SIFMA submitted a comment letter to the SEC on its proposed rules on “Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers.” SIFMA emphasized the following recommendations to the SEC:
(i) the capital requirements are too high in light of both market and credit risks;
(ii) the rule discourages security-based swap dealers (“dealers”) from allowing the use of tri-party custodians by their customers;
(iii) the liquidity requirements in the rule will be extremely burdensome;
(iv) the SEC should consider eliminating initial margin requirements and replacing them with two-way variation margin requirements;
(v) certain counterparties (sovereign entities, regulated affiliates, SPVs) should not be required to post margin; and
(vi) the collateral segregation requirements will raise costs by effectively forcing dealers to use their own cash to fund customers’ positions or the hedging of those positions.
Lofchie Comment: While safety and soundness are the reasons for the imposition of many of the SEC requirements, the end result is that SEC registrants are going to have a very hard time competing against non-U.S. firms. There are three issues that really drive competitiveness: capital requirements, margin requirements, and ability to use posted collateral. SEC registrants are going to be burdened as compared to their competitors on all three counts. (See also my comments on the next item).
Link here to the page with the SIFMA comment letter (on the SIFMA website).