On June 21, the Securities and Exchange Commission adopted a panoply of final rules dealing with the following aspects of the regulation of security-based swaps (SBS):

• Capital requirements for nonbank SBS Dealers (SBSDs) and Major SBS Participants (MSBSPs).

• Increased minimum net capital requirements for broker-dealers that use internal models to compute net capital (ANC broker-dealers).

• Capital requirements tailored to security-based swaps and swaps for broker-dealers that are not registered as an SBSD or MSBSP to the extent they trade those instruments.

• Margin requirements for nonbank SBSDs and MSBSPs with respect to non-cleared security-based swaps.

• Creation of a process for non-US SBSDs and MSBSPs to request substituted compliance with respect to the capital and margin requirements.

• A requirement that nonbank SBSDs establish internal risk management controls compliant with Rule 15c3-4.

These new rules will have limited impact in the short run. However, the SEC has revised the overall time frame for implementing its regulatory regime for SBS, so that the compliance date for the new rules and all other SEC rules for SBS will be 18 months after the later of (1) the effective date of final rules establishing recordkeeping and reporting requirements for SBSDs and MSBSPs; or (2) the effective date of final rules addressing the cross-border application of certain security-based swap requirements.

The table below summarizes the minimum net capital requirements that will be applicable to nonbank SBSDs as of the compliance date of the rule.

1 Includes a stand-alone SBSD that also is an OTC derivatives dealer.

The rules also establish net capital “haircuts” for SBS positions that will apply to all broker-dealers.

The margin requirements for nonbank SBSDs are closely aligned with the swap margin rules adopted by the CFTC and the prudential regulators but differ in the following significant ways:

• The requirements apply only to non-cleared, security-based swaps.

• An SBSD is not required to exchange any margin with an affiliate.

• An SBSD does not have to post initial margin and is not required to collect Initial margin from “Financial Market Intermediaries” (including other SBSDs).

• The initial margin rules apply even if a counterparty does not have “material swaps exposure.”

• Broker-dealer SBSDs must use the standardized haircuts for security-based swaps referencing equity securities and indexes.

A nonbank SBSD can comply instead with the swap capital, margin and segregation requirements of the CFTC, if it is not a broker-dealer, and its SBS positions do not exceed certain dollar and percentage limits.

The text of the rules can be found here: https://www.sec.gov/rules/final/2019/34-86175.pdf