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SEC Issues No-Action Accommodations to Certain Dealers on Security-Based Swap (SBS) Margin and Capital Requirements
Practical Law Legal Update w-033-2558 (Approx. 5 pages)
SEC Issues No-Action Accommodations to Certain Dealers on Security-Based Swap (SBS) Margin and Capital Requirements
by Practical Law Finance
| Published on 03 Nov 2021 • USA (National/Federal) |
The SEC issued no-action relief to certain parties from security-based swap (SBS) margin and capital requirements.
On October 29, 2021, the SEC issued the no-action relief summarized below to certain parties from security-based swap (SBS) margin and capital requirements.
Order Regarding Net Capital Computation for Goldman Sachs Financial Markets, L.P.
Under SEC order 34-93485, Goldman Sachs Financial Markets, L.P. may calculate its net capital under Rule 18a-1 of the Securities Exchange Act of 1934 (Exchange Act) using the credit risk standards of paragraphs (d) through (f) of Rule 18a-1 to compute a deduction for credit risk on some or all of its positions. Under paragraphs (d) through (f) of Rule 18a-1, a firm may use either:
- A maximum potential exposure model that is equivalent to the VaR (Value-at-Risk Model) of its counterparty's positions with a 99 percent, one-tailed confidence level with price changes equivalent to a one-year movement in rates and prices; or
- A 10-business-day minimum time horizon, which may be approved by the SEC as the basis for a call for additional collateral if the collateral is marked to market daily and the firm has the ability to make daily collateral calls. Under the order Goldman Sachs Financial Markets, L.P. may calculate its net capital under paragraph (d)(5)(i) of Rule 18a-13 under the Exchange Act using the credit risk standards of paragraphs (d) through (f) of Rule 18a-1 to compute a deduction for credit risk on some or all of its positions.
Order Regarding Initial Margin Computation for Goldman Sachs & Co. LLC
Under SEC order 34-93480, Goldman Sachs & Co. LLC may use and be responsible for a model to calculate the initial margin (IM) amount required under paragraph (c)(1)(i)(B) of Rule 18a-3 under the Exchange Act for non-cleared SBS under paragraphs (d)(2)(i) through (ii) of Rule 18a-3, using the model requirements specified in paragraph (d)(2)(i) of Rule 18a-3.
Rule 18a-3(d)(2)(i) requires the IM model use a 99 percent, one-tailed confidence level with price changes equivalent to a 10-business-day movement in rates and prices, and must use risk factors sufficient to cover all material price risks inherent in the positions for which the IM amount is being calculated, including foreign exchange or interest rate risk, credit risk, equity risk, and commodity risk, as appropriate.
Order Regarding Initial Margin Computation for Goldman Sachs Financial Markets, L.P.
Under SEC order 34-93477, Goldman Sachs Financial Markets, L.P. may use and be responsible for a model to calculate the IM amount required by paragraph (c)(1)(i)(B) of Rule 18a-3 under the Exchange Act for non-cleared SBS under paragraphs (d)(2)(i) through (ii) of Rule 18a-3 using the model requirements specified in paragraph (d)(2)(i) of Rule 18a-3.
Order Regarding Net Capital and Initial Margin Computations for Jefferies Financial Services, Inc.
Under SEC order 34-93479 Jefferies Financial Services, Inc., may, under paragraph (d)(5)(i) of Rule 18a-1 to the Exchange Act:
- Calculate net capital using the market and credit risk standards of paragraphs (d) through (f) of Rule 18a-1 to compute a deduction for market and credit risk on some or all its positions instead of the provisions of paragraphs (c)(1)(iii), (iv), (vi), (vii), and (c)(1)(ix)(A) and (B) of Rule 18a-1 and Rule 18a-1b for interest rate products.
- Use and be responsible for a model to calculate the IM amount required by paragraph (c)(1)(i)(B) of Rule 18a-3 for non-cleared SBS under paragraphs (d)(2)(i) through (ii) of Rule 18a-3 using the model requirements in paragraph (d)(2)(i) of Rule 18a-3. Rule 18a-3(d)(2)(i) requires the IM model use a 99 percent, one-tailed confidence level with price changes equivalent to a 10-business-day movement in rates and prices, and must use risk factors sufficient to cover all material price risks inherent in the positions for which the IM amount is being calculated, including foreign exchange or interest rate risk, credit risk, equity risk, and commodity risk, as appropriate.
Order Regarding Initial Margin Computation for Citigroup Global Markets Inc.
Under SEC order 34-93478 Citigroup Global Markets Inc. may use and be responsible for a model to calculate the IM amount required by paragraph (c)(1)(i)(B) of Rule 18a-3 for non-cleared SBS under paragraphs (d)(2)(i) through (ii) of Rule 18a-3 using the model requirements specified in paragraph (d)(2)(i) of Rule 18a-3.
Order Regarding Initial Margin Computation for Nomura Global Financial Products Inc.
Under SEC order 34-93476, Nomura Global Financial Products Inc. may use and be responsible for a model to calculate the IM amount required by paragraph (c)(1)(i)(B) of Rule 18a-3 for non-cleared SBS under paragraphs (d)(2)(i) through (ii) of Rule 18a-3, using the model requirements specified in paragraph (d)(2)(i) of Rule 18a-3.
Order Regarding Net Capital and Initial Margin Computations for Morgan Stanley Capital Services LLC
Under SEC order 34-93475, Morgan Stanley Capital Services LLC may:
- Calculate net capital using the market and credit risk standards of paragraphs (d) through (f) of Rule 18a-1 to compute a deduction for market and credit risk on some or all its positions instead of the provisions of paragraphs (c)(1)(iii), (iv), (vi), (vii), and (c)(1)(ix)(A) and (B) of Rule 18a-1 and Rule 18a-1b.
- Use and be responsible for a model to calculate the IM amount required by paragraph (c)(1)(i)(B) of Rule 18a-3 for non-cleared SBS under paragraphs (d)(2)(i) through (ii) of Rule 18a-3, using the model requirements specified in paragraph (d)(2)(i) of Rule 18a-3.