Voglio sapere a riguardo di…

Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES2

when foreign regimes are comparable. 200
In describing the differences in the capital frameworks between the net liquid assets test and the Basel capital standard, this commenter highlighted the treatment of initial margin posted to a counterparty.201 Specifically, the commenter stated that in the UK initial margin posted to a counterparty counts as capital for that entity, while in the U.S. initial margin only counts as capital if the security-based swap dealer has a special loan agreement with an affiliate. The commenter stated that the U.S. requirement is intended to mitigate counterparty credit risk with respect to the return of the initial margin. The commenter argued that the result is that, not only are the UK requirements different from the Commissions in both form and substance, but the regulatory outcome is not comparable.
This commenter also stated that if a positive substituted compliance determination is made regarding capital, the Commission should not weaken the proposed additional capital condition in response to industry commenters, because these market participants are primarily concerned with reducing their own operational costs, without any regard to the systemic risk that would doing so would pose.202 This commenter also stated that any determination to find the UKs capital requirements comparable to and as comprehensive as the Commissions capital framework without conditions at least as strong as proposed would not only contravene the Commissions own conception of substituted compliance but expose the U.S. financial system to very risks Dodd-Frank instructed the SEC to contain. 203
Another commenter supported the proposed additional capital condition.204 This commenter stated that the Commission should require Covered Entities to comply with the net liquid assets test under Exchange Act rule 18a1, rather than the Basel capital standards.205 The commenter stated that the net liquid assets test appropriately 200 Better Markets Letter at 8 emphasis in the original.
201 Better Markets Letter at 7.
202 Better Markets Letter at 78.
203 Better Markets Letter at 78.
204 See Letter from Americans for Financial Reform Education Fund May 3, 2021 Americans for Financial Reform Education Fund Letter at 1.
205 See Americans for Financial Reform Education Fund Letter at 1 We support the Commissions proposal to require foreign security-based swap dealers and participants Covered Entities to abide by capital and initial margin requirements that reflect Exchange Act rule 18a1 standards appropriate for broker-dealers, as opposed to Basel capital requirements for banks that permit illiquid assets to count toward capital minimums..

VerDate Sep<11>2014

20:04 Aug 05, 2021

Jkt 253001

limits uncollateralized lending, fixed assets, and other illiquid assets such as real estate which have been proven repeatedly to be unreliable forms of capital but are currently counted as allowable capital under the Basel capital standard.206 This commenter also agreed with the Commission that the initial margin that is posted is not available for other purposes and therefore, under the Basel standard, could swiftly result in less balance sheet liquidity than the standards under the Exchange Acts Rule 18a1. 207
A commenter supported the Commissions proposed Order to grant substituted compliance in connection with the Exchange Act capital requirements.208 This commenter, however, opposed the proposed additional four pronged capital condition. The commenter stated that it was unnecessary, unduly rushed, and highly likely to be costly and disruptive to market participants and inconsistent with the Commissions substituted compliance framework.209 More specifically, this commenter stated that the proposed capital condition was unnecessary because Covered Entities transact predominantly in securities and derivatives, do not extensively engage in unsecured lending or other activities more typical of banks, and are already subject to extensive liquidity requirements.210 The commenter also expressed concern that the proposed capital condition was inconsistent with the Commissions substituted compliance framework in that it was duplicative of and would contradict the liquidity requirements established by the PRA.211 This commenter stated that the imposition of the proposed capital condition would effectively substitute the Commissions judgment for the PRAs in terms of the best way to address liquidity risk, and may lead other regulators to refuse to extend deference to the Commissions regulatory determinations.212
With respect to the using the concept of allowable and nonallowable assets under Exchange Act rule 18a1, the commenter stated that the first and second prongs of the capital condition do not define these terms and there is no analogous concept in the capital framework applicable in the UK.213 The 206 See Americans for Financial Reform Education Fund Letter at 1.
207 See Americans for Financial Reform Education Fund Letter at 2.
208 SIFMA 5/3/2021 Letter at 10.
209 SIFMA 5/3/2021 Letter at 10, 17.
210 SIFMA 5/3/2021 Letter at 1015.
211 SIFMA 5/3/2021 Letter at 15.
212 SIFMA 5/3/2021 Letter at 1517.
213 SIFMA 5/3/2021 Letter at 17.

PO 00000

Frm 00023

Fmt 4701

Sfmt 4703

43339

commenter stated this would require firms to re-categorize every asset on their balance sheets, which would not be feasible in the near term.214 Further, this commenter asked the Commission to clarify what it means by haircuts with respect to the first and second prongs, since the Basel capital standard does not apply haircuts to assets, but instead applies a risk-weighted approach.215
This commenter also stated that the third prong of the proposed additional capital condition requiring at least $100 million of equity capital composed of highly liquid assets as defined in the Basel capital standard, includes concepts that require clarification.216
For example, this commenter stated that is unclear how a firm would calculate the amount of its equity capital that is composed of highly liquid assets, since equity generally refers to a firms paid-in capital, retained earnings, and other items on the liabilities/
shareholders equity side of the balance sheet.217 Finally, this commenter asserted that because it is approximately three months until the August 6th counting date, and firms may encounter significant operational challenges to meet the proposed or revised capital condition, the proposed condition may cause firms to exit the U.S. securitybased swap market, or hope that the conditions are modified and delayed in a manner that will make it feasible to satisfy them.218
Overall, this commenter stated that the Commission should take a more incremental and deliberative approach to additional capital conditions, and specifically recommended that the Commission: 1 Delete the first prong of the capital condition; 2 replace the second prong with a requirement that a nonbank Covered Entity provide the same reports concerning liquidity metrics that the Covered Entity provides to the PRA; 3 modify the third prong to require a nonbank Covered Entity to maintain at least $100 million of high quality liquid assets, as defined in the Basel capital standard; and 4 issue an order on October 6, 2024, determining whether to maintain, delete, modify, or supplement the condition, based on consideration of the liquidity of nonbank Covered Entities, and after publishing a notice of any such changes 214 SIFMA

5/3/2021 Letter at 17.
5/3/2021 Letter at 1718.
216 SIFMA 5/3/2021 Letter at 18.
217 SIFMA 5/3/2021 Letter at 18.
218 SIFMA 5/3/2021 Letter at 19.
215 SIFMA

E:FRFM06AUN2.SGM

06AUN2