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Financial Requirements


SECTION 18. SWAP DEALER AND MAJOR SWAP PARTICIPANT FINANCIAL REQUIREMENTS.

[Adopted Effective October 6, 2021.]

(a) Application of this Rule

    (i) Except for subsection (f), the provisions of this rule do not apply to an NFA Member swap dealer (Member SD) or major swap participant (Member MSP) that is subject to minimum capital requirements of a prudential regulator under section 4s(e) of the Commodity Exchange Act or to an NFA Member FCM that is subject to the capital requirements under NFA Financial Requirements Section 1 and CFTC Regulation 1.17.

    (ii) The provisions of this rule do not apply to a Member SD or MSP that is organized and domiciled outside the United States and that meets the requirements of CFTC Regulation 23.101(a)(5) or CFTC Regulation 23.101(b)(4), respectively.

(b) Minimum Financial Requirements for Swap Dealers and Major Swap Participants

    (i) Each Member SD must maintain "Regulatory Capital" (as defined in CFTC Regulation 23.100) as set forth in CFTC Regulation 23.101(a), as applicable.

    (ii) Each Member Major Swap Participant must meet the minimum financial requirements set forth in CFTC Regulation 23.101(b).

(c) Requirements for Calculating Market Risk and Credit Risk Exposure Requirements using Internal Models

    (i) Except as provided in (iii) below, a Member SD may not use an internal model(s) to calculate market and/or credit risk exposure under 23.101(a) without obtaining prior written approval from NFA or CFTC in accordance with CFTC Regulation 23.102, as applicable and subject to the restrictions set forth in CFTC Regulation 23.102(e).

    (ii) A Member SD seeking NFA's approval to use an internal model(s) under (i), must submit an application to NFA in a form and manner required by NFA.

    (iii) A Member SD that meets the requirements of CFTC Regulation 23.102(f) may use an internal model(s) to calculate market and/or credit risk exposure prior to obtaining NFA's approval upon filing with the CFTC the application and certification and by filing with NFA the certification required by CFTC Regulation 23.102(f)(1) and subject to the requirements of CFTC Regulation 23.102(f)(2) and (3).

(d) NFA Pre-Approval of Subordinated Debt Loan Agreements

    (i) A Member SD that is not otherwise registered with the Securities and Exchange Commission as a broker-dealer (including an OTC derivatives dealer) or security-based swap dealer (non-SEC registered SD Member) that elects to be subject to the minimum capital requirements under CFTC Regulation 23.101(a)(1)(i) and seeks to use subordinated debt to meet regulatory capital requirements, or elects to be subject to the minimum capital requirements under CFTC Regulation 23.101(a)(1)(ii) and seeks to use subordinated debt to meet regulatory capital requirements, must obtain pre-approval of the subordinated debt loan agreement from NFA in order for the subordinated debt to be satisfactory for regulatory capital.

    (ii) A non-SEC registered Member SD may not make any prepayments of the subordinated debt without prior approval of NFA.

    (iii) A non-SEC registered Member SD must file any proposed subordinated debt loan agreement and request for prepayment with NFA, in a form and manner required by NFA.

    (iv) A Member SD that has received approval from the SEC or designated examining authority (DEA), as applicable, of a proposed subordinated debt agreement or prepayment shall immediately file with NFA a copy of the SEC's or DEA's approval.

(e) Financial Reporting

    (i) Each Member SD and MSP must file unaudited financial reports with NFA for each month-end or quarter-end, as required under CFTC Regulation 23.105(d), including its fiscal year end, within 17 business days of the date for which the report is prepared using an electronic medium approved by NFA.

    (ii) Within 60 days of the Member's fiscal year end, or within 90 days of the Member's fiscal year end for those SDs or MSPs electing to be subject to minimum capital requirements under CFTC Regulation 23.101(a)(2) or CFTC Regulation 23.101(b), each Member SD and MSP must file with NFA its annual audited financial report as required per CFTC Regulation 23.105(e) in a form and manner required by NFA.

    (iii) SD Members must file their financial reports on the following forms:

      (1) A Member SD that is a broker-dealer, security-based swap dealer or major security-based swap participant must file its financial reports on the FOCUS Report.

      (2) All other SD Members must file their financial reports on Form FR-CSE-NLA or FR-CSE-BHC.

(f) Notice Requirements

A Member SD or MSP that is required to file any document with or give any notice to a registered futures association under CFTC Regulations 23.105(c)-(h), (j), and (l)-(m)[Financial recordkeeping, reporting and notification requirements for swap dealers and major swap participants] or receives an approval or a confirmation from the CFTC under CFTC Regulations 23.101 [Minimum financial requirements for swap dealers and major swap participants] or 23.106 [Substituted compliance for swap dealer's and major swap participant's capital and financial reporting], shall also file one copy of such document with and give such notice to NFA, or provide such approval or confirmation to NFA, in a form and manner required by NFA, no later than the date required to be filed with or given to the CFTC or the registered futures association, as applicable. A Member SD that receives any notification, order, or regulatory restrictions limiting or prohibiting the Member SD's use of internal models under CFTC Regulation 23.102 shall also immediately file one copy of such notification, order, or regulatory restriction with NFA, in a form and manner required by NFA.

(g) Additional Reporting Requirements For Capital Models

A Member SD that is required to comply with the additional reporting requirements for SDs approved to use models to calculate market risk and credit risk for computing capital requirements under CFTC Regulation 23.105(k) will satisfy its NFA filing requirement by providing the information specified by NFA in the form and manner required by NFA.