Overview of CFTC’s Proposed Margin Rules and Prudential Regulators’ Proposed Margin and Capital Rules

Section 731 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") added a new Section 4s(e) to the Commodity Exchange Act ("CEA"), which requires (i) the Commodity Futures Trading Commission (the "CFTC") and (ii) the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the "Prudential Regulators") to adopt rules for swap dealers and major swap participants imposing capital requirements and imposing margin requirements on all swaps that are not cleared on a registered derivatives clearing organization.

On April 12, 2011, the CFTC issued a notice of proposed rulemaking to implement Section 731 of the Dodd-Frank Act by establishing margin requirements for swap dealers and major swap participants that are not banks (collectively, "Nonbank Swap Entities").  On April 12, 2011, concurrently with the CFTC's proposed rulemaking, the Prudential Regulators issued a separate notice of proposed rulemaking that would establish capital and margin requirements for swap dealers, security-based swap dealers, major swap participants and major security-based swap participants that are banks (collectively, "Bank Swap Entities" and together with Nonbank Swap Entities, "Swap Entities").

This Stroock Special Bulletin highlights the main similarities and differences between the margin rules proposed by the CFTC and the Prudential Regulators and their implications for market participants.  It also summarizes the capital requirements that the Prudential Regulators have proposed for Bank Swap Entities.