accordance with regulation 23.154, and incorporates that model into risk management, testing, and distribution requirements, it meets the requirements for use in calculating capital required. These models impact the swap market because by October 6, 2021, futures commission merchants and swap dealers must maintain capital over 2% of that calculated uncleared swap margin amount, while standalone swap dealers must maintain capital over 8% of that uncleared swap margin amount if opting for the bank-based or tangible net worth approach to regulatory-required capital.

Interestingly, the staff in the Market Participants Division also would permit use of a CFTC or NFA approved-margin model to calculate uncleared swap margin even where the CFTC or NFA approval of a model applies only to certain types of swaps while using the standardized initial margin schedule for other types. That permits operational ease, although it revisits questions raised by the CFTC Commissioners when the final capital rule was published about how capital calculations protect the swap market.