Federal Register, Volume 85 Issue 215 (Thursday, November 5, 2020) 
[Federal Register Volume 85, Number 215 (Thursday, November 5, 2020)]
[Proposed Rules]
[Pages 70536-70544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23928]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 23

RIN 3038-AF07

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-90246; File No. S7-15-20]
RIN 3235-AM64

Portfolio Margining of Uncleared Swaps and Non-Cleared Security-
Based Swaps

AGENCY: Commodity Futures Trading Commission and Securities and
Exchange Commission.

ACTION: Request for comment.

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SUMMARY: The Commodity Futures Trading Commission (“CFTC”) and the
Securities and Exchange Commission (“SEC”) (collectively, the
“Commissions”) seek public comment on potential ways to implement
portfolio margining of uncleared swaps and non-cleared security-based
swaps.

DATES: Comments should be received on or before December 7, 2020.

ADDRESSES: Comments should be sent to both agencies at the addresses
listed below.
    CFTC: You may submit comments, identified by RIN 3038-AF07, by any
of the following methods: CFTC website: https://comments.cftc.gov.
Follow the instructions for submitting comments through the website.
     Mail: Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
     Hand Delivery/Courier: Same as Mail above.
    Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
https://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish for the CFTC to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act, a petition for confidential treatment of
the exempt information may be submitted according to the procedures
established in CFTC Rule 145.9, 17 CFR 145.9.
    The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse, or remove any or all of
your submission from https://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act.
    SEC: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the SEC’s internet comment form (http://www.sec.gov/rules/other.shtml); or
     Send an email to [email protected]. Please include
File No. S7-15-20 on the subject line.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-15-20. This file number
should be included on the subject line if email is used. To help the
SEC process and review your comments more efficiently, please use only
one method of submission. The SEC will post all comments on the SEC’s
website (http://www.sec.gov). Comments are also available for website
viewing and printing in the SEC’s Public Reference Room, 100 F Street
NE, Washington, DC 20549, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
publicly available.

FOR FURTHER INFORMATION CONTACT:
    CFTC: Thomas J. Smith, Deputy Director, at (202) 418-5495,
[email protected] or Joshua Beale, Associate Director, at (202) 418-5446,
[email protected], Division of Swap Dealer and Intermediary Oversight;
Robert B. Wasserman, Chief Counsel and Senior Advisor, at (202) 418-
5092, [email protected], Division of Clearing and Risk, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street
NW, Washington, DC 20581.
    SEC: Michael A. Macchiaroli, Associate Director, at (202) 551-5525;
Thomas K. McGowan, Associate Director, at (202) 551-5521; Randall W.
Roy, Deputy Associate Director, at (202) 551-5522; Raymond Lombardo,
Assistant Director, at 202-551-5755; or Sheila Dombal Swartz, Senior
Special Counsel, at (202) 551-5545, Division of Trading and Markets,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-7010.

SUPPLEMENTARY INFORMATION:

I. Introduction

    Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (“Title VII”) established a new regulatory framework
for the U.S. over-the-counter (“OTC”) derivatives markets.1 The
Dodd-Frank Act assigns responsibility for certain aspects of the U.S.
OTC derivatives markets to the CFTC and the SEC. In particular, the
CFTC has oversight authority with respect to swaps, and the SEC has
oversight authority with respect to security-based swaps.2 The CFTC
has adopted final margin rules for uncleared swaps applicable to
nonbank swap dealers and nonbank major swap participants.3 The SEC
has adopted final margin requirements for non-cleared security-based
swaps applicable to nonbank security-based swap dealers (“SBSDs”) and
nonbank major security-based swap participants (“MSBSPs”).4

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Bank regulators have adopted capital and margin requirements for bank
swap dealers and bank major swap participants and for bank SBSDs and
bank MSBSPs pursuant to Title VII.5 The SEC and CFTC also have issued
exemptive orders to facilitate the portfolio margining of cleared swaps
and security-based swaps that are credit default swaps (“CDS”) held
in a swap account.6
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    1 See Public Law 111-203, 771 through 774 (“Dodd-Frank
Act”).
    2 The CFTC has oversight authority with respect to a “swap”
as defined in Section 1(a)(47) of the Commodity Exchange Act
(“CEA”) (7 U.S.C. 1(a)(47)), including to implement a registration
and oversight program for a “swap dealer” as defined in Section
1(a)(49) of the CEA (7 U.S.C. 1(a)(49)) and a “major swap
participant” as defined in Section 1(a)(33) of the CEA (7 U.S.C.
1(a)(33)). The SEC has oversight authority with respect to a
“security-based swap” as defined in Section 3(a)(68) of the
Exchange Act (15 U.S.C. 78c(a)(68)), including to implement a
registration and oversight program for a “security-based swap
dealer” as defined in Section 3(a)(71) of the Exchange Act (15
U.S.C. 78c(a)(71)) and a “major security-based swap participant”
as defined in Section 3(a)(67) of the Exchange Act (15 U.S.C.
78c(a)(67)). The SEC and the CFTC jointly have adopted rules to
further define those terms. See Further Definition of “Swap,”
“Security-Based Swap,” and “Security-Based Swap Agreement”;
Mixed Swaps; Security-Based Swap Agreement Recordkeeping, Exchange
Act Release No. 67453 (July 18, 2012), 77 FR 48208 (Aug. 13, 2012);
Further Definition of “Swap Dealer,” “Security-Based Swap
Dealer,” “Major Swap Participant,” “Major Security-Based Swap
Participant” and “Eligible Contract Participant,” Exchange Act
Release No. 66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012).
    3 CFTC, Margin Requirements for Uncleared Swaps for Swap
Dealers and Major Swap Participants, 81 FR 636 (Jan. 6, 2016)
(“CFTC Final Margin Release”). The Commissions use the terms
“uncleared swaps” and “non-cleared security-based swaps”
throughout this request for comment because those are the defined
terms adopted in their respective final margin rules.
    4 SEC, Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital and Segregation Requirements for Broker-
Dealers (“SEC Final Capital, Margin and Segregation Release”),
Exchange Act Release No. 86175 (June 21, 2019), 84 FR 43872, 43956-
43957 (Aug. 22, 2019). The compliance date for the SEC’s margin
rules is October 6, 2021. Covered counterparties under the CFTC’s
uncleared swap margin rules already post and collect variation
margin. CFTC initial margin requirements are being implemented under
a phase-in schedule through September 1, 2022. See Margin
Requirements for Uncleared Swaps for Swap Dealers and Major Swap
Participants, 85 FR 41463 (Jul. 10, 2020); see also CFTC, Press
Release Number 8287-20, CFTC Finalizes Position Limits Rule at
October 15 Open Meeting, Commission Also Approves Final Rules on
Margin Requirements for Uncleared Swaps and Registration Exemptions
for Foreign Commodity Pools (Oct. 15, 2020).
    5 See Margin and Capital Requirements for Covered Swap
Entities, 80 FR 74840 (Nov. 30, 2015). These margin requirements for
bank entities were adopted by the Board of Governors of the Federal
Reserve System, the Office of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, the Farm Credit
Administration, or the Federal Housing Finance Agency (collectively,
these organizations are known as the “prudential regulators”).
    6 Order Granting Conditional Exemptions under the Securities
Exchange Act of 1934 in Connection with Portfolio Margining of Swaps
and Security-based Swaps, Exchange Act Release No. 68433 (Dec. 12,
2012) 77 FR 75211 (Dec. 19, 2012); CFTC, Order, Treatment of Funds
Held in Connection with Clearing by ICE Clear Credit of Credit
Default Swaps (Jan. 13, 2013), available at: https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/icecreditclearorder011413.pdf; CFTC, Order, Treatment of Funds Held
in Connection with Clearing by ICE Clear Europe of Credit Default
Swaps (Apr. 9, 2013), available at: https://www.cftc.gov/sites/default/files/stellent/groups/public/@requestsandactions/documents/ifdocs/icecleareurope4dfcds040913.pdf.
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    In implementing Title VII, the Commissions are committed to working
together to ensure that each agency’s respective regulations are
effective, consistent, mutually reinforcing, and efficient. In certain
cases, the Commissions believe that these objectives may be served
better by harmonizing requirements. Portfolio margining is one area
where the Commissions believe it is appropriate to explore whether
increased harmonization would better serve the purposes of Title VII.
    Portfolio margining generally refers to the cross margining of
related positions in a single account, allowing netting of appropriate
offsetting exposures. Portfolio margining of uncleared swaps, non-
cleared security-based swaps, and related positions can offer benefits
to customers and the markets, including promoting greater efficiencies
in margin calculations with respect to offsetting positions. This can
align margining and other costs more closely with overall risks
presented by a customer’s portfolio. This alignment can reduce the
aggregate amount of collateral required to meet margin requirements,
facilitating the availability of excess collateral that can be deployed
for other purposes. The netting of exposures allowed by portfolio
margining may also help to improve efficiencies in collateral
management, alleviate excessive margin calls, improve cash flows and
liquidity, and reduce volatility.
    At the same time, facilitating portfolio margining for uncleared
swaps, non-cleared security-based swaps, and related positions requires
careful consideration to ensure that any customer protection, financial
stability and other applicable regulatory objectives and potential
impacts are appropriately considered and addressed. These
considerations include, among other things, potential impacts on margin
requirements, the segregation and bankruptcy treatment of uncleared
swaps and non-cleared security-based swaps in different account types
and entities, and the potential impact on regulatory capital
requirements.
    The implementation of portfolio margining of uncleared swaps and
non-cleared security-based swaps also requires careful consideration of
the differences in the capital, margin, and segregation requirements of
the CFTC and SEC applicable to uncleared swaps and non-cleared
security-based swaps, respectively. These differences reflect the
policy objectives of, and choices made by, each agency and reflect each
agency’s assessment of potential costs and benefits of alternative
approaches and the impact on the markets for swaps and security-based
swaps. The differences between the CFTC and SEC requirements is a
result of these differing policy objectives and related assessments.
    For example, the CFTC’s margin rule for uncleared swaps requires
swap dealers to collect and post initial margin to certain
counterparties, subject to exceptions.7 When adopting this
requirement, the CFTC stated that “the posting requirement under the
final rule is one way in which the Commission seeks to reduce overall
risk to the financial system, by providing initial margin to non-dealer
swap market counterparties that are interconnected participants in the
financial markets (i.e., financial end users that have material swap
exposure).” 8 The CFTC further noted that commenters stated that
requiring swap dealers to post initial margin “not only would better
protect financial end users from concerns about the failure of [the
swap dealer], but would also act as a discipline on [swap dealers] by
requiring them to post margin reflecting the risk of their swaps
business.” 9
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    7 See 17 CFR 23.152.
    8 See CFTC Final Margin Release, 81 FR at 649.
    9 Id.
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    The SEC’s margin rule for non-cleared swaps does not require
nonbank SBSDs to post initial margin.10 The SEC stated when adopting
the margin rule that “[r]equiring nonbank SBSDs to deliver initial
margin could impact the liquidity of these firms” and that
“[d]elivering initial margin would prevent this capital of the nonbank
SBSD from being immediately available to the firm to meet liquidity
needs.” 11 The SEC further stated that, “[i]f the delivering SBSD
is undergoing financial stress or the markets more generally are in a
period of financial turmoil, a nonbank SBSD may need to liquidate
assets to raise funds and reduce its leverage” and that “[a]ssets in
the control of a counterparty would not be available for this
purpose.” 12
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    10 See 17 CFR 240.18a-3.
    11 See SEC Final Capital, Margin and Segregation Release, 84
FR at 43918.
    12 Id.
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    In addition, the CFTC’s margin rule requires that initial margin
posted to or by the swap dealer must be held by a third-party custodian
and does not permit the initial margin to be re-hypothecated.13 When
adopting the margin rule, the CFTC stated “that the ultimate purpose
of the custody agreement is twofold: (1) That the initial margin be
available to a counterparty when its counterparty defaults and a loss
is realized that exceeds the amount of variation margin that has been
collected as of the time of default; and (2) initial margin be returned
to the posting party after its swap obligations have been fully
discharged.” 14
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    13 See 17 CFR 23.157.
    14 See CFTC Final Margin Release, 81 FR at 670.
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    The SEC margin rule for non-cleared swaps does not require that
initial margin posted to the nonbank SBSD be held at a third-party
custodian.15 The SEC stated that this difference from the CFTC’s
margin rule reflects its “judgment of how to `help ensure the safety
and soundness’ of nonbank

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SBSDs . . . as required by Section 15F(e)(3)(i) of the Exchange Act.”
16
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    15 See 17 CFR 240.18a-3.
    16 See SEC Final Capital, Margin and Segregation Release, 84
FR at 43909.
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    Moreover, there are differences in the segregation schemes for
swaps and security-based swaps. As discussed above, the CFTC’s margin
rule requires initial margin received from customers with respect to
uncleared swaps to be held by an independent third-party custodian.
    With respect to the SEC’s rules for non-cleared security-based
swaps, Section 3E(f) of the Exchange Act establishes a program by which
a counterparty to an SBSD can elect to have an independent third-party
custodian hold the initial margin it posts to the SBSD.17 Section
3E(f)(4) provides that if the counterparty does not choose to require
segregation of funds or other property (i.e., waives segregation), the
SBSD shall send a report to the counterparty on a quarterly basis
stating that the firm’s back office procedures relating to margin and
collateral requirements are in compliance with the agreement of the
counterparties.18 Security-based swap customers of a broker-dealer
(other than an OTC derivatives dealer), including a broker-dealer
registered as an SBSD, that are not affiliates of the firm cannot waive
segregation. The SEC explained that this prohibition against waiving
the segregation requirement in the case of a non-affiliated customer of
the broker-dealer is a consequence of the broker-dealer segregation
rule–Rule 15c3-3–being promulgated under Section 15(c)(3) of the
Exchange Act, which does not have an analogous provision to Section
3E(f) of the Exchange Act.19 More specifically, Section 15(c)(3) of
the Exchange Act and Rule 15c3-3 thereunder do not contain provisions
pursuant to which a customer can waive segregation.20 The SEC further
explained that the prohibition will protect customers and the safety
and soundness of broker-dealers.21
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    17 See 15 U.S.C. 78c-5(f).
    18 See 15 U.S.C. 78c-5(f)(4),
    19 See SEC Final Capital, Margin and Segregation Release, 84
FR at 43931. See also 17 CFR 240.15c3-3; 15 U.S.C. 78o(c)(3); 15
U.S.C. 78c-5(f)(4).
    20 See SEC Final Capital, Margin and Segregation Release, 84
FR at 43931.
    21 Id. at 43931.
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    In addition to these two statutory options, the SEC adopted
segregation rules permitting broker-dealers and SBSDs to hold and
commingle initial margin received from security-based swap customers.
These rules restrict how initial margin can be used by a broker-dealer
or SBSD and require that it be held in a manner that is designed to
facilitate its prompt return to the customers (“omnibus segregation
rules”).22 The omnibus segregation rules are mandatory requirements
with respect to cleared security-based swaps and the default
requirements with respect to non-cleared security-based swaps if a
customer of an SBSD does not choose one of the two statutory options:
(1) Having initial margin held by an independent third-party custodian
or (2) waiving segregation, if permitted.
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    22 See 17 CFR 240.15c3-3(p); 17 CFR 240.18a-4. See also SEC
Final Capital, Margin and Segregation Release, 84 FR at 43930-43.
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    The omnibus segregation rules permit broker-dealers and SBSDs to
re-hypothecate initial margin received with respect to non-cleared
swaps under limited circumstances. In the case of a broker-dealer
(other than an OTC derivatives dealer), including a broker-dealer
registered as an SBSD, the ability to re-hypothecate initial margin is
limited. For example, if the broker-dealer enters into a non-cleared
security-based swap with a customer and hedges that transaction with a
second broker-dealer, the first broker-dealer can use the initial
margin collected from its customer to meet a regulatory margin
requirement arising from a transaction with a second SBSD to hedge the
transaction with the customer.23 The SEC stated that it “designed
the hedging exception for non-cleared security-based swap collateral to
accommodate dealers in OTC derivatives maintaining `matched books’ of
transactions.” 24
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    23 See 17 CFR 240.15c3-3(p)(1)(ii)(B) and (p)(2).
    24 See SEC Final Capital, Margin and Segregation Release, 84
FR at 43937 (footnote omitted).
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    Similarly, an SBSD that is registered as an OTC derivatives dealer
or not registered as a broker-dealer (both types of SBSDs hereinafter a
“Stand-Alone SBSD”) that enters into a non-cleared, security-based
swap with a customer and hedges that transaction with another SBSD also
may use the initial margin collected from its customer to meet a
regulatory margin requirement arising from the hedging transaction with
the other SBSD.25 This provision applies if the Stand-Alone SBSD is
required to comply with the omnibus segregation requirements of Rule
18a-4 or offers omnibus segregation to its customers.26 However,
pursuant to Section 3E(f) of the Exchange Act, customers of a Stand-
Alone SBSD also may waive their right to have initial margin for non-
cleared security-based swaps segregated, and a Stand-Alone SBSD can
operate under an exemption from the omnibus segregation requirements of
Rule 18a-4, subject to certain conditions.27 If the customer waives
segregation or the Stand-Alone SBSD operates under the exemption from
Rule 18a-4, the Stand-Alone SBSD may re-hypothecate the initial margin
without restriction. Pursuant to Section 3E(f) of the Exchange Act,
customers of this Stand-Alone SBSD can elect to have the initial margin
they post to the SBSD held by a third-party custodian rather than
waiving the right to segregation.28 The SEC explained that permitting
customers to elect to either have their initial margin held by a third-
party custodian or waive their right to segregation reflected the
provisions of Section 3E(f) of the Exchange Act, providing customers
with these two options.29
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    25 See 17 CFR 240.18a-4(a)(2)(ii) and (b).
    26 See 17 CFR 240.18a-4.
    27 See 15 U.S.C. 78c-5(f)(4); 17 CFR 18a-4(f).
    28 See 15 U.S.C. 78c-5(f)(4).
    29 See SEC Final Capital, Margin and Segregation Release, 84
FR at 43877-78, 43930, 43937.
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    Finally, the implementation of portfolio margining of uncleared
swaps and non-cleared security-based swaps also requires careful
consideration of the potential impact on competition, including how it
might influence customer behavior in selecting to do business with
certain types of registrants (e.g., firms with multiple registrations
that permit them to engage in a broader range of activities).
    Given the scope, importance and interrelationships among the
matters to consider, the Commissions believe it would be helpful to
gather further information and comment from interested persons
regarding portfolio margining of uncleared swaps and non-cleared
security-based swaps. In section III below, the Commissions request
comment generally on portfolio margining these instruments and on
portfolio margining these positions in different account types.

II. Regulatory Background

    The specific requests for comment below take into account: (1) The
types of registrations (broker-dealer, OTC derivatives dealer, SBSD,
futures commission merchant (“FCM”), and swap dealer) an entity may
need in order to engage in portfolio margining of uncleared swaps, non-
cleared security-based swaps, and related positions; (2) the account
types (securities account, security-based swap account, and swap
account) these registrants can maintain; and (3) the margin and
segregation requirements that apply to products carried in these
account types. In particular, a broker or dealer in securities must be
registered with the SEC. A broker-dealer that limits

[[Page 70539]]

securities dealing to OTC equity options and other OTC derivatives can
operate as a special purpose broker-dealer known as an OTC derivatives
dealer. An entity that deals in security-based swaps above a de minimis
notional threshold will need to register with the SEC as an SBSD. An
entity that solicits and accepts funds from customers to margin,
secure, or guarantee futures, options on futures, or cleared swap
transactions must register with the CFTC as an FCM. And, an entity that
deals in swaps above a de minimis notional threshold must register with
the CFTC as a swap dealer.

A. Broker-Dealers

    A broker-dealer is subject to initial margin requirements
promulgated by the Board of Governors of the Federal Reserve System
(“Federal Reserve Board”) in Regulation T.30 A broker-dealer also
is subject to maintenance margin requirements promulgated by self-
regulatory organizations (“SROs”).31 The initial margin
requirements of Regulation T generally govern the amount of credit that
can be extended by a broker-dealer to finance a position in a margin
account. The maintenance margin requirements of the SROs govern the
amount of equity that must be maintained in the margin account on an
ongoing basis. Regulation T has an exception from its initial margin
requirements for accounts that are margined pursuant to an SRO
portfolio margin rule.32 SROs have adopted portfolio margin rules
subject to this exception and, therefore, a broker-dealer must collect
initial and maintenance margin in a portfolio margin account in
accordance with the SRO portfolio margin rules. Margin calculations
under the SRO portfolio margin rules are based on the method in
Appendix A to Rule 15c3-1 (“Appendix A Methodology”).33 With
respect to options, initial and maintenance margin requirements are
generally set by the SROs.34
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    30 12 CFR 220.1, et seq.
    31 See, e.g., FINRA Rules 4210-4240. Customers of broker-
dealers are also subject to specific margin rules for security
futures, jointly regulated by the CFTC and the SEC.
    32 12 CFR 220.1(b)(3)(i).
    33 See, e.g., FINRA Rule 4210(g).
    34 12 CFR 220.12(f).
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    A broker-dealer also is subject to margin rules for security
futures promulgated jointly by the Commissions.35 Security futures
margined in an SRO portfolio margin account are not subject to the
Commissions’ rules and, therefore, are margined according to the SRO
portfolio margin rules.36
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    35 See 17 CFR 41.42-41.49 (CFTC regulations); 17 CFR 242.400-
242.406 (SEC regulations).
    36 See 17 CFR 242.400(c)(2).
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    A broker-dealer that operates as an OTC derivatives dealer is
exempt from the requirements of Regulation T, provided that the firm
complies with Regulation U of the Federal Reserve Board.37 While an
OTC derivative dealer is subject to Regulation U, this rule generally
does not prescribe margin requirements for OTC derivatives such as OTC
equity options. The firm also is exempt from membership in an SRO and,
therefore, not subject to SRO margin rules.38
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    37 17 CFR 240.36a1-1.
    38 17 CFR 240.15b9-2.
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    A broker-dealer that is also registered as an SBSD will be subject
to the margin requirements of Rule 18a-3 for non-cleared security-based
swaps on the compliance date for that rule.39 A broker-dealer SBSD
may apply to the SEC for authorization to use a model (including an
industry standard model) to calculate initial margin for non-cleared
security-based swaps. However, broker-dealer SBSDs (other than OTC
derivatives dealers registered as SBSDs (“OTCDD/SBSDs”)) must use
standardized haircuts prescribed in Rule 15c3-1 (which includes the
option to use the Appendix A Methodology) to compute initial margin for
non-cleared equity security-based swaps (even if the firm is approved
to use a model to calculate initial margin for other types of
positions).40 Moreover, as discussed above, Rule 18a-3 does not
require a nonbank SBSD to post initial margin to any counterparties.
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    39 See 17 CFR 240.18a-3.
    40 17 CFR 240.15c3-1.
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    A broker-dealer that holds customer securities and cash (including
securities and cash being used as initial margin) is subject to Rule
15c3-3.41 The SEC amended Rule 15c3-3 to adopt the omnibus
segregation requirements for security-based swaps applicable to a
broker-dealer and a broker-dealer (other than an OTC derivatives
dealer) also registered as a SBSD.42 A customer of a broker-dealer
that is also registered as an SBSD can elect to have initial margin
held by a third-party custodian pursuant to Section 3E(f) of the
Exchange Act or held by the SBSD subject to the omnibus segregation
requirements of Rule 15c3-3. Customers that are not affiliates of the
broker-dealer cannot waive segregation, whereas affiliates can waive
segregation.
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    41 17 CFR 240.15c3-3. For a discussion of Rule 15c3-3, see
SEC, Capital, Margin, and Segregation Proposing Release, 77 FR at
70276-70277. Regulation T and portfolio margin accounts are combined
when calculating segregation requirements under Exchange Act Rule
15c3-3.
    42 See 17 CFR 240.15c3-3(p).
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    As discussed above, the broker-dealer can re-hypothecate initial
margin received from a customer for the limited purpose of entering
into a transaction with another SBSD that hedges the transaction with
the customer.43 Cash and securities held in a securities account at a
broker-dealer (other than an OTC derivatives dealer) 44 is protected
under the Securities Investor Protection Act (“SIPA”), subject to
certain exceptions. An OTC derivatives dealer is not subject to Rule
15c3-3 and is not a member of the Security Investor Protection
Corporation.45 Consequently, cash and securities held in a securities
account at an OTC derivatives dealer are not protected by SIPA.
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    43 See 17 CFR 240.15c3-3(p)(1)(ii)(B) and (p)(2).
    44 See section II.A (describing regulatory requirements for
OTC derivatives dealers).
    45 17 CFR 240.15c3-3(a)(1) (defining the term customer to
exclude a counterparty to an OTC derivatives transaction with an OTC
derivatives dealer if certain conditions are met) and 17 CFR
240.36a1-2 (Exemption from SIPA for OTC derivatives dealers).
—————————————————————————

B. Nonbank Stand-Alone SBSDs

    A Stand-Alone SBSD that is not a bank (“Nonbank Stand-Alone
SBSD”) will be subject to the margin requirements of Rule 18a-3 for
non-cleared security-based swaps on the compliance date for that
rule.46 A Nonbank Stand-Alone SBSD may apply to the SEC for
authorization to use a model (including an industry standard model) to
calculate initial margin for non-cleared security-based swaps.
Moreover, unlike a broker-dealer (other than an OTCDD/SBSD) registered
as an SBSD, a Nonbank Stand-Alone SBSD may use a model to calculate
initial margin for non-cleared equity security-based swaps, provided
the account of the counterparty does not hold equity security positions
other than equity security-based swaps and equity swaps. Initial margin
requirements also may be calculated by applying the standardized
haircuts prescribed in Rule 18a-1, the net capital rule for Stand-Alone
SBSDs.47 As discussed above, Rule 18a-3 does not require a Nonbank
Stand-Alone SBSD to post initial margin to its counterparties.
—————————————————————————

    46 17 CFR 240.18a-3.
    47 17 CFR 240.18a-1.
—————————————————————————

    Pursuant to Section 3E(f) of the Exchange Act, a customer of a
Nonbank Stand-Alone SBSD can elect to have initial margin posted to the
firm held by a third-party custodian or waive segregation with respect
to the initial margin.48 In addition, a Nonbank Stand-

[[Page 70540]]

Alone SBSD will be subject to the omnibus segregation requirements of
Rule 18a-4 with respect to non-cleared security-based swaps.49 The
omnibus segregation requirements are the default requirement if the
counterparty does not elect to have initial margin held by a third-
party custodian or waive segregation.
—————————————————————————

    48 See 15 U.S.C. 78c-5(f).
    49 17 CFR 240.18a-4.
—————————————————————————

    A Nonbank Stand-Alone SBSD, however, will be exempt from the
requirements of Rule 18a-4 if the firm meets certain conditions,
including that the firm: (1) Does not clear security-based swap
transactions for other persons; (2) provides notice to the counterparty
regarding the right to segregate initial margin at an independent
third-party custodian; (3) discloses to the counterparty in writing
that any collateral received by the Nonbank Stand-Alone SBSD will not
be subject to a segregation requirement; and (4) discloses to the
counterparty how a claim of the counterparty for the collateral would
be treated in a bankruptcy or other formal liquidation proceeding of
the Nonbank Stand-Alone SBSD.50
—————————————————————————

    50 17 CFR 240.18a-4(f). Rule 18a-4 also has exceptions
pursuant to which a foreign stand-alone SBSD need not comply with
the segregation requirements (including the omnibus segregation
requirements) for certain transactions. 17 CFR 240.18a-4(e).
—————————————————————————

C. Swap Dealers

    The CFTC’s margin rules impose initial and variation margin
requirements on covered swap dealers and covered major swap
participants for swap transactions (“covered swap entities”) that are
not cleared by a registered derivatives clearing organization.51 The
CFTC’s initial margin rules require a covered swap dealer to both
collect and post initial margin on uncleared swap transactions entered
into with other swap dealers and with financial end users with material
swaps exposure.52 CFTC margin rules require that initial margin be
calculated using a standardized table-based method or a model
(including an industry standard model).53 The initial margin model
must be approved by the CFTC or a registered futures association (i.e.,
National Futures Association).
—————————————————————————

    51 The CFTC’s uncleared swap margin rules are codified in part
23 of the CFTC’s regulations (17 CFR 23.150–23.161).
    52 17 CFR 23.152. The term “material swaps exposure” for an
entity means that the entity and its margin affiliates have an
average daily aggregate notional amount of uncleared swaps,
uncleared security-based swaps, foreign exchange forwards, and
foreign exchange swaps with all counterparties for June, July and
August of the previous calendar year that exceeds $8 billion, where
such amount is calculated only for business days.
    53 17 CFR 23.154.
—————————————————————————

    The CFTC’s uncleared swap margin rules also establish minimum
standards for the safekeeping of collateral. The rules generally
require that initial margin collateral received or posted by the
covered swap entity must be held by one or more unaffiliated third-
party custodians.54 The rules also require the custodian to act
pursuant to a custodial agreement that is legal, valid, binding, and
enforceable under the laws of all relevant jurisdictions, including in
the event of bankruptcy, insolvency, or similar proceedings.55 The
custodial agreement must prohibit the custodian from rehypothecating,
repledging, reusing, or otherwise transferring (through securities
lending, repurchase agreement, reverse repurchase agreement, or other
means) the funds or other property held by the custodian.56
—————————————————————————

    54 17 CFR 23.157(a)-(b).
    55 17 CFR 23.157(c).
    56 Id.
—————————————————————————

III. Request for Comment

A. General Request for Comment

    The Commissions request comment on all aspects of the portfolio
margining of uncleared swaps and non-cleared security-based swaps,
including on the merits, benefits, and risks of portfolio margining
these types of positions, and on any regulatory and operational issues
associated with portfolio margining them. The Commissions seek comment
on these matters generally and commenters are encouraged to address
matters related to portfolio margining not specifically identified in
the requests for comment below.
    In responding to this general request for comment and on the
specific requests for comment below, the Commissions encourage
commenters to provide empirical support for their arguments and
analyses. Comments are of the greatest assistance to the Commissions
when accompanied by supporting data and analysis.

B. Specific Requests for Comment

1. Securities Account
    The Commissions request comment on whether uncleared swaps, non-
cleared security-based swaps, cash market securities positions, listed
securities options, OTC securities options, futures, options on
futures, and security futures should be permitted to be portfolio
margined in the following account types: (1) A securities account that
is subject to SRO portfolio margin rules; and (2) a securities account
that is subject to the initial margin requirements of Regulation T and
maintenance margin requirements of the SRO margin rules (i.e., a
securities account that is not subject to the SRO portfolio margin
rules). Commenters are asked to address the following matters.
     Identify and describe the relative benefits of portfolio
margining in each of these securities account types, and describe how
the benefits compare to the benefits of other account types discussed
in this request for comment.
     Identify and describe the risks of portfolio margining in
each of these securities account types, and describe how those risks
compare to the risks of other account types discussed in this request
for comment, as well as how the risks compare to margining under the
existing framework.
     Identify and describe what models might be appropriate for
portfolio margining positions in each of these securities account
types, as well as the process for approving and reviewing such models.
     Identify and describe any regulatory issues associated
with portfolio margining in each of these securities account types,
including issues relating to (1) differences in the statutes governing
futures, options on futures, uncleared swaps, non-cleared security-
based swaps, and securities other than security-based swaps, (2)
differences in the regulatory requirements of the CFTC, SEC, and SROs
applicable to futures, options on futures, uncleared swaps, non-cleared
security-based swaps, and securities other than security-based swaps
(including differences in margin and segregation requirements), and (3)
differences in the bankruptcy treatment of futures, options on futures,
uncleared swaps, non-cleared security-based swaps, and securities other
than security-based swaps.
     As discussed above, the CFTC’s rules prohibit the re-
hypothecation of initial margin collateral. The SEC’s rules permit
limited re-hypothecation of initial margin collateral received from
customers or counterparties. Discuss the potential implications of the
differences in the Commissions’ approaches to the re-hypothecation of
initial margin collateral relevant to a portfolio margin scheme.
     Section 16 of SIPA defines the terms “customer,”
“customer property,” and “net equity” to include securities,
futures, and options on futures, but not swaps or security-based
swaps.57 The

[[Page 70541]]

Commissions request comment on steps broker-dealers (including broker-
dealers that are SBSDs) can take to ensure the protections afforded by
SIPA will apply to all positions held in a securities account. Comment
also is sought on the types of disclosures broker-dealers and SBSDs can
make to their portfolio margin accountholders about positions in a
securities account that are not within the SIPA definitions of
“customer,” “customer property,” and “net equity.” Comment also
is sought on the expectations of market participants as to whether the
initial margin and accrued gains associated with uncleared swaps and
non-cleared security-based swaps held in a portfolio margin account
that is a securities account is subject to SIPA protection in the event
of the insolvency of the broker-dealer.
—————————————————————————

    57 Section 983 of the Dodd-Frank Act amended Section 16 of
SIPA to define the term “customer” to include a person that has a
claim for futures and options on futures, and to define the term
“customer property” to include futures and options on futures, in
each case where they are held in a portfolio margining account
carried as a securities account pursuant to a portfolio margining
program approved by the SEC. Section 3(a)(10) of the Exchange Act
defines the term “security” to include a security-based swap for
purposes of the Exchange Act. 15 U.S.C 78c(a)(10).
—————————————————————————

     As noted above, the CFTC margin rules require swap dealers
to post initial margin for uncleared swaps entered into with other swap
dealers or with financial end users with material swaps exposure. The
SEC’s margin rules permit, but do not require, an SBSD to post initial
margin for non-cleared security-based swaps entered into with other
broker-dealers, SBSDs, swap dealers, or financial end users. How should
the Commissions address the differences in the initial margin posting
requirements in a portfolio margin account? If portfolio margining
resulted in the transfer of significant swap trading relationships to
SBSDs, which would operate under a “collect only” regime, would that
increase the potential for counterparty risk, including liquidity
mismatches between counterparties? Alternatively, would it lower
systemic risk by promoting the liquidity of SBSDs? Discuss the
potential impact on the markets and market participants if entities
registered as broker-dealers and swap dealers or as broker-dealers,
SBSDs, and swap dealers are not required to post initial margin to
counterparties for uncleared swaps held in a portfolio margin account
while stand-alone swap dealers are required to post initial margin to
counterparties for uncleared swap transactions. Should the Commissions
require entities registered as broker-dealers and swap dealers or as
broker-dealers, SBSDs, and swap dealers to post margin for uncleared
swaps held in a portfolio margin account with covered counterparties?
How should such margin be computed? Would requiring these entities to
post margin undermine the benefits of portfolio margining? Would it
increase costs to customers to compensate these entities for having to
use their capital to meet margin requirements? In addition, would
requiring these entities to post initial margin create a barrier to
entry for smaller firms that do not have the resources to post initial
margin?
     If portfolio margining resulted in the transfer of
significant swap trading relationships to broker-dealer SBSDs, which
would operate under a “collect only” regime, how would this impact
the risks customers face in the event of an SBSD’s default? How should
the Commissions balance the relative concerns related to trying to
enhance liquidity of SBSDs while ensuring customer protection? Are
there any lessons to be learned from events impacting swap markets
during the recent COVID market volatility?
     Identify and describe any operational issues associated
with portfolio margining in each of these securities account types.
     SIPA defines the term “customer” to include a person
that has a claim for futures and options on futures, and defines the
term “customer property” to include futures and options on futures,
in each case where they are held in a portfolio margining account
carried as a securities account pursuant to a portfolio margining
program approved by the SEC. The Commissions request specific comment
on any legal and operational issues associated with holding futures and
options on futures in a portfolio margin account that is a securities
account.
     As discussed above, an entity that effects transactions in
securities must be registered with the SEC as a broker-dealer. A
broker-dealer that limits securities dealing to OTC equity options and
other OTC derivatives can operate as a special purpose broker-dealer
known as OTC derivatives dealer. An entity that deals in security-based
swaps above a de minimis notional threshold will need to register with
the SEC as an SBSD. An entity that deals in swaps above a de minimis
notional threshold must register with the CFTC as a swap dealer. And,
an entity that clears futures, or options on futures, or swaps for
customers must register as an FCM. Please discuss any regulatory or
operational issues raised by portfolio margining in each securities
account type in light of these and any other relevant registration
requirements.
     Discuss how the Commissions could implement portfolio
margin requirements for each securities account type, including
potential relief the Commissions could provide to address regulatory
and operational issues associated with portfolio margining in each
securities account type.
     Identify and describe any conditions the Commissions
should consider with respect to portfolio margining in each securities
account type to mitigate risk and address regulatory and operational
issues.
     Identify the categories of futures, options on futures,
uncleared swaps, non-cleared security-based swaps, and securities
(other than security-based swaps) that should be permitted to be
portfolio margined in each securities account type and discuss why they
should be included and, if applicable, why other categories of these
instruments should be excluded.
     Discuss whether market participants would be likely to use
either of these securities account types to portfolio margin futures,
options on futures, uncleared swaps, non-cleared security-based swaps,
cash market securities positions, listed securities options, and OTC
securities options, and explain why they would or would not use the
securities account type.
     Identify and describe the potential costs and benefits, as
well as the competitive impact–either positive or negative–of
permitting market participants to portfolio margin futures, options on
futures, uncleared swaps, non-cleared security-based swaps, cash market
securities positions, listed securities options, OTC securities
options, and security futures in either of these securities account
types. Please quantify, including by way of example, these potential
costs, benefits and impacts to the extent practicable.
2. Security-Based Swap Account
    The Commissions request comment on whether non-cleared security-
based swaps, uncleared swaps, and OTC securities options (if the firm
is registered as an OTCDD/SBSD) should be permitted to be portfolio
margined in a security-based swap account. Commenters are asked to
address the following matters.
     Identify and describe the relative benefits of portfolio
margining in a security-based swap account, and describe how the
benefits compare to the benefits of other account types discussed in
this request for comment, as well as how the risks compare to margining
under the existing framework.
     Identify and describe the risks of portfolio margining in
a security-based swap account, and describe how those risks compare to
the risks of other

[[Page 70542]]

account types discussed in this request for comment.
     Identify and describe what models might be appropriate for
portfolio margining positions in a security-based swap account, as well
as the process for approving and reviewing such models.
     Identify and describe any regulatory issues associated
with portfolio margining in a security-based swap account, including
issues relating to (1) differences in the statutes governing uncleared
swaps, non-cleared security-based swaps, and securities other than
security-based swaps, (2) differences in the regulatory requirements of
the CFTC, SEC, and SROs applicable to uncleared swaps, non-cleared
security-based swaps, and securities other than security-based swaps
(including differences in margin and segregation requirements), and (3)
differences in the bankruptcy treatment of uncleared swaps, non-cleared
security-based swaps, and securities other than security-based swaps.
     The Dodd-Frank Act amended section 3E(g) of the Exchange
Act to provide that a security-based swap shall be considered a
“security” as the term is used in a stockbroker liquidation under
Subchapter III of title 11 of the U.S. bankruptcy code (11 U.S.C. 741-
753). Section 3E(g) was not amended to provide that a swap shall be
considered a “security” as the term is used in a stockbroker
liquidation under Subchapter III of title 11 of the U.S. bankruptcy
code. Section 3E(g) of the Securities Exchange Act also provides that
the term “customer” as defined in section Sec.  741 of title 11 of
the U.S. bankruptcy code, excludes any person to the extent that such
person has a claim based on a non-cleared option or non-cleared
security-based swap except to the extent of margin delivered to or by
the customer with respect to which there is a customer protection
requirement under Section 15(c)(3) of the Exchange Act or a segregation
requirement. The Commissions request specific comment on steps SBSDs
can take to ensure the protections afforded by the stockbroker
liquidation provisions will apply to positions held in a security-based
swap account, including swaps and accrued gains on open options and
non-cleared security-based swaps. What are the implications for
customer protection? Can those implications be mitigated? If so, how?
     Comment also is sought on the types of disclosures SBSDs
can make to their portfolio margin accountholders about positions in a
security-based swap account that are not within the definitions of
“customer,” “customer property,” and “net equity” in the
stockbroker liquidation provisions of the U.S. bankruptcy code. Comment
also is sought on the expectations of market participants as to the
extent to which customer claims in a stockbroker liquidation under the
U.S. bankruptcy code include property held to margin swaps or accruing
to the customer as a result of swap transactions in a portfolio
margining account held in a security-based swap account.
     As noted above, the CFTC margin rules require swap dealers
to post initial margin for uncleared swaps entered into with other swap
dealers or with financial end users with material swaps exposure. The
SEC’s margin rules permit, but do not require, an SBSD to post initial
margin for non-cleared security-based swaps entered into with other
broker-dealers, SBSDs, swap dealers, or with financial end users. How
should the Commissions address the differences in the initial margin
posting requirements in a portfolio margin account? If portfolio
margining resulted in the transfer of significant swap trading
relationships to SBSDs, which would operate under a “collect only”
regime, would that increase the potential for risk and liquidity
mismatches between counterparties? Alternatively, would it lower
systemic risk by promoting the liquidity of SBSDs? Discuss the
potential impact on the markets and market participants if entities
registered as SBSDs and swap dealers are not required to post initial
margin to counterparties for uncleared swaps held in a portfolio margin
account while stand-alone swap dealers are required to post initial
margin to counterparties for uncleared swap transactions. Should the
Commissions require entities registered as SBSDs and swap dealers to
post margin for uncleared swaps held in a portfolio margin account with
covered counterparties? How should such margin be computed?
Alternatively, would requiring these entities to post margin undermine
the benefits of portfolio margining? Would it increase costs to
customers to compensate these entities for having to use their capital
to meet margin requirements? In addition, would requiring these
entities to post initial margin create a barrier to entry for smaller
firms that do not have the resources to post initial margin?
     If portfolio margining resulted in the transfer of
significant swap trading relationships to Nonbank Stand-Alone SBSDs,
which would operate under a “collect only” regime, how would this
impact the risks customers face in the event of an SBSD’s default? How
should the Commissions balance the relative concerns related to trying
to enhance liquidity of SBSDs while ensuring customer protection? Are
there any lessons to be learned from events impacting swap markets
during the recent COVID market volatility?
     Identify and describe any operational issues associated
with portfolio margining in a security-based swap account.
     As discussed above, an entity that effects transactions in
securities must be registered with the SEC as a broker-dealer. A
broker-dealer that limits securities dealing to OTC equity options and
other OTC derivatives can operate as special purpose broker-dealer
known as OTC derivatives dealer. An entity that deals in security-based
swaps above a de minimis notional threshold will need to register with
the SEC as an SBSD. And, an entity that deals in swaps above a de
minimis notional threshold must register with the CFTC as a swap
dealer. Please discuss any regulatory or operational issues raised by
portfolio margining in a security-based swap account in light of these
and any other relevant registration requirements.
     Discuss how the Commissions could implement portfolio
margin requirements for a security-based swap account, including
potential relief the Commissions could provide to address regulatory
and operational issues associated with portfolio margining in a
security-based swap account.
     Identify and describe any conditions the Commissions
should consider with respect to portfolio margining in a security-based
swap account to mitigate risk and address regulatory and operational
issues.
     Identify the categories of uncleared swaps, non-cleared
security-based swaps, and OTC securities options (if the firm is
registered as an OTC derivatives dealer) that should be permitted to be
portfolio margined in the security-based swap account and discuss why
they should be included and, if applicable, why other categories of
these instruments should be excluded.
     Discuss whether market participants would use a security-
based swap account to portfolio margin uncleared swaps, non-cleared
security-based swaps, and OTC securities options (if the firm is
registered as an OTCDD/SBSD) and explain why they would or would not
use this account type for this purpose.
     Identify and describe the potential costs and benefits, as
well as the competitive impact–either positive or negative–of
permitting market participants to portfolio margin non-cleared
security-based swaps, uncleared

[[Page 70543]]

swaps, and OTC securities options (if the firm is registered as an
OTCDD/SBSD) in a security-based swap account. Please quantify,
including by way of example, these potential costs, benefits and
impacts to the extent practicable.
3. Swap Account
    The Commissions request comment on whether uncleared swaps and non-
cleared security-based swaps should be permitted to be portfolio
margined in a swap account. Commenters are asked to address the
following matters.
     Identify and describe the relative benefits of portfolio
margining in a swap account, and describe how the benefits compare to
the benefits of other account types discussed in this request for
comment.
     Identify and describe the risks of portfolio margining in
a swap account, and describe how those risks compare to the risks of
other account types discussed in this request for comment, as well as
how the risks compare to margining under the existing framework.
     Identify and describe what models might be appropriate for
portfolio margining positions in a swap account, as well as the process
for approving and reviewing such models.
     Identify and describe any regulatory issues associated
with portfolio margining in a swap account, including issues relating
to (a) differences in the statutes governing uncleared swaps, non-
cleared security-based swaps, and securities other than security-based
swaps, (b) differences in the regulatory requirements of the CFTC, SEC,
and SROs applicable to uncleared swaps, non-cleared security-based
swaps, and securities other than security-based swaps (including
differences in margin and segregation requirements), and (c)
differences in the bankruptcy treatment of uncleared swaps, non-cleared
security-based swaps, and securities other than security-based swaps.
     As noted above, the CFTC margin rules require swap dealers
to post initial margin for uncleared swaps entered into with other swap
dealers or with financial end users with material swaps exposure. The
SEC’s margin rules permit, but do not require, an SBSD to post initial
margin for non-cleared security-based swaps entered into with other
broker-dealers, SBSDs, swap dealers, or with financial end users. How
should the Commissions address the differences in the initial margin
posting requirements in a portfolio margin account? If portfolio
margining resulted in the transfer of significant swap trading
relationships to SBSDs, which would operate under a “collect only”
regime, would that increase the potential for risk and liquidity
mismatches between counterparties? How do commenters view any systemic
risk implications of SBSDs not posting initial margin? Would it lower
systemic risk by promoting the liquidity of SBSDs? Discuss the
potential impact on the markets and market participants if entities
registered as broker-dealers and swap dealers or as broker-dealers,
SBSDs, and swap dealers or as SBSDs and swap dealers are not required
to post initial margin to counterparties for uncleared swaps held in a
portfolio margin account while stand-alone swap dealers are required to
post initial margin to counterparties for uncleared swap transactions.
Would such a portfolio margining approach provide a disincentive for
customers to trade with stand-alone swap dealers and what would be the
potential market impact of such a disincentive? Should the Commissions
require entities registered as broker-dealers and swap dealers or as
broker-dealers, SBSDs, and swap dealers or as SBSDs and swap dealers to
post margin for uncleared swaps held in a portfolio margin account with
covered counterparties? How should such margin be computed?
Alternatively, would requiring these entities to post margin undermine
the benefits of portfolio margining? Would it increase costs to
customers to compensate these entities for having to use their capital
to meet margin requirements? In addition, would requiring these
entities to post initial margin create a barrier to entry for smaller
firms that do not have the resources to post initial margin?
     As discussed above, an entity that effects transactions in
securities must be registered with the SEC as a broker-dealer. A
broker-dealer that limits securities dealing to OTC equity options and
other OTC derivatives can operate as special purpose broker-dealer
known as OTC derivatives dealer. An entity that deals in security-based
swaps above a de minimis notional threshold will need to register with
the SEC as an SBSD. And, an entity that deals in swaps above a de
minimis notional threshold must register with the CFTC as a swap
dealer. And, an entity that clears futures, options on futures, or
swaps for customers must register as an FCM. Please discuss any
regulatory or operational issues raised by portfolio margining in a
swap account in light of these and any other relevant registration
requirements.
     Identify and describe any operational issues associated
with portfolio margining in a swap account.
     Discuss how the Commissions could implement portfolio
margin requirements for a swap account, including potential relief the
Commissions could provide to address regulatory and operational issues
associated with portfolio margining in a swap account.
     Identify and describe any conditions the Commissions
should consider with respect to portfolio margining in a swap account
to mitigate risk and address regulatory and operational issues.
     Identify the categories of swaps and security-based swaps
that should be permitted to be portfolio margined in the swap account
and discuss why they should be included and, if applicable, why other
categories of these instruments should be excluded.
     Discuss whether market participants would use a swap
account to portfolio margin uncleared swaps and non-cleared security-
based swaps, and explain why they would or would not use this account
type for this purpose.
     Identify and describe the potential costs and benefits, as
well as the competitive impact–either positive or negative–of
permitting market participants to portfolio margin uncleared swaps and
non-cleared security-based swaps in a swap account. Please quantify,
including by way of example, these potential costs, benefits and
impacts to the extent practicable.
4. Other Potential Portfolio Margin Scenarios
    In addition to the requests for comment on the specific account
types discussed above, the Commissions request comment on whether there
are any other potential portfolio margin scenarios with regard to
uncleared swaps, non-cleared security-based swaps, and other related
positions that the Commissions should consider at this time. Commenters
should identify and describe the specific products and account type
involved in any other potential portfolio margin alternatives.
Commenters also are asked to address any potential regulatory or
operational issues involving a particular portfolio margin scenario.
Finally, commenters should address any potential costs and benefits and
competitive impact the Commissions should consider in evaluating a
particular portfolio margin scenario.

    By the Securities and Exchange Commission.

[[Page 70544]]

    Dated: October 22, 2020.
Vanessa A. Countryman,
Secretary.
    Issued in Washington, DC, on October 23, 2020, by the Commodity
Futures Trading Commission.
Christopher Kirkpatrick,
Secretary of the Commission.

    Note:  The following appendices will not appear in the Code of
Federal Regulations.

Appendices to Margin Requirements for Uncleared Swaps for Swap Dealers
and Major Swap Participants–CFTC Voting Summary and Commissioner’s
Statement

Appendix 1–CFTC Voting Summary

    On this matter, Chairman Tarbert and Commissioners Quintenz,
Behnam, Stump, and Berkovitz voted in the affirmative. No
Commissioner voted in the negative.

Appendix 2–Supporting Statement of CFTC Commissioner Brian Quintenz

    I am proud to support today’s request for comment, which marks
the beginning of the agencies’ consideration of ways to implement a
portfolio margining regime for uncleared swaps and non-cleared
security-based swaps. Portfolio margining can lead to efficiencies
in margin calculation by appropriately accounting for the impact
offsetting positions have on a portfolio’s actual risk profile.
This, in turn, gives firms and customers additional capital that can
be deployed elsewhere. However, given the differences between the
regulatory regimes for swaps and security-based swaps, it also
implicates incredibly important legal and policy considerations.
This request for comment solicits critical feedback from market
participants on how portfolio margining could impact the safety and
soundness of firms, result in competitive advantages for certain
types of registrants, and raise questions about how collateral would
be treated in the event of bankruptcy. In order to make an informed
decision about if, and how, portfolio margining should be
implemented for uncleared swaps and non-cleared security-based
swaps, we need thoughtful feedback on these complex questions. I
encourage all interested parties to provide written comments,
including data wherever possible, in order to further the agencies’
understanding of the various options presented in the request for
comment.

[FR Doc. 2020-23928 Filed 11-4-20; 8:45 am]
BILLING CODE 6351-01-P