February 13, 2023

Mr. Christopher Kirkpatrick
Secretary
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581

Re: Notice of Proposed Order and Request for Comment on an Application for a Capital Comparability Determination Submitted on Behalf of Nonbank Swap Dealers Subject to Regulation by the Mexican Comision Nacional Bancaria y de Valores

Dear Mr. Kirkpatrick:

The International Swaps and Derivatives Association (“ISDA”) and Securities and Financial Markets Association (“SIFMA”, and together with ISDA, the “Associations”)1 appreciate the opportunity to comment on the above-captioned notice by the Commodity Futures Trading Commission (“CFTC” or “Commission”) regarding an application submitted by on behalf of nonbank swap dealers subject to regulation by the Mexican Comision Nacional Bancaria y Valores (the “Mexican Commission”) requesting that the CFTC determine that registered nonbank2 swap dealers (“SDs”) organized and domiciled in Mexico (“Mexican SDs”) may comply with certain capital and financial reporting requirements under the Commodity Exchange Act (“CEA”) and Rules 23.101 and 23.105(d)–(e) thereunder (the “Commission Capital & Reporting Requirements”)3 via compliance with corresponding capital and financial reporting requirements in Mexico (the “Mexican Capital & Reporting Requirements”), and the proposed order (the “Mexico Order”) providing for the conditional substituted compliance in connection with the application (together, the “Proposal”).4

The Associations support the Proposal and agree with the Commission’s overall analysis of and determination of comparability of the Commission’s Capital & Reporting Requirements and the Mexican Capital & Reporting Requirements. The Proposal reflects a thoughtful, holistic approach to substituted compliance. The Proposal includes request for comment on several specific questions, which the Associations address below.

I. The Mexican Capital & Reporting Requirements’ Minimum Capital Levels Reflect Similar Regulatory Concerns & Lead to Comparable Regulatory Outcomes as the Commission’s Capital & Reporting Requirements

The Commission seeks public comment on whether the capital requirements under the Mexican Capital & Financial Reporting Requirements are comparable in purpose and effect to the Commission’s requirement for a nonbank SD to hold regulatory capital equal to or greater than 8 percent of its uncleared swap margin amount.5 Specifically, the Commission seeks comment on whether the requirement under the Mexican Capital & Reporting Requirements for a Mexican SD to hold qualifying capital in an amount equal to 15 percent of its average annual net positive income from the last three years, taking into account insurance coverage for operational risk, and subject to a floor equal to 5 percent and a ceiling of 15 percent of the monthly average sum of market risk and credit risk exposures amounts, calculated over the prior 36 months, on a rolling basis is sufficiently comparable in purpose and effect to the CFTC’s requirement for a nonbank SD to hold qualifying capital in amount equal to at least 8 percent of the nonbank SD’s uncleared swap margin amount.6

The Commission notes that “in establishing the requirement that a nonbank SD must maintain a level of regulatory capital in excess of 8 percent of the uncleared swap margin amount associated with the firm’s swap transactions, [the Commission] stated that the intent of the requirements was to establish a method of developing a minimum amount of required capital for a nonbank SD to meet its obligations as a SD to market participants, and to cover potential operational, legal and liquidity risks.”7 The Associations believe the Mexican Capital & Reporting Requirements’ minimum capital levels are sound, reflect similar regulatory concerns and lead to comparable regulatory outcomes as the Commission Capital & Reporting Requirements.

Mexico’s capital framework requires that a Mexican SD calculate risk weighted assets incorporating risk exposure amounts composed of market, credit and equity exposures, and operational risk. Mexican SDs are also subject to liquidity requirements that are designed to ensure that an SD has sufficient liquid assets to meet its ongoing obligations. Furthermore, Mexican SDs are subject to leverage limitations that, similar to the uncleared swap margin requirement, are based principally on volume and counterparties without regard to risk-weighting. Lastly, Mexican SDs must conduct regular stress tests to ensure that they have sufficient resources to withstand adverse economic scenarios. As a result, although Mexico’s capital framework does not have a direct analogue to the 8 percent uncleared swap margin requirement, it has various other measures that achieve the same regulatory objective of ensuring that an SD maintains an amount of capital that is sufficient to cover the full range of risks a Mexican SD may face.8

1 See Appendix for more information on the Associations.

2 As used herein, a “nonbank” SD refers to an SD that does not have a Prudential Regulator as defined in Section 1a(39) of the CEA.

3 See Capital Requirements for Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020).

4 See Notice of Proposed Order and Request for Comment on an Application for a Capital Comparability Determination Submitted on Behalf of Nonbank Swap Dealers Subject to Regulation by the Mexican Comision Nacional Bancaria y de Valores, 87 Fed. Reg. 76374 (Dec. 13, 2022).

5 See 87 Fed. Reg. at 76390.

6 See Id. at 76391.

7 See Id. at 76390.

8 See Application for a Capital Comparability Determination Order Submitted on behalf of Nonbank Swap Dealers subject to Regulation by the Mexican Comision Nacional Bancaria y de Valores.