The SEC’s proposal sets minimum capital requirements for dealers and participants. Photo: Stephen Voss for The Wall Street Journal
WASHINGTON—The Securities and Exchange Commission took a step toward completing long stalled rules for brokers selling securities-based swaps required by the 2010 Dodd-Frank financial law.
By a 4-1 vote, the commission Thursday decided to revive proposals that would set capital and margin requirements for securities-based swaps. It did so by asking for a fresh round of public comment, a necessary step to complete the packages of swaps rules and start requiring broker-dealers to comply with them.
The proposals have languished since 2014 and in some cases date to 2012, in part because the issue wasn’t a priority at the agency. The SEC has jurisdiction over a small portion of the swaps market—securities-based swaps—while the Commodity Futures Trading Commission has jurisdiction over all other swaps, or about 90% of the overall market. Swaps are derivatives contracts in which two parties agree to exchange payments based on fluctuations in product prices or benchmarks. Companies use them to hedge risks or make bets in such areas as fuel prices or interest rates.
The SEC’s proposal sets minimum capital requirements for securities-based swap market dealers and participants. It also sets margin requirements that specify the cash and securities that participants must put up to back their trades. Other provisions relate to record-keeping and reporting, as well as one that would establish a waiver process for dealers to be able to work with firms that the SEC has previously labeled as “bad actors.”
“This was a big step along the path to finalizing these long overdue rules,” SEC Chairman Jay Clayton said.
It isn’t clear what changes the SEC could make to the existing rule proposal following the reopened comment period, though Democrats on the commission said the SEC proposal would lead to eased capital and margin requirements.
“Today’s commission release is much more than simply a reopening of the comment period. It contains a significant change in policy, which is cleverly hidden in questions,” said SEC Commissioner Kara Stein.
Ms. Stein voted to reopen the rules for comment, while SEC Commissioner Robert Jackson Jr., another Democratic appointee, dissented.
The CFTC mostly finished its swaps rules in 2014, years before the SEC and other international regulators.
The two agencies have over the past year worked together to coordinate rules in overlapping areas, including swaps oversight. On Tuesday, the CFTC unanimously proposed rules to simplify registration requirements for some investment advisers, one of several moves the derivatives regulator has made in recent months to synchronize its swaps rule set with the SEC’s.
“As the SEC finalizes its rules, we hope that both the commission and the CFTC cooperate and coordinate in finding a solution to align and recognize their respective rule sets,” said Scott O’Malia, the chief executive of the International Swaps and Derivatives Association, a trade group.