6351-01-P
COMMODITY FUTURES TRADING COMMISSION
17 CFR Chapter I
Order Granting Conditional Substituted Compliance in Connection with Certain Capital
and Financial Reporting Requirements Applicable to Nonbank Swap Dealers Subject to
Regulation by the Financial Services Agency of Japan
AGENCY: Commodity Futures Trading Commission.
ACTION: Order.
SUMMARY: On August 8, 2022, the Commodity Futures Trading Commission issued a notice
and request for comment on an application submitted by the Financial Services Agency of Japan
requesting that the Commission determine that registered nonbank swap dealers organized and
domiciled in Japan may comply with certain capital and financial reporting requirements under
the Commodity Exchange Act and Commission regulations by being subject to, and complying
with, corresponding capital and financial reporting requirements of Japan. The Commission also
solicited public comment on a proposed comparability determination and related order providing
for the conditional availability of substituted compliance in connection with the application.
The Commission is adopting the proposed order with certain modifications and
clarifications to address comments. The final order provides that a nonbank swap dealer
organized and domiciled in Japan may satisfy the capital requirements under the Commodity
Exchange Act and applicable Commission regulations and the financial reporting rules under the
Commodity Exchange Act and applicable Commission regulations by complying with certain
specified Japanese laws and regulations and conditions set forth in the order.
DATES: This determination was made by the Commission on June 24, 2024.
FOR FURTHER INFORMATION CONTACT: Amanda L. Olear, Director, 202-418-5283,
aolear@cftc.gov; Thomas Smith, Deputy Director, 202-418-5495, tsmith@cftc.gov; Rafael
Martinez, Associate Director, 202-418-5462, rmartinez@cftc.gov; Warren Gorlick, Associate

Director, 202-418-5195, wgorlick@cftc.gov; Liliya Bozhanova, Special Counsel, 202-418-6232,
lbozhanova@cftc.gov; Joo Hong, Risk Analyst, 202-418-6221, jhong@cftc.gov; Justin McPhee,
Risk Analyst, 202-418-6223; jmchpee@cftc.gov, Market Participants Division; Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC
20581.
SUPPLEMENTARY INFORMATION: The Commodity Futures Trading Commission
(“Commission” or “CFTC”) is issuing an order providing that registered nonbank swap dealers
organized and domiciled in Japan (“Japanese nonbank SDs”) may satisfy certain capital and
financial reporting requirements under the Commodity Exchange Act (“CEA”)1 and Commission
regulations2 by being subject to, and complying with, comparable capital and financial reporting
requirements under relevant Japanese laws and regulations, subject to certain conditions set forth
in the order below. The order is based on the proposed comparability determination and related
proposed order published by the Commission on August 8, 2022,3 as modified in certain aspects
to address comments and to clarify its terms.
I.

Introduction
A. Regulatory Background – CFTC Capital, Margin, and Financial Reporting
Requirements for Swap Dealers and Major Swap Participants
Section 4s(e) of the CEA4 directs the Commission and “prudential regulators” 5 to impose

capital requirements on swap dealers (“SDs”) and major swap participants (“MSPs”) registered
with the Commission.6 Section 4s(e) also directs the Commission and prudential regulators to

7 U.S.C. 1 et seq. The CEA may be accessed through the Commission’s website, www.cftc.gov.
17 CFR Chapter I. Commission regulations may be accessed through the Commission’s website, www.cftc.gov.
3 Notice of Proposed Order and Request for Comment on an Application for Capital Comparability Determination
from the Financial Services Agency of Japan, 87 FR 48092 (Aug. 8, 2022) (“2022 Proposal”).
4 7 U.S.C. 6s(e).
5 The term “prudential regulators” is defined in the CEA to mean the Board of Governors of the Federal Reserve
System (“Federal Reserve Board”); the Office of the Comptroller of the Currency; the Federal Deposit Insurance
Corporation; the Farm Credit Administration; and the Federal Housing Finance Agency. 7 U.S.C. 1a(39).
6 Subject to certain exceptions, the term “swap dealer” is generally defined as any person that: (i) holds itself out as
a dealer in swaps; (ii) makes a market in swaps; (iii) regularly enters into swaps with counterparties as an ordinary
course of business for its own account; or (iv) engages in any activity causing the person to be commonly known in
the trade as a dealer or market maker in swaps. 7 U.S.C. 1a(49).
1
adopt regulations imposing initial and variation margin requirements on swaps entered into by
SDs and MSPs that are not cleared by a registered derivatives clearing organization (“uncleared
swaps”).
Section 4s(e) applies a bifurcated approach with respect to the above Congressional
directives, requiring each SD and MSP that is subject to the regulation of a prudential regulator
(“bank SD” and “bank MSP,” respectively) to meet the minimum capital requirements and
uncleared swaps margin requirements adopted by the applicable prudential regulator, and
requiring each SD and MSP that is not subject to the regulation of a prudential regulator
(“nonbank SD” and “nonbank MSP,” respectively) to meet the minimum capital requirements
and uncleared swaps margin requirements adopted by the Commission.7 Therefore, the
Commission’s authority to impose capital requirements and margin requirements for uncleared
swap transactions extends to nonbank SDs and nonbank MSPs, including nonbanking
subsidiaries of bank holding companies regulated by the Federal Reserve Board.8
The prudential regulators implemented Section 4s(e) in 2015 by amending existing
capital requirements applicable to bank SDs and bank MSPs to incorporate swap transactions
into their respective bank capital frameworks, and by adopting rules imposing initial and
variation margin requirements on bank SDs and bank MSPs that engage in uncleared swap
transactions.9 The Commission adopted final rules imposing initial and variation margin
obligations on nonbank SDs and nonbank MSPs for uncleared swap transactions on January 6,
2016.10 The Commission also approved final capital requirements for nonbank SDs and nonbank

The term “major swap participant” is generally defined as any person who is not an SD, and: (i) subject to certain
exclusions, maintains a substantial position in swaps for any of the major swap categories as determined by the
Commission; (ii) whose outstanding swaps create substantial counterparty exposure that could have serious adverse
effects on the financial stability of the U.S. banking system or financial markets; or (iii) is a financial entity that: (a)
is highly leveraged relative to the amount of capital it holds and that is not subject to capital requirements
established by an appropriate Federal banking agency; and (b) maintains a substantial position in outstanding swaps
in any major swap category as determined by the Commission. 7 U.S.C. 1a(33).
7 7 U.S.C. 6s(e)(2).
8 7 U.S.C. 6s(e)(1) and (2).
9 Margin and Capital Requirements for Covered Swap Entities, 80 FR 74840 (Nov. 30, 2015).
10 Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 636 (Jan. 6,
2016).

MSPs on July 24, 2020, which were published in the Federal Register on September 15, 2020
with a compliance date of October 6, 2021 (“CFTC Capital Rules”).11
Section 4s(f) of the CEA addresses SD and MSP financial reporting requirements.12
Section 4s(f) authorizes the Commission to adopt rules imposing financial condition reporting
obligations on all SDs and MSPs (i.e., nonbank SDs, nonbank MSPs, bank SDs, and bank
MSPs). Specifically, Section 4s(f)(1)(A) provides, in relevant part, that each registered SD and
MSP must make financial condition reports as required by regulations adopted by the
Commission.13 The Commission’s financial reporting obligations were adopted with the
Commission’s nonbank SD and nonbank MSP capital requirements, and also had a compliance
date of October 6, 2021 (“CFTC Financial Reporting Rules”).14
B. Commission Capital Comparability Determinations for Non-U.S. Nonbank Swap
Dealers and Non-U.S. Nonbank Major Swap Participants
Commission Regulation 23.106 establishes a substituted compliance framework whereby
the Commission may determine that compliance by a non-U.S. domiciled nonbank SD or nonU.S. domiciled nonbank MSP with its home country’s capital and financial reporting
requirements will satisfy all or parts of the CFTC Capital Rules and all or parts of the CFTC
Financial Reporting Rules (such a determination referred to as a “Comparability
Determination”).15 The Commission’s capital adequacy and financial reporting requirements are

Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020).
On April 30, 2024, the Commission amended the capital and financial reporting requirements to revise certain
financial reporting obligations, among other changes. See Capital and Financial Reporting Requirements for Swap
Dealers and Major Swap Participants, 89 FR 45569 (May 23, 2024). The amendments have limited impact on
nonbank SDs covered by this order.
12 7 U.S.C. 6s(f).
13 7 U.S.C. 6s(f)(1)(A).
14 85 FR 57462.
15 17 CFR 23.106. Commission Regulation 23.106(a)(1) provides that a request for a Comparability Determination
may be submitted by a non-U.S. nonbank SD or non-US nonbank MSP, a trade association or other similar group on
behalf of its SD or MSP members, or a foreign regulatory authority that has direct supervisory authority over one or
more non-US nonbank SDs or non-U.S. nonbank MSPs. However, Commission regulations also provide that any
non-U.S. nonbank SD or non-U.S. nonbank MSP that is dually-registered with the Commission as a futures
commission merchant (“FCM”) is subject to the capital requirements of Commission Regulation 1.17 (17 CFR 1.17)
and may not petition the Commission for a Comparability Determination. 17 CFR 23.101(a)(5) and (b)(4),
respectively.
designed to address and manage risks that arise from a firm’s operation as an SD or MSP. Given
their functions, both sets of requirements and rules must be applied on an entity-level basis
(meaning that the rules apply on a firm-wide basis, irrespective of the type of transactions
involved) to effectively address risk to the firm as a whole. The availability of such substituted
compliance is conditioned upon the Commission issuing a Comparability Determination finding
that the relevant foreign jurisdiction’s capital adequacy and financial reporting requirements for
non-U.S. nonbank SDs and/or non-U.S. nonbank MSPs are comparable to the corresponding
CFTC Capital Rules and CFTC Financial Reporting Rules. The Commission would issue a
Comparability Determination in the form of an order (“Comparability Order”).16
The Commission’s approach for conducting a Comparability Determination with respect
to the CFTC Capital Rules and the CFTC Financial Reporting Rules is a principles-based,
holistic approach that focuses on assessing whether the applicable foreign jurisdiction’s capital
and financial reporting requirements have comparable objectives with, and achieve comparable
outcomes to, corresponding CFTC requirements.17 The Commission’s assessment is not a lineby-line evaluation or comparison of a foreign jurisdiction’s regulatory requirements with the
Commission’s requirements.18 In performing the analysis, the Commission recognizes that
jurisdictions may adopt differing approaches to achieving regulatory objectives and outcomes,
and the Commission will focus on whether the foreign jurisdiction’s capital and financial
reporting requirements are based on regulatory objectives, and produce regulatory outcomes, that
are comparable to the Commission’s in purpose and effect, and not whether they are comparable
in every aspect or contain identical elements.

Furthermore, substituted compliance is not available to non-U.S. bank SDs and non-U.S. bank MSPs with respect to
their respective financial reporting requirements under Commission Regulation 23.105(p). Commission Regulation
23.105(p), however, permits non-U.S. bank SDs and non-U.S. bank MSPs that do not submit financial reports to a
U.S. prudential regulator to file with the Commission a statement of financial condition, certain regulatory capital
information, and Schedule 1 of Appendix C to Subpart E of Part 23 of the Commission’s regulations prepared and
presented in accordance with the accounting standards permitted by the non-U.S. bank SD’s or non-U.S. bank
MSP’s home country regulatory authorities. 17 CFR 23.105(p)(2).
16 17 CFR 23.106(a)(3).
17 17 CFR 23.106(a)(3)(ii). See also 85 FR 57462 at 57521.
18 See 85 FR 57462 at 57521.

A person requesting a Comparability Determination is required to submit an application
to the Commission containing: (i) a description of the objectives of the relevant foreign
jurisdiction’s capital adequacy and financial reporting requirements applicable to entities that are
subject to the CFTC Capital Rules and the CFTC Financial Reporting Rules; (ii) a description
(including specific legal and regulatory provisions) of how the relevant foreign jurisdiction’s
capital adequacy and financial reporting requirements address the elements of the CFTC Capital
Rules and CFTC Financial Reporting Rules, including, at a minimum, the methodologies for
establishing and calculating capital adequacy requirements and whether such methodologies
comport with international standards; and (iii) a description of the ability of the relevant foreign
regulatory authority to supervise and enforce compliance with the relevant foreign jurisdiction’s
capital adequacy and financial reporting requirements. The applicant must also submit, upon
request, such other information and documentation as the Commission deems necessary to
evaluate the comparability of the capital adequacy and financial reporting requirements of the
foreign jurisdiction.19
The Commission will consider an application for a Comparability Determination to be a
representation by the applicant that the laws and regulations of the foreign jurisdiction that are
submitted in support of the application are finalized and in force, that the description of such
laws and regulations is accurate and complete, and that, unless otherwise noted, the scope of
such laws and regulations encompasses the relevant non-U.S. nonbank SDs and/or non-U.S.
nonbank MSPs domiciled in the foreign jurisdiction.20 Each non-U.S. nonbank SD or non-U.S.
nonbank MSP that seeks to rely on a Comparability Order is responsible for determining whether
it is subject to the foreign laws and regulations found comparable in the Comparability Order. A
non-U.S. nonbank SD or non-U.S. nonbank MSP that is not legally required to comply with a
17 CFR 23.106(a)(2).
The Commission provides the applicant with an opportunity to review for accuracy and completeness the
Commission’s description of relevant home country laws and regulations on which a proposed Comparability
Determination and a proposed Comparability Order are based. The Commission relies on this review, and any
corrections or feedback received, as part of the comparability assessment. A Comparability Determination and
Comparability Order based on an inaccurate description of foreign laws and regulations may not be valid.
20

foreign jurisdiction’s laws and/or regulations determined to be comparable in a Comparability
Order may not voluntarily comply with such laws and/or regulations in lieu of compliance with
the CFTC Capital Rules or the CFTC Financial Reporting Rules.
The Commission may consider all relevant factors in making a Comparability
Determination, including: (i) the scope and objectives of the relevant foreign jurisdiction’s
capital and financial reporting requirements; (ii) whether the relevant foreign jurisdiction’s
capital and financial reporting requirements achieve comparable outcomes to the Commission’s
corresponding capital requirements and financial reporting requirements; (iii) the ability of the
relevant foreign regulatory authority or authorities to supervise and enforce compliance with the
relevant foreign jurisdiction’s capital adequacy and financial reporting requirements; and (iv)
any other facts or circumstances the Commission deems relevant, including whether the
Commission and foreign regulatory authority or authorities have a memorandum of
understanding or similar arrangement that would facilitate supervisory cooperation.21
In performing the comparability assessment for foreign nonbank SDs, the Commission’s
review will include the extent to which the foreign jurisdiction’s requirements address: (i) the
process of establishing minimum capital requirements for nonbank SDs and how such process
addresses risk, including market risk and credit risk of the nonbank SD’s on-balance sheet and
off-balance sheet exposures; (ii) the types of equity and debt instruments that qualify as
regulatory capital in meeting minimum requirements; (iii) the financial reports and other
financial information submitted by a nonbank SD to its relevant regulatory authority and whether
such information provides the regulatory authority with the means necessary to effectively
monitor the financial condition of the nonbank SD; and (iv) the regulatory notices and other
communications between a nonbank SD and its foreign regulatory authority that address
potential adverse financial or operational issues that may impact the firm. With respect to the
ability of the relevant foreign regulatory authority to supervise and enforce compliance with the

17 CFR 23.106(a)(3) and 85 FR 57462 at 57520-57522.

foreign jurisdiction’s capital adequacy and financial reporting requirements, the Commission’s
review will include an assessment of the foreign jurisdiction’s surveillance program for
monitoring nonbank SDs’ compliance with such capital adequacy and financial reporting
requirements, and the disciplinary process imposed on firms that fail to comply with such
requirements.22
Commission Regulation 23.106 further provides that the Commission may impose any
terms or conditions that it deems appropriate in issuing a Comparability Determination.23 Any
specific terms or conditions with respect to capital adequacy or financial reporting requirements
will be set forth in the Commission’s Comparability Order. As a general condition to all
Comparability Orders, the Commission will require notification from the applicants of any
material changes to information submitted by the applicants in support of a comparability
finding, including, but not limited to, changes in the foreign jurisdiction’s relevant laws and
regulations, as well as changes to the relevant supervisory or regulatory regime.
To rely on a Comparability Order, a nonbank SD or nonbank MSP domiciled in the
foreign jurisdiction and subject to supervision by the relevant regulatory authority (or authorities)
in the foreign jurisdiction must file a notice with the Commission of its intent to comply with the
applicable capital adequacy and financial reporting requirements of the foreign jurisdiction set
forth in the Comparability Order in lieu of all or parts of the CFTC Capital Rules and/or CFTC
Financial Reporting Rules.24 Notices must be filed electronically with the Commission’s Market
Participants Division (“MPD”).25 The filing of a notice by a non-U.S. nonbank SD or non-U.S.
nonbank MSP provides MPD staff with the opportunity to engage with the firm and to obtain
representations that it is subject to, and complies with, the laws and regulations cited in the

The Commission would conduct a similar analysis, adjusted as appropriate to account for regulatory distinctions,
in performing a comparability assessment for foreign nonbank MSPs. Commission Regulation 23.101(b) requires a
nonbank MSP to maintain positive tangible net worth. There are no MSPs currently registered with the
Commission. 17 CFR 23.101(b).
23 17 CFR 23.106(a)(5).
24 17 CFR 23.106(a)(4)(i).
25 Notices must be filed in electronic form to the following email address: MPDFinancialRequirements@cftc.gov.
Comparability Order and that it will comply with any listed conditions. MPD will issue a letter
under delegated authority from the Commission confirming that the non-U.S. nonbank SD or
non-U.S. nonbank MSP may comply with the foreign laws and regulations cited in the
Comparability Order in lieu of complying with the CFTC Capital Rules and CFTC Financial
Reporting Rules upon MPD’s confirmation through discussions with the non-U.S. nonbank SD
or non-U.S. nonbank MSP that the firm is subject to, and complies with, such foreign laws and
regulations, is subject to the jurisdiction of the applicable foreign regulatory authority (or
authorities), and can meet the conditions in the Comparability Order.26
Each non-U.S. nonbank SD and each non-U.S. nonbank MSP that receives confirmation
from the Commission that it may comply with a foreign jurisdiction’s capital adequacy and
financial reporting requirements will be deemed by the Commission to be in compliance with the
corresponding CFTC Capital Rules and/or CFTC Financial Reporting Rules.27 A non-U.S.
nonbank SD or non-U.S. nonbank MSP that receives confirmation of substituted compliance
remains subject, however, to the Commission’s examination and enforcement authority.28
Accordingly, if a nonbank SD or nonbank MSP fails to comply with the foreign jurisdiction’s
capital adequacy and/or financial reporting requirements, the Commission may initiate an action
for a violation of the corresponding CFTC Capital Rules and/or CFTC Financial Reporting
Rules.29 In addition, a finding of a violation by a foreign jurisdiction’s regulatory authority is not
a prerequisite for the exercise of such examination and enforcement authority by the
Commission.

17 CFR 23.106(a)(4)(ii) and 17 CFR 140.91(a)(11).
17 CFR 23.106(a)(4)(ii). Confirmation will be issued by MPD under authority delegated by the Commission.
Commission Regulation 140.91(a)(11). 17 CFR 140.91(a)(11).
28 17 CFR 23.106(a)(4)(ii).
29 Id.
26
C. Japan Financial Services Agency’s Application for a Comparability Determination
for Japan-Domiciled Nonbank Swap Dealers
On September 30, 2021, the Financial Services Agency of Japan (“FSA”) submitted an
application (“FSA Application”) requesting that the Commission conduct a Comparability
Determination and issue a Comparability Order finding that compliance with certain designated
capital requirements of Japan (the “Japanese Capital Rules”) and certain designated financial
reporting requirements of Japan (the “Japanese Financial Reporting Rules”) by a Japanese
nonbank SD registered with the FSA as a Type I Financial Instruments Business Operator
(“FIBO”) satisfies corresponding CFTC Capital Rules and CFTC Financial Reporting Rules
applicable to a nonbank SD under Sections 4s(e) and (f) of the CEA and Commission
Regulations 23.101 and 23.105.30 There are currently three Japanese nonbank SDs registered
with the Commission, and the FSA represented in its application that each of the three Japanese
nonbank SDs are FSA-registered and regulated FIBOs.31
The FSA represented that the capital adequacy and financial reporting requirements for
swap activities in Japan are governed by the Japanese legal framework for financial regulation,
which is mainly composed of Acts, Cabinet Orders, Ministerial Orders, and FSA Notices.32
With regard to the Japanese Capital Rules and the Japanese Financial Reporting Rules, the
Financial Instruments and Exchange Act (Act No. 25 of 1948) (“FIEA”) and its related order,
Cabinet Office Order on Financial Instruments Business (Cabinet Office Order No. 52 of 2007)
(“COO”), set forth the prudential capital and financial reporting requirements applicable to

Letter from Yuji Yamashita, Deputy Commissioner for International Affairs, Financial Services Agency of Japan,
dated September 30, 2021, pp. 4-5 (fn. 11). The FSA Application is available on the Commission’s website at:
https://www.cftc.gov/LawRegulation/DoddFrankAct/CDSCP/index.htm.
31 The three Japanese nonbank SDs currently registered with the Commission are: BofA Securities Japan Co., Ltd.;
Goldman Sachs Japan Co., Ltd.; and Morgan Stanley MUFG Securities Co., Ltd. The FSA’s application did not
request a Comparability Determination with respect to nonbank MSPs as currently there are no MSPs registered
with the Commission and, accordingly, no nonbank MSPs domiciled in Japan and registered with the FSA.
Accordingly, the Commission’s Comparability Determination and Comparability Order do not address nonbank
MSPs.
32 FSA Application at p. 4.
FIBOs, including the Japanese nonbank SDs.33 FIEA, COO, and related FSA Notices impose
mandatory capital and reporting requirements on FIBOs, including Japanese nonbank SDs.
Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.
(“Supervisory Guidelines for FIBO”) also supplement the framework.34 The technical
requirements for FIBOs, including Japanese nonbank SDs, to calculate capital adequacy ratios
are specified in the FSA Notice No. 59 of 2007 (“Notice on Capital”) in accordance with Article
177(8) and Article 178(1) of the COO.
D. Proposed Comparability Determination and Proposed Comparability Order for
Japan-Domiciled Nonbank Swap Dealers
On August 8, 2022, the Commission published the 2022 Proposal, seeking comment on
the FSA Application and the Commission’s proposed Comparability Determination and related
Comparability Order.35 The 2022 Proposal set forth the Commission’s preliminary
Comparability Determination and proposed Comparability Order providing that, based on its
review of the FSA Application and applicable Japanese laws and regulations, the Commission
preliminarily found that the Japanese Capital Rules and the Japanese Financial Reporting Rules,
subject to the conditions set forth in the proposed Comparability Order, achieve comparable
outcomes and are comparable in purpose and effect to the CFTC Capital Rules and CFTC
Financial Reporting Rules.36 The Commission, however, noted that there were certain

Businesses categorized as Type I Financial Instruments Business (Article 28(1) of the FIEA) can only be
conducted by Type I FIBOs registered under Article 29 of the FIEA. Type I Financial Instruments Business
includes market transactions of derivatives and foreign market derivatives transactions pertaining to certain highly
liquid securities and over-the-counter transactions of derivatives.
34 To implement and reinforce the legal framework, the FSA has developed and published supervisory guidelines.
The supervisory guidelines are meant for FSA staff, but are public documents, which are expected to be followed by
the applicable financial institutions. Financial institutions are consulted in connection with the establishment of, and
any amendments to, the supervisory guidelines. FSA staff conducts supervision and enforcement based on the
supervisory guidelines.
35 2022 Proposal, 87 FR 48092 (Aug. 8, 2022).
36 See 2022 Proposal at 48092. Consistent with the process specified in section I.B. above for conducting
Comparability Determinations, the Commission provided the FSA with an opportunity to review for factual
accuracy and completeness the Commission’s description of relevant Japanese laws and regulations on which the
proposed Comparability Determination and proposed Comparability Order were based. The Commission has relied
on FSA’s review, and has incorporated feedback and corrections received from the FSA. As previously noted, a
Comparability Determination and Comparability Order based on an inaccurate description of foreign laws and
regulations may not be valid.
differences between the Japanese Capital Rules and CFTC Capital Rules and certain differences
between the Japanese Financial Reporting Rules and the CFTC Financial Reporting Rules. As
such, the Commission proposed certain conditions to the Comparability Order.37 The proposed
conditions were designed to promote consistency in regulatory outcomes, to reflect the scope of
substituted compliance that would be available notwithstanding the differences, and to ensure
that the Commission and National Futures Association (“NFA”) receive information to monitor
Japanese nonbank SDs for ongoing compliance with the Comparability Order.38 The
Commission further stated that, in its preliminary view, the identified differences would not be
inconsistent with providing a substituted compliance framework for Japanese nonbank SDs
subject to the conditions specified in the proposed Comparability Order.39
The proposed Comparability Order was limited to the comparison of the Japanese Capital
Rules to the CFTC Capital Rules’ Bank-Based Capital Approach (“Bank-Based Approach”) for
computing regulatory capital for nonbank SDs, which is based on certain capital requirements
imposed by the Federal Reserve Board for bank holding companies.40 As noted by the
Commission in the 2022 Proposal, the FSA had not requested, nor has the Commission

See 2022 Proposal at 48114.
NFA is a registered futures association under section 17 of the CEA (7 U.S.C. 21). Each SD registered with the
Commission is required to be an NFA member. 17 CFR 170.16. NFA, as a registered futures association, is also
required by the CEA to adopt rules imposing minimum capital, segregation, and other financial requirements, as
applicable, to its members, including SDs, that are at least as stringent as the Commission’s minimum capital,
segregation, and other financial requirements for such registrants, and to implement a program to audit and enforce
such requirements. 7 U.S.C. 21(p). Therefore, the Commission’s proposed Comparability Order required Japanese
nonbank SDs to file certain financial reports and notices with NFA so that it may perform oversight of such firms as
required under section 17 of the CEA. The Commission will refer to NFA in this Comparability Determination
when referring to the requirements or obligations of a registered futures association.
39 2022 Proposal at 48114.
40 Id. As described in the 2022 Proposal, the CFTC Capital Rules provide nonbank SDs with three alternative
capital approaches: (i) the Tangible Net Worth Capital Approach (“TNW Approach”); (ii) the Net Liquid Assets
Capital Approach (“NLA Approach”); and (iii) the Bank-Based Approach. See 2022 Proposal at 48095-48096, and
17 CFR 23.101. The Bank-Based Approach is consistent with the Basel Committee on Banking Supervision’s
(“BCBS”) international framework for bank capital requirements (“BCBS framework” or “Basel standards”). The
BCBS is the primary global standard-setter for the prudential regulation of banks and provides a forum for
cooperation on banking supervisory matters. Institutions represented on the BCBS include the Federal Reserve
Board, the European Central Bank, Deutsche Bundesbank, Bank of England, Bank of France, Bank of Japan, Banco
de Mexico, and Bank of Canada. The BCBS framework is available at
https://www.bis.org/basel_framework/index.htm.
37
performed, a comparison of the Japanese Capital Rules to the Commission’s TNW Approach or
NLA Approach.41
E. General Comments on the FSA Application and the Commission’s Proposed
Finding of Comparability Between the CFTC Capital Rules and CFTC Financial
Reporting Rules and the Japanese Capital Rules and Japanese Financial Reporting
Rules
The public comment period on the FSA Application, the proposed Comparability
Determination, and the proposed Comparability Order ended on October 7, 2022. The
Commission received six comment letters from the following interested parties: Better Markets,
Inc. (“Better Markets”); the FSA; the International Bankers Association of Japan (“IBAJ”); a
joint letter from the Institute of International Bankers (“IIB”), the International Swaps and
Derivatives Association (“ISDA”), and the Securities Industry and Financial Markets
Association (“SIFMA”); and two letters from William J. Harrington.42
Two commenters expressed support for the proposed Comparability Determination and
proposed Comparability Order, agreeing with the Commission’s overall analysis and
determination of comparability of the CFTC Capital Rules and CFTC Financial Reporting Rules
and the Japanese Capital Rules and Japanese Financial Reporting Rules.43 In addition, the FSA
submitted a comment letter in support of the Commission’s proposal, and recommending several
technical amendments to the proposed Comparability Determination and Comparability Order
that were corrective or typographical in nature.44

See 2022 Proposal at 48114.
Letter From Stephen Hall, Legal Director and Securities Specialist, Better Markets (Oct. 7, 2022) (“Better
Markets Letter”); Letter from Yuji Yamashita, Deputy Commissioner for International Affairs, FSA (Oct. 7, 2022)
(“FSA Letter”); Letter From Philippe Avril, Chair, IBAJ (Oct. 6, 2022) (“IBAJ Letter”); Letter From Stephanie
Webster, General Counsel, IIB; Steven Kennedy, Global Head of Public Policy, ISDA; Kyle L. Brandon, Managing
Director, Head of Derivatives Policy, SIFMA (collectively, “Associations”) (Oct. 7, 2022) (“Associations Letter”);
Letters from William J. Harrington (“Harrington”) (Oct. 7 and Oct. 20, 2022) (“Harrington 10/7/2022 Letter” and
‘Harrington 10/20/2022 Letter”) The comment letters for the 2022 Proposal are available at:
https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7301.
43 Associations Letter at p. 1; IBAJ Letter at p. 1.
44 FSA Letter. In particular, the FSA recommended that the Commission add Article 47 of the FIEA to the list of
relevant provisions comprising the Japanese Capital Rules enumerated in proposed Condition 4. FSA Letter at p. 2.
The Commission has revised final Condition 4 to that effect.
41
Conversely, two commenters disagreed with the CFTC’s proposed Comparability
Determination and proposed Comparability Order.45 Better Markets asserted that the principlesbased, holistic approach applied by the Commission, which assesses whether the applicable
foreign jurisdiction’s capital and financial requirements achieve comparable outcomes to the
corresponding Commission requirements, is “insufficiently rigorous, leaving far too much room
for inaccurate and unwarranted comparability determinations.”46
The Commission does not believe that the principles-based, holistic assessment that it
conducted on the comparability of the Japanese Capital Rules and Japanese Financial Reporting
Rules with the CFTC Capital Rules and CFTC Financial Reporting Rules was “insufficiently
rigorous,” nor does the Commission believe that it left “room for inaccurate and unwarranted
comparability determinations.” The principles-based, holistic approach employed in the
Comparability Determination was performed in accordance with the substituted compliance
assessment framework adopted by the Commission for capital and financial reporting
requirements for foreign nonbank SDs and set out in Commission Regulation 23.106. Consistent
with this assessment framework, the Commission focused on whether the Japanese Capital Rules
and Japanese Financial Reporting Rules are designed with the objective of ensuring overall
safety and soundness of the Japanese nonbank SDs in a manner that is comparable with the
Commission’s overall objective of ensuring the safety and soundness of nonbank SDs.
As stated in the 2022 Proposal, due to the detailed and complex nature of the capital
frameworks, differences in how jurisdiction approach and implement the requirements are
expected, even among jurisdictions that base their requirements on the principles and standards
set forth in the BCBS framework.47 Furthermore, as discussed in Section I.B. above, when
adopting Commission Regulation 23.106, the Commission stated that “its approach to substituted
compliance is a principles-based, holistic approach that focuses on whether the foreign

Better Markets Letter at p. 2; Harrington 10/20/2022 Letter at p. 20.
Better Markets Letter at p. 2.
47 See 2022 Proposal at 48098.
45
regulations are designed with the objectives of ensuring the overall safety and soundness of the
[non-US nonbank SD] in a manner that is comparable with the Commission’s overall capital and
financial reporting requirements, and is not based on a line-by-line assessment or comparison of
a foreign jurisdiction’s regulatory requirements with the Commission’s requirements.”48
The approach and standards set forth in Commission Regulation 23.106, with the focus
on “comparable outcomes,” are also consistent with the Commission’s precedents of undertaking
a principles-based, holistic assessment of the comparability of foreign regulatory regimes for
purposes of substituted compliance for cross-border swap transactions. The Commission first
outlined its approach to substituted compliance with respect to swaps requirements in 2013,
when it issued an Interpretive Guidance and Policy Statement Regarding Compliance with
Certain Swap Regulations.49 In the Guidance, the Commission stated that “[i]n evaluating
whether a particular category of foreign regulatory requirement(s) is comparable and
comprehensive to the applicable requirement(s) under the CEA and Commission regulations, the
Commission will take into consideration all relevant factors, including but not limited to, the
comprehensiveness of those requirement(s), the scope and objectives of the relevant regulatory
requirement(s), the comprehensiveness of the foreign regulator’s supervisory compliance
program, as well as the home jurisdiction’s authority to support and enforce its oversight of the
registrant.”50 The Commission emphasized that in this context, “comparable does not
necessarily mean identical.”51 Rather, the Commission stated that it would evaluate whether the
home jurisdiction’s regulatory requirement is comparable to, and as comprehensive as, the
corresponding U.S. regulatory requirement(s).52 In conducting comparability determinations
based on the policy set forth in the Guidance, the Commission noted that the “outcome-based”
approach recognizes that “foreign regulatory systems differ and their approaches vary and may

85 FR 57462 at 57521.
Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78 FR
45292 (July 26, 2013) (“Guidance”).
50 Guidance at 45343.
51 Id.
52 Id.
48
differ from how the Commission chose to address an issue, but that the foreign jurisdiction’s
regulatory requirements nonetheless achieve the regulatory outcome sought to be achieved by a
certain provision of the CEA or Commission regulation.”53
The Commission further elaborated on the required elements of comparability in 2016,
when it issued final rules to address the cross-border application of the Commission’s margin
requirements for uncleared swap transactions. Specifically, the Commission stated that its
substituted compliance approach reflects an outcome-based assessment of the comparability of a
foreign jurisdiction’s margin requirements with the Commission’s corresponding requirements.54
The Commission further stated that it would evaluate the objectives and outcomes of the foreign
margin requirements in light of foreign regulator(s)’ supervisory and enforcement authority.55
Consistent with its previously stated position, the Commission recognized that jurisdictions may
adopt different approaches to achieving the same outcome and, therefore, the assessment would
focus on whether the foreign jurisdiction’s margin requirements are comparable to the
Commission’s in purpose and effect, not whether they are comparable in every aspect or contain
identical elements.56 The Commission’s policy thus reflects an understanding that a line-by-line
evaluation of a foreign jurisdiction’s regulatory regime is not the optimum approach to assessing
the comparability of complex structures whose individual components may differ based on
jurisdiction-specific considerations, but which achieve the objective and outcomes set forth in
the Commission’s framework.
With respect to the FSA Application, the process leading to the Comparability
Determination involved Commission staff obtaining English language translations of relevant
Japanese laws, rules, and regulations cited in the FSA Application from the FSA.57 Staff verified

See e.g., Comparability Determination for the European Union: Certain Entity-Level Requirements, 78 FR 78923
(December 27, 2013) at 78926.
54 Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants – Cross-Border
Application of the Margin Requirements, 81 FR 34817, 34836-34837(May 31, 2016).
55 Id.
56 Id.
57 Commission staff received English translations on May 11, 2021.
the assertions and citations contained in the FSA Application regarding the specific Japanese
Capital Rules and Japanese Financial Reporting Rules to the relevant English language versions
of the Japanese laws, rules, and regulations.58
Commission staff also evaluated the comparability of the Japanese Capital Rules and
Japanese Financial Reporting Rules with the CFTC Capital Rules and CFTC Financial Reporting
Rules with respect to the following areas: (i) the process of establishing minimum capital
requirements for Japanese nonbank SDs and how such process addresses risk, including market
risk and credit risk of the Japanese nonbank SD’s on-balance sheet and off-balance sheet
exposures; (ii) the types of equity and debt instruments that qualify as regulatory capital in
meeting a Japanese nonbank SD’s minimum capital requirements; (iii) the financial reports and
other financial information submitted by a Japanese nonbank SD to the FSA, and whether such
information provides the FSA with the means necessary to effectively monitor the financial
condition of the Japanese nonbank SD; and (iv) the regulatory notices and other communications
between a Japanese nonbank SD and the FSA that address potential adverse financial or
operational issues that may impact the firm.59 With respect to the ability of the FSA to supervise
and enforce compliance with the Japanese Capital Rules and Japanese Financial Reporting
Rules, the Commission’s assessment included a review of the FSA’s surveillance program for
monitoring Japanese nonbank SDs compliance with Japanese Capital Rules and Japanese
Financial Reporting Rules, and the disciplinary process imposed on firms that fail to comply
with such requirements.60
Contrary to the position articulated by Better Markets regarding the nature of the
comparability assessment, the Commission believes that the principles-based, holistic assessment
of the Japanese Capital Rules and Japanese Financial Reporting Rules against the CFTC Capital

Staff also reviewed the FSA website to confirm various provisions of Japanese laws and regulations that were
relevant to the proposed Comparability Determination and proposed Comparability Order.
59 2022 Proposal at 48098 – 48112.
60 Id. at 48112-48113.
Rules and CFTC Financial Reporting Rules, as outlined above and discussed in detail in Section
II below, was sufficiently rigorous for purposes of determining if the Japanese laws and
regulations are comparable in purpose and effect to the CEA and Commission regulations.
Better Markets further asserted that even under a principles-based, holistic approach, the
FSA capital and financial reporting requirements for Japanese nonbank SDs do not satisfy the
test for an order granting substituted compliance because the FSA’s regulatory framework
governing capital and financial reporting is not comparable to the corresponding CFTC
requirements.61 Better Markets cited the Commission’s inclusion of conditions in the proposed
Comparability Order as demonstrating the Commission’s need “to compensate for the
acknowledged obvious gaps in the FSA framework.”62 Better Markets further stated that the
differences between the Japanese and the CFTC capital and financial reporting regimes mandate
denial of the FSA Application for a comparability determination.63
The Commission disagrees that the inclusion of conditions in the Comparability Order
precludes a finding of comparability with respect to the Japanese Capital Rules and Japanese
Financial Reporting Rules. The Commission’s comparability assessment process, consistent
with the holistic approach, contemplates the potential need for a Comparability Order to contain
conditions. Specifically, Commission Regulation 23.106(a)(5) states that the Commission may
impose any terms and conditions it deems appropriate in issuing a Comparability Order,
including conditions with respect to capital adequacy and financial reporting requirements of
non-U.S. nonbank SDs.64

Better Markets Letter at p. 2.
Id.
63 Id.
64 17 CFR 23.106(a)(5), which provides that in issuing a Capital Comparability Determination, the Commission may
impose any terms and conditions it deems appropriate, including certain capital adequacy and financial reporting
requirements on swap dealers… (Emphasis added). Commission Regulation 23.106(a)(3) establishes the
Commission’s standard of review for performing a Comparability Determination and provides that the Commission
may consider all relevant factors, including whether the relevant foreign jurisdiction’s capital adequacy and financial
reporting requirements achieve comparable outcomes to the Commission’s corresponding capital adequacy and
financial reporting requirements for SDs. 17 CFR 23.106(a)(3)(ii).
61
The process employed in this Comparability Determination is consistent with the
Commission’s established approach to conducting comparability assessments. Upon a finding of
comparability, the Commission’s policy generally is that eligible entities may comply with a
substituted compliance regime subject to the conditions the Commission places on its finding,
and subject to the Commission’s retention of its examination authority and its enforcement
authority.65 In this regard, the Commission has stated that certain conditions included in a
Comparability Order may be designed to ensure the Commission’s direct access to books and
records required to be maintained by an SD registered with the Commission.66 Other conditions
may address areas where the foreign jurisdiction lacks analogous requirements.67 The inclusion
of conditions in a Comparability Order was contemplated as an integral part of the Commission’s
holistic, principle-based approach to conducting comparability assessments and is not
inconsistent with a grant of substituted compliance. In particular, Commission Regulation
23.106(a)(5) states the Commission’s authority to impose conditions in issuing a Comparability
Determination in connection with the CFTC Capital Rules and the CFTC Financial Reporting
Rules. As further discussed below, the conditions proposed in the 2022 Proposal are clearly of
the nature contemplated by Commission Regulation 23.106(a)(5).
The Commission also does not believe that the inclusion of the conditions in the proposed
Comparability Order demonstrates “obvious gaps in the FSA framework” as asserted by Better
Markets. Consistent with the Commission’s policy described above, a majority of the conditions
contained in the proposed Comparability Order are designed to ensure that: (i) the Japanese
nonbank SD is eligible for substituted compliance based on the Japanese laws and regulations
that were reviewed by the Commission in performing the comparability assessment, and (ii) the
Commission and the NFA receive timely financial information and notices to effectively monitor

85 FR 57462 at 57520. See also Guidance at 45342–45344 and Comparability Determination for the European
Union: Certain Transaction Level Requirements, 78 FR 78878 (December 27, 2013) at 78880.
66 Comparability Determination for the European Union: Certain Transaction Level Requirements, 78 FR 78878
(December 27, 2013) at 78880.
67 Guidance at 45343.
a Japanese nonbank SD’s compliance with the Comparability Order and to assess the ongoing
safety and soundness of the Japanese nonbank SD. Specifically, there are 23 conditions in the
final Comparability Order. Four conditions set forth criteria that a Japanese nonbank SD must
meet to be eligible for substituted compliance pursuant to the Comparability Order.68 The four
conditions ensure that only Japanese nonbank SDs that are within the scope of, and comply with,
the Japanese Capital Rules and Japanese Financial Reporting Rules that were part of the
Commission’s comparability assessment may apply for substituted compliance. Eight additional
conditions require Japanese nonbank SDs within scope of the Comparability Order to provide
notice to the Commission and NFA of certain defined events,69 and a further three conditions
require Japanese nonbank SDs to file with the Commission and NFA copies of certain unaudited
and audited financial reports that the firms provide to the FSA.70 In addition, two additional
conditions reflect administrative matters necessary to implement the substituted compliance
framework.71 Lastly, five conditions impose obligations on Japanese nonbank SDs that align
The four criteria provide that the Japanese nonbank SD: (i) is not subject to capital rules of a U.S. prudential
regulator (Condition 1); (ii) is organized and domiciled in Japan (Condition 2); (iii) is registered as a FIBO
(Condition 3); and (iv) is subject to the Japanese Capital Rules and Japanese Financial Reporting Rules that are part
of the Commission’s comparability assessment (Condition 4).
69 The eight conditions require a Japanese nonbank SD to provide notice to the Commission in the event that the
firm: (i) is informed by the FSA that it failed to comply with any component of the Japanese Capital Rules or
Japanese Financial Reporting Rules (Condition 15); (ii) fails to maintain regulatory capital in the form of Basic
Items of at least the equivalent of $20 million (Condition 16); (iii) its capital adequacy ratio is below the early
warning level of 140 percent (Condition 17); (iv) its capital adequacy ratio is below the minimum requirement of
120 percent (Condition 18); (v) fails to make or keep current financial books and records (Condition 19); (vi) fails to
post or collect margin for uncleared swaps and non-cleared security-based swaps with one or more counterparties in
amounts that exceed defined limits (Condition 20); (vii) changes its fiscal year-end date (Condition 21); and (viii) is
subject to material changes to the Japanese Capital Rules, Japanese Financial Reporting Rules, or the supervisory
authority of the Japanese Commission (Condition 22).
70 The three conditions provide that a Japanese nonbank SD must file with the Commission and NFA: (i) English
language copies of certain financial reporting forms that the Japanese nonbank SD is required to submit to the FSA
pursuant to Article 56-2(1) of the FIEA (Condition 8); (ii) an English language copy of the annual business report
that the Japanese nonbank SDs is required to submit to the FSA pursuant to Article 46-3(1) of the FIEA and Article
172 of the COO (Condition 9); and (iii) English language copies of the Japanese nonbank SD’s annual audited
financial statements and management report that are required to be prepared pursuant to Article 435(2) of the
Japanese Companies Act (Act No. 86 of 2005) (Condition 10).
71 One of the administrative conditions provides that a Japanese nonbank SD must provide a notice to the
Commission of its intent to comply with the Comparability Order and the Japanese Capital Rules and Japanese
Financial Reporting Rules in lieu of the CFTC Capital Rules and CFTC Financial Reporting Rules. The notice must
include the Japanese nonbank SD’s representation that the firm is organized and domiciled in Japan, is a registered
FIBO, and is subject to and complies with the Japanese Capital Rules and the Japanese Financial Reporting Rules
(Condition 6). The second administrative condition provides that a Japanese nonbank SD must file any documents
with the Commission and NFA via electronic transmission (Condition 23). With respect to Condition 6, the
Commission also notes that the language of the proposed condition required that a Japanese nonbank SD provide a
with certain of the Commission’s requirements for nonbank SDs. The five conditions require a
Japanese nonbank SD to: (i) maintain a minimum level of capital defined as Basic Items72 in an
amount equivalent to at least $20 million (Condition 5); (ii) prepare and keep current financial
books and records (Condition 7); (iii) file a monthly schedule of the firm’s financial positions on
Schedule 1 of appendix B to Subpart E of part 23 of the Commission’s regulations (Condition
11); (iv) file a monthly report listing the custodians holding margin posted by, and collected by,
the Japanese nonbank SD, the amount of margin held by each custodian, and the aggregate
amount of margin required to be posted and collected by the Japanese nonbank SD (Condition
13); and (v) submit, with each filing of financial information, a statement by an authorized
representative that, to the best knowledge and belief of the person making the representation, the
information is true and correct (Condition 14).73
As the substance of these conditions demonstrates, the primary objective of a majority of
the conditions is not to compensate for regulatory gaps in the Japanese capital and financial
reporting framework, but rather to ensure that the Commission and NFA receive information to
conduct ongoing monitoring of Japanese nonbank SDs for compliance with relevant capital and
financial reporting requirements. As discussed above, in issuing the Comparability Order, the
Commission is not ceding its supervisory and enforcement authorities. The Comparability Order
permits Japanese nonbank SDs to satisfy the Commission’s capital and financial reporting
requirements by complying with certain laws and/or regulations of Japan that have been found
comparable to the Commission’s laws and/or regulations in purpose and effect. The

notice of its intent to comply with “applicable” Japanese Capital Rules and Japanese Financial Reporting Rules.
Given that “Japanese Capital Rules and Japanese Financial Reporting Rules” is a term defined in the Comparability
Order to include laws and regulations that apply to Japanese nonbank SDs, the word “applicable” is superfluous and
is, therefore, not included in final Condition 6 of the Comparability Order.
72 “Basic Items” are analogous to common equity tier 1 capital as defined in the CFTC Capital Rules. See
discussion in section II.B.
73 Another condition specifies that Japanese nonbank SDs that are registered with the U.S. Securities and Exchange
Commission (“SEC”) as security-based swap dealers (“SBSDs”) and required to file with the SEC, or its designee,
Form X–17A–5 (“FOCUS Report”), must file a copy of such FOCUS Report with the Commission and NFA within
35 calendar days after the end of each month (Condition 12). A Japanese nonbank SD that files a FOCUS Report
pursuant to Condition 12 will not be required to file the reports and schedules specified in Conditions 8 and 11.
Currently, no Japanese nonbank SD is registered as a SBSD.

Commission and NFA, however, have a continuing obligation to conduct ongoing oversight,
including potential examination, of Japanese nonbank SDs to ensure compliance with the
Comparability Order, including its conditions. To that effect, the notice and financial reporting
conditions set forth in the Comparability Order provide the Commission and NFA with
information necessary to monitor for such compliance, and to evaluate the operational condition
and ongoing financial condition of Japanese nonbank SDs. The Commission may also initiate an
enforcement action against a Japanese nonbank SD that fails to comply with the conditions of the
Comparability Order.74
Furthermore, to the extent that a condition imposes a new obligation on Japanese
nonbank SDs, the imposition of such condition is also consistent with Commission Regulation
23.106 and the Commission’s established policy with regard to comparability determinations.
As discussed above, the Commission contemplated that even in circumstances where the
Commission finds two regulatory regimes comparable, the Commission may impose
requirements on entities relying on substituted compliance where the Commission determines
that the home jurisdiction’s regime lacks comparable and comprehensive regulation on a specific
issue.75 The Commission’s authority to impose such conditions is set out in Commission
Regulation 23.106(a)(5), which states that the Commission may impose “any terms and
conditions it deems appropriate, including certain capital adequacy and financial reporting
requirements [on SDs].”76
Better Markets further stated that if the Commission grants substituted compliance with
regard to materially different regulatory requirements, it must make a well-supported
As the Commission stated in the 2022 Proposal, a non-U.S. nonbank SD that operates under a Comparability
Order issued by the Commission remains subject to the Commission’s examination and enforcement authority.
Specifically, the Commission may initiate an enforcement action against a non-U.S. nonbank SD that fails to comply
with its home-country capital adequacy and/or financial reporting requirements cited in a Comparability Order. See
2022 Proposal at 48094-48095. See also 17 CFR 23.106(a)(4)(ii), which provides that the Commission may
examine all nonbank SDs, regardless of whether the nonbank SDs rely on substituted compliance, and that the
Commission may initiate an enforcement action under the Commission’s capital and financial reporting regulations
against a non-U.S. nonbank SD that fails to comply with a foreign jurisdiction’s capital adequacy and financial
reporting requirements.
75 Guidance at 45343.
76 17 CFR 23.106(a)(5).
comparability determination by, at a minimum, clearly and specifically setting forth the desired
regulatory outcome and providing a detailed, evidence-based explanation as to how the
jurisdiction’s different legal requirements nonetheless lead to a comparable regulatory
outcome.77 Better Markets also stated that if the Commission grants the Comparability
Determination and Comparability Order, it must, at a minimum, ensure that the conditions are
applied and enforced with full force and without exception or dilution.78 Better Markets asserted
that “[a] determination that a foreign jurisdiction’s nonbank SDs rules would produce
comparable regulatory outcomes is the beginning, not the end, of the CFTC’s obligation to
ensure that the activities of the foreign nonbank SD entities do not pose risks to the U.S.
financial system. As time goes on, regulatory requirements that, in theory, are expected to
produce one regulatory outcome may, in practice, produce a different one. And, of course, the
regulatory requirements may themselves be changed in a variety of ways. Finally, the
effectiveness of an authority’s supervision and enforcement program can become weakened for
any number of reasons – the CFTC cannot assume that an enforcement program that is presently
effective will continue to be effective.”79 Better Markets further asserted that to fulfill its
obligation to protect the U.S. financial system, the Commission must ensure, on an ongoing
basis, that each grant of substituted compliance remains appropriate over time by, at a minimum,
requiring each Comparability Order to impose an obligation on the applicant, as appropriate, to:
(i) periodically apprise the Commission of the activities and results of its supervision and
enforcement programs, to ensure that they remain sufficiently robust to deter and address
violations of the law; and (ii) immediately apprise the Commission of any material changes to
the regulatory regime, including changes to rules or interpretations of rules.80

Better Markets at p. 6.
Id. at p. 2.
79 Id. at p. 6.
80 Id.
77
Although the Commission disagrees that the Japanese Capital Rules and the Japanese
Financial Reporting Rules, as a whole, are materially different or do not achieve comparable
regulatory outcomes, the Commission concurs that granting substituted compliance should be the
result of a well-supported comparability assessment. Consistent with that view, the Commission
believes that this final Comparability Determination articulates the Commission’s analysis in
sufficient detail and provides an appropriate explanation of how the foreign jurisdiction’s
requirements are comparable in purpose and effect with the Commission’s requirements, and
lead to comparable regulatory outcomes with the Commission’s requirements. Specifically,
Section III of the 2022 Proposal and Section II of the final Comparability Determination reflect,
among other observations, the Commission’s detailed analysis with respect to each of the
elements for consideration listed in Commission Regulation 23.106(a)(3).
The Commission also concurs that the availability of substituted compliance is
conditioned upon a non-US nonbank SD’s ongoing compliance with the terms and conditions of
the final Comparability Order, and the Commission’s ongoing assessment that the Japanese
Capital Rules and Japanese Financial Reporting Rules remain comparable in purpose and effect
with the CFTC Capital Rules and CFTC Financial Reporting Rules. As noted above, and
discussed in more detail in Sections II.D. and E. below, Japanese nonbank SDs are subject to
notice and financial reporting requirements under the final Comparability Order that provide
Commission and NFA staff with the ability to monitor the Japanese nonbank SDs’ ongoing
compliance with the conditions set forth in the final Comparability Order. In addition, the final
Comparability Order requires Japanese nonbank SDs or the FSA to inform the Commission of
changes to the relevant Japanese Capital Rules and Japanese Financial Reporting Rules so that
the Commission may assess the continued effectiveness of the Comparability Order in ensuring
that the Japanese laws and regulations have the comparable regulatory objectives of the CEA and

Commission regulations of ensuring the safety and soundness of nonbank SDs.81 Commission
staff will also monitor the Japanese nonbank SDs directly as part of its supervisory program and
will discuss with the firms any proposed or pending revisions to specific laws and rules cited in
the final Comparability Order. Lastly, in addition to assessing the effectiveness of the
Comparability Order as a result of revisions or proposed revisions to the Japanese laws,
regulations, or supervisory regime, the Commission further notes that future material changes to
the CFTC Capital Rules or CFTC Financial Reporting Rules, or the Commission’s or NFA’s
supervisory programs, may necessitate an amendment to the Comparability Determination and
Comparability Order to reflect those changes.82
Another commenter, Harrington, stated that the Commission “must prevent every
regulated [SD] globally from providing a swap contract with a “flip clause […].”83 Harrington
further recommended that the Commission condition the Comparability Order on specifying that
a Japanese nonbank SD that is party to a swap contract with a flip clause must hold additional
capital determined based on the required margin and the contract market value.84 Alternatively,
Harrington argued that the Commission should prohibit a Japanese nonbank SD from entering
into a new swap contract with a flip clause or extending an existing one.85 Harrington has
elsewhere referred to a description of a “flip clause” as a provision in swap contracts with
structured debt issuers that reverses or “flips” the priority of payment obligations owed to the
swap counterparty on the one hand and the noteholders on the other, following a specified event
of default.86 Based on Harrington’s description, flip clauses present a risk to the SD in synthetic

Condition 22 of the final Comparability Order requires Japanese nonbank SDs or the FSA to notify the
Commission of any material changes to the information submitted in the FSA Application, including, but not limited
to, proposed and final material changes to the Japanese Capital Rules or Japanese Financial Reporting Rules and
proposed and final material changes to the FSA’s supervisory authority or supervisory regime over Japanese
nonbank SDs. The Commission notes that it also made certain non-substantive, clarifying changes to the language
of final Condition 22 as compared to the proposed condition.
82 2022 Proposal at 48098 (n. 72).
83 Harrington 10/20/2022 Letter at p. 3.
84 Harrington 10/20/2022 Letter at p. 23.
85 Id.
86 William J. Harrington, Submission to the U.S. Securities and Exchange Commission Re: File No. S7-08-12 (Nov.
19, 2018) at p.8.
transactions where payments under a swap contract are secured with the same collateral that
would serve to cover payments under the notes issued by a structured debt issuer. In such
circumstances, an “event of default” by the SD would cause the SD’s priority of payment from
the collateral under a swap to “flip” to a more junior priority position, including for mark-tomarket gains on “in the money” swaps.87
Harrington argued that no element of the CFTC Capital Rules or the Japanese Capital
Rules addresses “the 100% self-exposure that [an SD] incurs with each swap with flip clause.”88
Harrington recognized, however, that the CFTC margin requirements for uncleared swap
transactions address his concerns associated with the inclusion of a flip clause.89 Nonetheless,
according to Harrington, risks arise in circumstances when non-U.S. margin rules exempt SDs
from margin obligations in connection with swaps with a structured debt issuer.90
The Commission recognizes that given some definitional differences and differences in
the activity thresholds with respect to the scope of application of the CFTC margin requirements
and non-U.S. margin requirements, some transactions that are subject to the CFTC margin
requirements for uncleared swaps may not be subject to margin requirements in another
jurisdiction. In connection with this Comparability Determination, however, the Commission
notes that both under the CFTC Capital Rules and the Japanese Capital Rules, uncollateralized
exposures from uncleared swap transactions would generate a higher counterparty credit risk
charge than the exposures resulting from transactions under which the counterparties have posted
collateral.91 Accordingly, the Commission does not believe that the respective sets of rules adopt

For additional information on the legal mechanics of a flip clause, see Lehman Brothers Special Financing Inc v.
Bank of America N.A., No. 18-1079 (2nd Cir. 2020).
88 Harrington 10/20/2022 Letter at p. 21-22.
89 Harrington 10/20/2022 Letter at p.3 (noting that the requirement for SDs to post and collect variation margin for
swap contracts with a securitization or structured debt issuer “generates the immense benefit of inducing U.S.
securitization and structured debt issuers to forswear all swap contracts, both with and without a flip clause”).
90 Harrington 10/20/2022 Letter at p.3 (arguing that “non-U.S. swap margin rules de facto exempt a swap provider
from collecting or posting variation margin under a new contract with most securitization and structured debt
issuers”).
91 12 CFR 217.34 and 12 CFR 217.132 (indicating that nonbank SDs may recognize the risk-mitigating effects of
financial collateral for collateralized derivatives contracts) and Notice on Capital, Article 15.5. and 15-2.5 (similarly
indicating that Japanese nonbank SDs are allowed to recognize the risk-mitigating effect of collateral by deducting
the amount of collateral from the exposure at default amount).
a conflicting approach or lead to a disparate outcome with respect to the capital treatment of
uncollateralized uncleared swap exposures that would warrant a finding of non-comparability of
the CFTC Capital Rules and the Japanese Capital Rules.
With regard to Harrington’s general recommendations, also included in a submission by
Harrington in connection with the adoption of the CFTC Capital Rules, that the Commission
impose additional capital charges for swap contracts with a flip clause,92 the Commission notes
that any change in its capital requirements and approach, if deemed appropriate, would be
addressed separately from the Comparability Determination. As the Commission stated in
adopting the CFTC Capital Rules, over time the Commission may consider adjusting the capital
charges applicable to nonbank SDs that engage in bespoke swap transactions, including contracts
involving flip clauses, as a result of its experience and as market developments may warrant.93 If
the Commission proceeds with adjustments to the CFTC Capital Rules, the Commission may
reconsider the comparability between the CFTC Capital Rules and the Japanese Capital Rules in
light of these changes.
Finally, IBAJ proposed several technical amendments to the 2022 Proposal that were
corrective or clarifying in nature.94 As further discussed below, several of the proposed changes
have been incorporated, as appropriate, throughout the final Comparability Determination and
Comparability Order.
II.

Final Capital and Financial Reporting Comparability Determination and
Comparability Order
The following section provides the Commission’s comparative analysis of the Japanese

Capital Rules and the Japanese Financial Reporting Rules with the corresponding CFTC Capital
Rules and CFTC Financial Reporting Rules, as described in the 2022 Proposal, further modified

Harrington 10/20/2022 Letter at p.24.
85 FR 57462 at 57475. As stated in the adopting release to the CFTC Capital Rules, the Commission considered
that its rules were appropriately calibrated to account for a wide variety of possible uncleared swap transactions,
including bespoke transactions involving flip clauses or other unique features. See id.
94 IBAJ Letter.
92
to address comments received. As emphasized in the 2022 Proposal, the capital and financial
reporting regimes are complex structures comprised of a number of interrelated regulatory
components.95 Differences in how jurisdictions approach and implement these regimes are
expected, even among jurisdictions that base their requirements on the principles and standards
set forth in the BCBS framework.
The Commission performed the analysis by assessing the comparability of the Japanese
Capital Rules for Japanese nonbank SDs as set forth in the FSA Application and in the English
language translation of certain applicable Japanese laws and regulations with the Commission’s
Bank-Based Approach for nonbank SDs. The Commission understands that, as of the date of the
final Comparability Determination and Comparability Order, the three Japanese nonbank SDs
registered with the Commission are subject to a bank-based capital approach under the Japanese
Capital Rules. Accordingly, when the Commission makes its final determination herein about
the comparability of the Japanese Capital Rules with the CFTC Capital Rules, the determination
pertains to the comparability of the Japanese Capital Rules with the Bank-Based Approach under
the CFTC Capital Rules. The Commission notes that any material changes to the information
submitted in the FSA Application, including, but not limited to, proposed and final material
changes to the Japanese Capital Rules or Japanese Financial Reporting Rules, as well as any
proposed and final material changes to the FSA’s supervisory authority or supervisory regime,
will require notification to the Commission and NFA pursuant to Condition 22 of the final
Comparability Order.96 Therefore, if there are subsequent material changes to the Japanese
Capital Rules, Japanese Financial Reporting Rules, or the supervisory authority or supervisory
regime, the Commission will review and assess the impact of such changes on the final

See 2022 Proposal at 48098.
Condition 22 of the final Comparability Order. The Commission notes that it made certain non-substantive,
clarifying changes to the language of final Condition 22 as compared to the proposed condition.
95
Comparability Determination and Comparability Order as they are then in effect, and may amend
or supplement the Comparability Order as appropriate.97
A. Regulatory Objectives of CFTC Capital Rules and CFTC Financial Reporting Rules
and Japanese Capital Rules and Japanese Financial Reporting Rules
1. Preliminary Determination
As reflected in the 2022 Proposal and discussed above, the Commission preliminarily
determined that the overall objectives of the Japanese Capital Rules and the CFTC Capital Rules
are comparable in that both sets of rules are intended to ensure the safety and soundness of
nonbank SDs by establishing regulatory regimes that require nonbank SDs to maintain a
sufficient amount of qualifying regulatory capital to absorb losses, including losses from swaps
and other trading activities, and to absorb decreases in the value of firm assets and increases in
the value of firm liabilities without the nonbank SDs becoming insolvent.98 The Commission
further noted that the Japanese Capital Rules and CFTC Capital Rules are also based on, and
consistent with, the BCBS framework, which was designed to ensure that banking entities hold
sufficient levels of capital to absorb losses and decreases in the value of firm assets and increases
in the value of firm liabilities without the banks becoming insolvent.99
The Commission also preliminarily found that the Japanese Capital Rules are comparable
in purpose and effect to the CFTC Capital Rules given that both regulatory approaches compute
the minimum capital requirements based on the level of a nonbank SD’s on-balance sheet and
off-balance sheet exposures, with the objective and purpose of ensuring that the nonbank SD’s
capital is adequate to absorb losses or decreases in the value of firm assets or increases in the
value of firm liabilities resulting from such exposures.100 The Commission observed that the

See 2022 Proposal at 48098. As stated in the 2022 Proposal, the Commission may also amend or supplement the
Comparability Order to address any material changes to the CFTC Capital Rules and CFTC Financial Reporting
Rules, including rule amendments to capital rules of the Federal Reserve Board that are incorporated into the CFTC
capital Rules’ Bank-Based Approach under Commission Regulation 23.101(a)(1)(i), that are adopted after the final
Comparability Order is issued. See id. (fn. 72).
98 See 2022 Proposal at 48099.
99 Id.
100 Id.
Japanese Capital Rules and CFTC Capital Rules provide for a comparable approach to the
calculation of on-balance sheet and off-balance sheet risk exposures using standardized or
internal model-based approaches.101 In addition, as discussed in the 2022 Proposal, the Japanese
Capital Rules’ and CFTC Capital Rules’ requirements for identifying and measuring on-balance
sheet and off-balance sheet exposures under standardized or internal model-based approaches are
also consistent with the requirements set forth under the BCBS framework for identifying and
measuring on-balance sheet and off-balance sheet exposures.102
Finally, the Commission preliminarily noted that the Japanese Capital Rules and CFTC
Capital Rules further achieve comparable outcomes and are comparable in purpose and effect in
that both sets of rules limit the types of capital instruments that qualify as regulatory capital to
cover the on-balance sheet and off-balance sheet risk exposures to high quality equity capital and
qualifying subordinated debt instruments that meet conditions designed to ensure that the holders
of the debt have effectively subordinated their claims to other creditors of the nonbank SD.103
As discussed in the 2022 Proposal and in Section II.B. below, both the Japanese Capital Rules
and the CFTC Capital Rules define high quality capital by the degree to which the capital
represents permanent capital that is contributed, or readily available to a nonbank SD, on an
unrestricted basis to absorb unexpected losses, including losses from swaps trading and other
activities, without the nonbank SD becoming insolvent.104
The Commission further stated that it preliminarily found the Japanese Financial
Reporting Rules to be comparable in purpose and effect to the CFTC Financial Reporting Rules
as both the FSA and CFTC require nonbank SDs to file periodic financial reports, including
unaudited financial reports and an annual audited financial report, detailing their financial
operations and demonstrating their compliance with minimum capital requirements.105 As

Id.
Id.
103 Id. at 48099-48100.
104 Id.
105 Id. at 48100.
101
discussed in the 2022 Proposal, in addition to providing the CFTC and FSA with information
necessary to comprehensively assess the financial condition of a nonbank SD on an ongoing
basis, the financial reports further provide the CFTC and FSA with information regarding
potential changes in a nonbank SD’s risk profile by disclosing changes in account balances
reported over a period of time.106 Such changes in account balances may indicate, among other
things, that the nonbank SD has entered into new lines of business, has increased its activity in
an existing line of business relative to other activities, or has terminated a previous line of
business.107
In assessing the comparability between the CFTC Financial Reporting Rules and the
Japanese Financial Reporting Rules, the Commission noted that the prompt and effective
monitoring of the financial condition of nonbank SDs through the receipt and review of periodic
financial reports supports the Commission and FSA in meeting their respective objectives of
ensuring the safety and soundness of nonbank SDs. In this regard, the Commission stated that
the early identification of potential financial issues provides the Commission and FSA with an
opportunity to address such issues with the nonbank SD before they develop to a state where the
financial condition of the firm is impaired such that it may no longer hold a sufficient amount of
qualifying regulatory capital to absorb decreases in the value of firm assets, absorb increases in
the value of firm liabilities, or cover losses from its business activities, including the firm’s swap
dealing activities and obligations to swap counterparties.108
2. Comment Analysis and Final Determination
In response to the Commission’s request for comment, Better Markets identified certain
differences between the CFTC Capital Rules and CFTC Financial Reporting Rules and the
Japanese Capital Rules and Japanese Financial Reporting Rules and stated that the differences

Id.
Id.
108 Id.
106
mandated denial of the request for a comparability determination.109 Better Markets further
stated that the imposition of conditions to achieve comparability between the regimes implicitly
concedes that the regimes are not comparable, and is suboptimal and undesirable, as it creates a
set of capital and reporting requirements that Japanese nonbank SDs must abide by and that the
Commission must monitor.110
As described herein and in the 2022 Proposal, Commission staff has engaged in a
detailed, comprehensive study and evaluation of the Japanese capital and financial reporting
framework and has confirmed that its understanding of the elements and application of the
framework is accurate. The Commission has also concluded, based on its evaluation, that the
FSA has a comprehensive oversight program for monitoring Japanese nonbank SD’s compliance
with relevant Japanese Capital Rules.
Furthermore, as discussed in Section I.E. above, the conditions set forth in the
Comparability Order are generally intended to ensure that: (i) only Japanese nonbank SDs that
are subject to the laws and regulations assessed under the Comparability Determination are
eligible for substituted compliance; (ii) the Japanese nonbank SDs are subject to supervision by
the FSA; and (iii) the Japanese nonbank SDs provide information to the Commission and NFA
that is relevant to the ongoing supervision of their operations and financial condition.
Considering this thorough analysis and the ongoing requirement for Japanese nonbank SDs to
provide information to the Commission and NFA demonstrating compliance with the
Comparability Order, the Commission is confident that it is capable of effectively conducting,
together with NFA, appropriately tailored oversight of the Japanese nonbank SDs. In light of the

Better Markets Letter at pp. 7-11. For example, Better Markets asserts that while the CFTC requires non-bank
SDs to hold qualifying capital in an amount equal to at least 8 percent of the nonbank SDs uncleared swap margin
amount, Japan’s capital rules are based on an “arbitrary percentage” of a company’s operating expenses. Better
Markets also asserted that while the CFTC’s capital rules require nonbank SDs to “maintain regulatory capital in the
form of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital, Japan’s capital rules require
nonbank SDs to maintain a “capital adequacy amount” in the form of “Basic Items and Supplemental Items” and
that the Japanese framework has no dollar minimum capital requirement. These distinctions between the CFTC
Capital Rules and Financial Reporting Rules, and the Japanese Capital and Financial Reporting Rules are discussed
in detail in sections II.C. and II.B., respectively, below.
110 Id.
Commission’s ultimate conclusion that the Japanese capital and financial reporting requirements
are comparable based on the standards articulated in Commission Regulation 23.106(a)(3), the
Commission believes that a failure to issue a Comparability Determination and Comparability
Order would in fact be “suboptimal and undesirable” as it would impose duplicative
requirements that would result in increased costs for registrants and market participants without a
commensurate benefit from an oversight perspective.
As discussed in Sections I.B. and E. above, and detailed herein, the Commission finds
that the CFTC Capital Rules and Financial Reporting Rules and the Japanese Capital Rules and
Financial Reporting Rules are comparable in purpose and effect, and have overall comparable
objectives, notwithstanding the identified differences. In this regard, the Commission notes that
instead of conducting a line-by-line assessment or comparison of the Japanese Capital and
Japanese Financial Reporting Rules and the CFTC Capital and CFTC Financial Reporting Rules,
it has applied in the assessment set forth in this determination and order, a principles-based,
holistic approach in assessing the comparability of both regimes, consistent with the standard of
review it adopted in Commission Regulation 23.106(a)(3). Based on that principles-based,
holistic assessment, the individual elements of which are described in more detail in Sections
II.B. through II.F below, the Commission has determined that both sets of rules are designed to
ensure the safety and soundness of nonbank SDs and achieve comparable outcomes. As such,
the Commission adopts the Comparability Determination and Comparability Order as proposed
with respect to the analysis of the regulatory objectives of the CFTC Capital Rules and Financial
Reporting Rules and the Japanese Capital and Financial Reporting Rules.
B. Nonbank Swap Dealer Qualifying Capital
1. Preliminary Determination
As discussed in the 2022 Proposal, the Commission preliminarily determined that the
Japanese Capital Rules are comparable in purpose and effect to CFTC Capital Rules with regard
to the types and characteristics of a nonbank SD’s equity that qualifies as regulatory capital in

meeting its minimum requirements.111 The Commission explained that the Japanese Capital
Rules and the CFTC Capital Rules for nonbank SDs both require a nonbank SD to maintain a
quantity of high-quality and permanent capital that, based on the firm’s activities and on-balance
sheet and off-balance sheet exposures, is sufficient to absorb losses and decreases in the value of
firm assets and increases in the value of firm liabilities without resulting in the firm becoming
insolvent.112 The Commission observed that the Japanese Capital Rules and the CFTC Capital
Rules permit nonbank SDs to recognize comparable forms of equity capital and qualifying
subordinated debt instruments toward meeting minimum capital requirements, with both the
Japanese Capital Rules and the CFTC Capital Rules emphasizing high quality capital
instruments.113
In support of its preliminary Comparability Determination, the Commission noted that
the CFTC Capital Rules require a nonbank SD electing the Bank-Based Approach to maintain
regulatory capital in the form of common equity tier 1 capital, additional tier 1 capital, and tier 2
capital in amounts that meet certain stated minimum requirements set forth in Commission
Regulation 23.101.114 Common equity tier 1 capital is generally composed of an entity’s
common stock instruments, and any related surpluses, retained earnings, and accumulated other
comprehensive income, and is a more conservative or permanent form of capital that is last in
line to receive distributions in the event of the entity’s insolvency.115 Additional tier 1 capital is
generally composed of equity instruments such as preferred stock and certain hybrid securities
that may be converted to common stock if triggering events occur and may have a preference in
distributions over common equity tier 1 capital in the event of an insolvency.116 Total tier 1
capital is composed of common equity tier 1 capital and further includes additional tier 1 capital.

See 2022 Proposal at 48101.
Id.
113 Id.
114 17 CFR 23.101(a)(1)(i) and 2022 Proposal at 48100. The terms “common equity tier 1 capital,” “additional tier 1
capital,” and “tier 2 capital” are defined in the bank holding company regulations of the Federal Reserve Board. See
12 CFR 217.20.
115 12 CFR 217.20(b).
116 12 CFR 217.20(c).
111
Tier 2 capital includes certain types of instruments that include both debt and equity
characteristics such as qualifying subordinated debt.117 Subordinated debt must meet certain
conditions to qualify as tier 2 capital under the CFTC Capital Rules.118
The preliminary Comparability Determination also noted that the Japanese Capital Rules
require each Japanese nonbank SD to maintain a “capital adequacy amount” (i.e., an aggregate of
Basic Items and Supplemental Items, after deducting carrying value of fixed assets, with Basic
Items representing at least 50 percent of the total capital adequacy amount)119 that equals or
exceeds 120 percent of the firm’s “risk equivalent amount,” which is the sum of the firm’s
market risk, credit risk, and basic risk.120 Basic Items are composed of the Japanese nonbank
SD’s balance sheet capital, including: (i) issued and outstanding shares; (ii) the payment for an
application for new shares; (iii) the capital surplus; (iv) the earned surplus; (v) the negative
valuation difference on available-for-sale securities; and (vi) the firm’s own treasury stock.121
Supplemental Items include the positive valuation difference on available-for-sale securities and
certain subordinated debt instruments.122 Subordinated debt instruments also must meet certain
conditions to qualify as Supplemental Items under the Japanese Capital Rules, including
containing appropriate provisions subordinating the rights of the lender to the payment of
principal and interest to other creditors of the Japanese nonbank SD.123 In addition, any

12 CFR 217.20(d).
Subordinated debt must meet requirements set forth in SEC Rule 18a-1d. Specifically, subordinated debt
instruments must have a term of at least one year (with the exception of approved revolving subordinated debt
agreements which may have a maturity term that is less than one year), and contain terms that effectively
subordinate the rights of lenders to receive any payments, including accrued interest, to other creditors of the firm.
17 CFR 23.101(a)(1)(i)(B) and 17 CFR 240.18a-1d.
119 See 2022 Proposal at 48100. The phrase “after deducting carrying value of fixed assets” has been added after
“Supplemental Items” in response to a technical comment by IBAJ. IBAJ Letter at p. 5. As the Commission
explained in the 2022 Proposal, the deduction of the carrying value of fixed assets is a conservative approach to the
computation of a Japanese nonbank SD’s capital adequacy amount as it excludes the value of non-liquid fixed assets
from the firm’s total Basic Items. See 2022 Proposal at 48101.
120 Article 46-6(2) of the FIEA, Article 176 of the COO and section IV-2-1 (Preciseness of Capital Adequacy Ratio)
of the Supervisory Guidelines for FIBO.
121 Article 176(1)(i) through (vi) of the COO.
122 Article 176(1)(vii) of the COO.
123 Article 176(2) and (3) of the COO.
117
accelerated payment of the subordinated debt may only be made on a voluntarily basis by the
Japanese nonbank SD after obtaining approval from the FSA.124
Based on its comparative assessment, the Commission preliminarily found that the types
and characteristics of the equity instruments included in Basic Items under the Japanese Capital
Rules are comparable to the types and characteristics of equity instruments comprising common
equity tier 1 capital and additional tier 1 capital under the CFTC Capital Rules.125 Specifically,
the Commission noted that the Japanese Capital Rules’ Basic Items and the CFTC Capital Rules’
common equity tier 1 capital and additional tier 1 capital are comparable in that these forms of
equity capital have similar characteristics (e.g., the equity must be in the form of high-quality,
committed, and permanent capital) and represent contributed equity capital that generally has no
priority to the distribution of firm assets or income with respect to other shareholders or creditors
of the firm, which allows a nonbank SD to use this equity to absorb decreases in the value of
firm assets, absorb increases in the value of firm liabilities, and cover losses from business
activities, including the firm’s swap dealing activities.126
The Commission also found the Supplemental Items under the Japanese Capital Rules to
be comparable to tier 2 capital under the CFTC Capital Rules.127 Specifically, the Commission
noted that the qualifying conditions imposed on subordinated debt instruments are comparable
under the Japanese Capital Rules and the CFTC Capital Rules in that they are designed to ensure
that the debt has qualities supporting its recognition by a nonbank SD as equity for capital
purposes, including by effectively subordinating the lenders’ claims for repayment on the debt,
or interest payments on the debt, to the claims of other creditors of the nonbank SD, and by
limiting or restricting repayment or accelerated payments of the subordinated loans if such
repayments or accelerated prepayments would result in the nonbank SD’s equity falling below

Id.
See 2022 Proposal at 48101.
126 Id.
127 Id.
124
certain defined thresholds.128 The Commission preliminarily concluded that the terms and
conditions provided assurances that the subordinated debt was appropriate to be recognized as
regulatory capital available to a nonbank SD to meet its regulatory obligations and to absorb
business losses and decreases in the value of firm assets and increases in the value of firm
liabilities.129
The Commission also noted that the Japanese Capital Rules differ from the CFTC Capital
Rules in that the Japanese Capital Rules require Japanese nonbank SDs to exclude the carrying
value of fixed assets from the sum of the Basic Items and Supplemental Items in computing the
capital adequacy amount, whereas the CFTC Capital Rules do not require a nonbank SD to
exclude the carrying value of fixed assets from the firm’s common equity tier 1 capital or
additional tier 1 capital.130 As discussed in the 2022 Proposal, the deduction of the carrying
value of fixed assets under the Japanese Capital Rules is a more conservative standard as it
imposes an obligation on Japanese nonbank SDs to meet minimum regulatory capital
requirements with capital that reflects or represents balance sheet assets that are more liquid than
fixed assets.131
2. Comment Analysis and Final Determination
In response to the Commission’s request for comment on the qualifying capital analysis,
Better Markets objected to the Commission’s determination that the Japanese Capital Rules are
comparable to the CFTC Capital Rules with respect to the type and characteristics of equity that
qualifies as regulatory capital.132 Better Markets asserted that the Commission did not
adequately analyze the differences between the two regulatory regimes with respect to the items
of qualifying capital.133 More specifically, Better Markets stated that Basic Items under the

Id.
Id.
130 The IBAJ noted that the Japanese Capital Rules require the carrying value of fixed assets to be deducted from
both Basic Items and Supplemental Items (and not just Basic Items as stated in the 2022 Proposal). The
Commission has incorporated this clarification into the final Comparability Determination. IBAJ Letter at p. 5.
131 See Article 177 of the COO for a breakdown of the fixed assets to be deducted.
132 Better Markets Letter at p. 9.
133 Id. at p. 8.
128
Japanese Capital Rules include treasury stock, whereas, under the CFTC Capital Rules, which
are based on definitions of capital from the Federal Reserve Board, common equity tier 1 capital
is net of treasury stock.134
The Commission recognizes that the Japanese Capital Rules list treasury stock, which
represents previously issued shares of stock that have been repurchased by the firm, as a Basic
Item.135 In application of the Japanese Rules of Corporate Accounting, however, treasury stock
must be deducted from the shareholders’ equity component of the firms’ balance sheet.136 As
such, consistent with the treatment received under the CFTC Capital Rules, the treasury stock is
not counted towards the Japanese nonbank SD’s Basic Items or Supplemental Items in meeting
its minimum regulatory capital requirement. Accordingly, the Commission does not find that the
CFTC Capital Rules and the Japanese Capital Rules diverge with respect to their respective
approach to exclude treasury stock from regulatory capital.
In addition, upon further analysis, the Commission not only reiterates its observations
that the Japanese Capital Rules’ Basic Items present characteristics that are comparable to the
characteristics of common equity tier 1 and additional tier 1 capital, but the Commission further
concludes that, despite certain definitional differences, the Japanese Capital Rules’ Basic Items
are more closely equated to common equity tier 1 capital. In particular, the Basic Items’
categories of “issued and outstanding shares,” “capital surplus,” and “earned surplus,”
correspond to the CFTC Capital Rules’ common equity tier 1 categories of “common stock and
related surpluses,” and “retained earnings” as the categories represent equity contributions and
earnings that have been retained by the nonbank SDs and represent residual ownership interest in
the nonbank SDs. Similarly, whereas the CFTC Capital Rules provide for the inclusion of
unrealized losses and gains on available-for-sale securities in the common equity tier 1 category

Id. at p. 9.
Article 176 of the COO.
136 Article 76(2) of Rules of Corporate Accounting (Ordinance of the Ministry of Justice No. 13 of February 7,
2006). To account for the accurate treatment of treasury stock, the Commission has revised final Condition 4 of the
final Comparability Order to include Article 76 of the Rules of Corporate Accounting to the list of laws comprising
the Japanese Capital Rules that a Japanese nonbank SD must comply with under the Comparability Order.
134
of “accumulated other comprehensive income,” the Japanese Capital Rules require that the
positive valuation of available-for-sale securities (i.e., unrealized gain) be excluded and the
negative valuation difference (i.e., unrealized loss) of available-for-sale securities be included in
Basic Items, thus mandating a similar, if not more conservative, treatment for this category of
capital items. Finally, as clarified above, the CFTC Capital Rules and the Japanese Capital Rules
treat treasury stock consistently for purposes of determining qualifying capital. More generally,
the Commission is of the view that the Japanese Capital Rules’ Basic Items are comparable to
the CFTC Capital Rules’ common equity tier 1 items in that both categories represent a more
conservative, permanent form of capital that is last in line to receive distributions in the event of
the entity’s insolvency.
In conclusion, the Commission finds that the Japanese Capital Rules and the CFTC
Capital Rules, are comparable in purpose and effect, and achieve comparable regulatory
outcomes, with respect to the types of capital instruments that qualify as regulatory capital. Both
the Japanese Capital Rules and the CFTC Capital Rules limit regulatory capital to permanent and
conservative forms of capital, including common equity, capital surpluses, retained earnings, and
subordinate debt where debt holders effectively subordinate their claims to repayment to all other
creditors of the nonbank SD in the event of the firm’s insolvency. Limiting regulatory capital to
the above categories of equity and debt instruments promotes the safety and soundness of the
nonbank SD by helping to ensure that the regulatory capital is not withdrawn or converted to
other equity instruments that may have rights or priority with respect to payments, such as
dividends or distributions in insolvency, over other creditors, including swap counterparties. The
Commission, therefore, is adopting the Comparability Order as proposed with respect to the
types and characteristics of equity and subordinated debt that qualify as regulatory capital to
meet minimum capital requirements under the Japanese Capital Rules.

C. Nonbank Swap Dealer Minimum Capital Requirement
1. Introduction to Nonbank Swap Dealer Minimum Capital Requirements
As reflected in the 2022 Proposal, the CFTC Capital Rules require a nonbank SD electing
the Bank-Based Approach to maintain regulatory capital that satisfies each of the following
criteria: (i) an amount of common equity tier 1 capital of at least $20 million; (ii) an aggregate
amount of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital equal to or
greater than 8 percent of the nonbank SD’s total risk-weighted assets, provided that common
equity tier 1 capital comprises at least 6.5 percent of the 8 percent; (iii) an aggregate of common
equity tier 1 capital, additional tier 1 capital, and tier 2 capital in an amount equal to or in excess
of 8 percent of the nonbank SD’s uncleared swap margin amount;137 and (iv) the amount of
capital required by NFA.138
In comparison, the Japanese Capital Rules require each Japanese nonbank SD to maintain
a “capital adequacy amount” that equals or exceeds 120 percent of the firm’s “risk equivalent
amount.”139 As explained in the 2022 Proposal, the “capital adequacy amount” is calculated as
the Japanese nonbank SD’s qualifying balance sheet equity capital in the form of Basic Items
and Supplemental Items, after deducting the carrying value of fixed assets from both Basic Items
and Supplemental Items.140 The Commission noted that the Japanese Capital Rules further
require that at least 50 percent of the Japanese nonbank SD’s capital used to meet the 120
percent minimum requirement must be composed of Basic Items, and any subordinated debt

The term “uncleared swap margin” is defined in Commission Regulation 23.100 to generally mean the amount of
initial margin that a nonbank SD would be required to collect from each counterparty for each outstanding swap
position of the nonbank SD. 17 CFR 23.100. A nonbank SD must include all swap positions in the calculation of
the uncleared swap margin amount, including swaps that are exempt or excluded from the scope of the
Commission’s uncleared swap margin regulations. A nonbank SD must compute the uncleared swap margin
amount in accordance with the Commission’s margin rules for uncleared swaps. 17 CFR 23.154.
138 17 CFR 23.101(a)(1)(i)(D). See also 2022 Proposal at 48101 and 48104. Commission Regulation
23.101(a)(1)(i) sets forth one of the minimum thresholds that a nonbank SD must meet as the “the amount of capital
required by a registered futures association.” As previously noted, NFA is currently the only entity that is a
registered futures association. NFA has adopted the Commission’s capital requirements as its own requirements,
and has not adopted any additional or stricter minimum capital requirements. See NFA rulebook, Financial
Requirements section 18 Swap Dealer and Major Swap Participant Financial Requirements, available at
nfa.futures.org.
139 See 2022 Proposal at 48103.
140 Id.
included in Supplemental Items must meet regulatory requirements designed to ensure that the
debt is adequately subordinated to claims of other potential creditors of the firm.141
2. Preliminary Determination and Comment Analysis
While noting certain differences in the minimum capital requirements and calculation of
regulatory capital between the Japanese Capital Rules and the CFTC Capital Rules, the
Commission preliminarily found that the Japanese Capital Rules and CFTC Capital Rules
achieve, subject to the proposed conditions in the proposed Comparability Determination and
proposed Comparability Order, comparable outcomes by requiring a nonbank SD to maintain a
minimum level of qualifying regulatory capital and subordinated debt to absorb losses from the
firm’s business activities, including its swap dealing activities, and decreases in the value of the
firm’s assets and increases in the firm’s liabilities without the nonbank SD becoming
insolvent.142 As further discussed below, the Commission’s preliminary finding of comparability
was based on a principles-based, holistic comparative analysis of the three minimum capital
requirement thresholds of the CFTC Capital Rules’ Bank-Based Approach referenced above and
the respective elements of the Japanese Capital Rules’ requirements.
a. Fixed Amount Minimum Capital Requirement
As noted above, prong (i) of the CFTC Capital Rules requires each nonbank SD electing
the Bank-Based Approach to maintain a minimum of $20 million of common equity tier 1
capital. The Commission’s $20 million fixed-dollar minimum capital requirement is intended to
ensure that each nonbank SD maintains a level of regulatory capital, without regard to the level
of the firm’s dealing and other activities, sufficient to meet its obligations to swap market
participants given the firm’s status as a CFTC-registered nonbank SD, and to help ensure the
safety and soundness of the nonbank SD.143 In contrast, the Japanese Capital Rules do not
impose a capital requirement on Japanese nonbank SDs based on a minimum dollar amount.

See 2022 Proposal at 48099 and Article 176(1)(vii) of the COO.
See 2022 Proposal at 48104.
143 85 FR 57462 at 57492.
141
The Commission expressed the preliminary view that each CFTC-registered nonbank SD
should maintain a minimum level of regulatory capital to help ensure that it satisfies its
regulatory obligations and meets its financial commitments to swap counterparties and creditors
without the firm becoming insolvent.144 Accordingly, the Commission proposed to condition the
Comparability Order to require each Japanese nonbank SD to maintain, at all times, a minimum
level of regulatory capital in the form of Basic Items, as defined in Article 176 of the COO, in an
amount denominated in yen that is equivalent to, or greater than, $20 million in U.S. dollars.145
One commenter, Better Markets, argued that the absence of a base level requirement in
the Japanese Capital Rules that is equivalent to the CFTC Capital Rules’ requirement for each
nonbank SD to maintain a minimum of $20 million of common equity tier 1 capital
“demonstrates a fatal lack of comparability.”146 Better Markets further asserted that the
Commission’s proposed condition requiring that Japanese nonbank SDs maintain a minimum
level of regulatory capital of at least $20 million inadequately compensates for the gap in the
Japanese framework.147 Specifically, Better Markets argued that by allowing Japanese nonbank
SD to meet the proposed minimum capital level with Basic Items, which the Commission
preliminarily found to be equivalent to the combination of common equity tier 1 and additional
tier 1 capital, instead of limiting the qualifying items to the higher form of common equity tier 1
capital, the Commission would impose a materially weaker capital requirement.148
As noted above, the Commission recognized the difference between the Japanese Capital
Rules and the CFTC Capital Rules with respect to the $20 million minimum dollar amount of
regulatory capital a nonbank SD is required to maintain. The Commission’s proposed condition,
however, effectively addresses this difference by providing that a Japanese nonbank SD may not
avail itself of substituted compliance unless it maintains a minimum of $20 million of regulatory

See 2022 Proposal at 48106.
Id. The Commission also proposed to allow a Japanese nonbank SD to convert the yen-denominated amount of
its Basic Items to the U.S. dollar equivalent based on a commercially reasonable and observed exchange rate.
146 Better Markets Letter at p. 9.
147 Id.
148 Id.
144
capital in the form of Basic Items. The imposition of the condition was consistent with the
Commission authority under Commission Regulation 23.106(a)(5). Furthermore, as discussed in
Section I.E. above, the Commission has stated that entities relying on substituted compliance
may be required to comply with certain Commission-imposed requirements in situations where
comparable regulations in their home country jurisdiction are deemed to be lacking.149
As discussed in Section II.B.2. above, the Commission is also of the view that the
Japanese Capital Rules’ Basic Items are comparable to the CFTC Capital Rules’ common equity
tier 1 items in that both categories represent a conservative, permanent form of capital that is last
in line to receive distributions in the event of the entity’s insolvency. Specifically, the capital
that may be recognized by a nonbank SD and Japanese nonbank SD to meet its common equity
tier 1 capital requirement and Basic Items requirement, respectively, is generally limited to
common stock, related common stock surpluses, and retained earnings. As such, the
Commission concludes that the requirement for Japanese nonbank SDs to maintain an amount of
regulatory capital in the form of Basic Items equal to or in excess of the equivalent of $20
million will impose a comparable standard to the analogue requirement under the CFTC Capital
Rules and will appropriately address the lack of a minimum fixed amount capital requirement
under the Japanese Capital Rules.
In conclusion, the Commission finds that the Japanese Capital Rules and the CFTC
Capital Rules, with the imposition of the condition for Japanese nonbank SDs to maintain a
minimum level of Basic Items in an amount equivalent to at least $20 million, are comparable in
purpose and effect and achieve comparable regulatory outcomes with respect to capital
requirements based on a minimum dollar amount. The requirement for a nonbank SD with
limited swap dealing or other business activities to maintain a minimum level of regulatory
capital equivalent to $20 million helps to ensure the firm’s safety and soundness by allowing it to

Guidance at 45343.

absorb decreases in firm assets, absorb increases in firm liabilities, and meet obligations to swap
counterparties, other creditors, and market participants, without the firm becoming insolvent.
b. Minimum Capital Requirement Based on Risk-Weighted Assets
Prong (ii) of the CFTC Capital Rules’ minimum capital requirements described above
requires each nonbank SD electing the Bank-Based Approach to maintain an aggregate of
common equity tier 1 capital, additional tier 1 capital, and tier 2 capital in an amount equal to or
greater than 8 percent of the nonbank SD’s total risk-weighted assets, with common equity tier 1
capital comprising at least 6.5 percent of the 8 percent.150 Risk-weighted assets are a nonbank
SD’s on-balance sheet and off-balance sheet exposures, including market risk and credit risk
exposures, and include exposures associated with proprietary swap, security-based swap, equity,
and futures positions, weighted according to risk. The requirements and capital ratios set forth in
prong (ii) are based on the Federal Reserve Board’s capital requirements for bank holding
companies151 and are consistent with the BCBS framework.152 The requirement for each
nonbank SD to maintain regulatory capital in an amount that equals or exceeds 8 percent of the
firm’s total risk-weighted assets is intended to help ensure that the nonbank SD’s level of capital
is sufficient to absorb decreases in the value of the firm’s assets, absorb increases in the value of
the firm’s liabilities, and cover unexpected losses resulting from the firm’s business activities,
including losses resulting from collateralized and uncollateralized defaults from swap
counterparties, without the nonbank SD becoming insolvent.153
The Japanese Capital Rules contain capital requirements for Japanese nonbank SDs that
the Commission preliminarily found comparable in purpose and effect to the requirements in

17 CFR 23.101(a)(1)(i)(B).
12 CFR 217.10(a)(1). The minimum capital requirement for a bank holding company under the Federal Reserve
Board’s rules requires bank holding companies to satisfy their 8 percent minimum capital ratio requirement with a
minimum of 4.5 percent of common equity tier 1 capital. The CFTC Capital Rules, however, require a nonbank SD
to meet its minimum 8 percent capital ratio with at least 6.5 percent of common equity tier 1 capital. 17 CFR
23.101(a)(1)(i)(B).
152 Risk-based capital requirements RBC20, Calculation of minimum risk-based capital requirements (Version
effective as of 01 January 2023), published by the BCBS and available here:
https://www.bis.org/basel_framework/chapter/RBC/20.htm?inforce=20230101&published=20201126.
153 See generally 85 FR 57462 at 57530.
150
prong (ii) of the CFTC Capital Requirements.154 Specifically, the Japanese Capital Rules require
a Japanese nonbank SD to maintain regulatory capital in an amount equal to or in excess of 120
percent of the firm’s risk “risk equivalent amount” (i.e., the firm’s risk-weighted assets).155 A
Japanese nonbank SD’s “risk equivalent amount” is calculated as the sum of the firm’s: (i)
market risk equivalent amount (i.e., the amount equivalent to possible risks which may accrue
due to fluctuations in the prices of securities and other proprietary assets and transactions
held);156 (ii) counterparty risk equivalent amount (i.e., the amount equivalent to possible risks
which may accrue due to the default in performance of contracts by the counterparties to
transactions or any other reason);157 and (iii) basic risk equivalent amount (i.e., the amount
equivalent to possible risk which may accrue in the ordinary course of executing business, such
as errors in business handling).158
The Commission also preliminarily found that the Japanese Capital Rules and the CFTC
Capital Rules are comparable with respect to the approaches used in the calculation of riskweighted amounts for market risk and credit risk in determining the nonbank SD’s risk-weighted
assets.159 In this connection, the Commission noted that both regimes require a nonbank SD to
use standardized approaches to compute market risk and credit risk amounts, unless the firm is
approved to use internal models.160
As the Commission observed, the standardized approaches to calculating risk-weighted
asset amounts for market risk and credit risk under both the Japanese Capital Rules and the
CFTC Capital Rules follow the same structure that is now the common global standard: (i)

See 2022 Proposal at 48105.
See discussion in 2022 Proposal at 48105. The Japanese Capital Rules require a Japanese nonbank SD to
maintain a capital adequacy amount that equals or exceeds 120 percent of its “risk equivalent amount.” Article 466(2) of the FIEA, Article 176 of the COO, and section IV-2-1 (Preciseness of Capital Adequacy Ratio) of the
Supervisory Guidelines for FIBO.
156 Article 178(1)(i) of the COO and Articles 10 through 14 of the Notice on Capital. The “market risk equivalent
amount” corresponds to “market risk” in the CFTC Capital Rules’ Bank-Based Approach and the BCBS framework.
157 Article 178(1)(ii) of the COO and Articles 15 through 15–7 of the Notice on Capital. The “counterparty risk
equivalent amount” corresponds to “credit risk” in the BCBS and Bank-Based Approach frameworks.
158 Article 178(1)(iii) of the COO and Article 16 of the Notice on Capital.
159 See 2022 Proposal at 48105.
160 Id.
154
allocating assets to categories according to risk and assigning each a risk weight; (ii) allocating
counterparties according to risk assessments and assigning each a risk factor; (iii) calculating
gross exposures based on valuation of assets; (iv) calculating a net exposure allowing offsets
following well defined procedures and subject to clear limitations; (v) adjusting the net exposure
by the market risk weights; and finally, (vi) for credit risk exposures, multiplying the sum of net
exposures to each counterparty by their corresponding risk factor.161
More specifically, with respect to the calculation of standardized risk-weighted asset
amounts for market risk, the Commission explained that the CFTC Capital Rules incorporate by
reference the standardized market risk charges set forth in Commission Regulation 1.17 for
FCMs and SEC Rule 18a-1 for nonbank security-based swap dealers (“SBSDs”).162 The
standardized market risk charges under Commission Regulation 1.17 and SEC Rule 18a-1 are
calculated as a percentage of the market value or notional value of the nonbank SD’s assets,
including marketable securities and derivatives positions, with the percentages applied to the
market value or notional value increasing as the expected or anticipated risk of the positions
increases.163 For example, the CFTC Capital Rules require nonbank SDs to calculate
standardized market risk-weighted asset amounts for uncleared swaps based on notional values
of the swap positions multiplied by percentages set forth in the applicable rules.164 In addition,
market risk-weighted asset amounts for readily marketable equity securities are calculated by
multiplying the fair market value of the securities by 15 percent.165
Under the CFTC Capital Rules, the resulting total market risk-weighted asset amount is
multiplied by a factor of 12.5 to cancel the effect of the 8 percent multiplication factor applied to
all of the nonbank SD’s risk-weighted assets under prong (ii) of the rules’ minimum capital
requirements described above. As a result, a nonbank SD is effectively required to hold

Id
See paragraph (3) of the definition of the term BHC equivalent risk-weighted assets in 17 CFR 23.100.
163 17 CFR 1.17(c)(5) and 17 CFR 240.18a-1(c)(1).
164 17 CFR 1.17(c)(5)(iii).
165 17 CFR 1.17(c)(5)(v), referencing SEC Rule 15c3-1(c)(2)(vi) (17 CFR 240.15c3-1(c)(2)(vi)).
161
qualifying regulatory capital equal to or greater than 100 percent of the amount of its market risk
exposure amount.166
Comparable to the CFTC Capital Rules, the Japanese Capital Rules require a Japanese
nonbank SD to calculate its standardized market risk equivalent amount by multiplying specified
market risk weights set forth in the Japanese Capital Rules by the notional or market value of the
relevant assets and positions.167 A Japanese nonbank SD is further required to include the full
value of its market risk equivalent amount in its aggregate risk equivalent amount, which
effectively requires the Japanese nonbank SD to hold qualifying equity capital and subordinated
debt in an amount that equals or exceeds 120 percent of the market risk equivalent amount.168
With respect to standardized risk-weighted asset amounts for credit risk from nonderivatives positions, the Commission explained that under the CFTC Capital Rules, a nonbank
SD must compute its on-balance sheet and off-balance sheet exposures in accordance with the
standardized risk-weighting requirements adopted by the Federal Reserve Board and set forth in
Subpart D of 12 CFR 217 as if the SD itself were a bank holding company subject to Subpart
D.169 Standardized risk-weighted asset amounts for credit risk are computed by multiplying the
amount of the exposure by defined counterparty credit risk factors that range from 0 percent to
150 percent.170 A nonbank SD with off-balance sheet exposures is required to calculate a risk-

See 17 CFR 23.100 (definition of BHC equivalent risk-weighted assets). As noted, a nonbank SD is required to
maintain qualifying capital (i.e., an aggregate of common equity tier 1 capital, additional tier 1 capital, and tier 2
capital) in an amount that equals or exceeds 8 percent of its risk-weighted assets. The regulations, however, require
the nonbank SD to effectively maintain qualifying capital equal to or in excess of 100 percent of its market riskweighted assets by requiring the nonbank SD to multiply its market-risk weighted assets by a factor of 12.5. For
example, the market risk exposure amount for marketable equity securities with a current fair market value of
$250,000 is $37,500 (market value of $250,000 x .15 standardized market risk factor). The nonbank SD is required
to maintain regulatory capital equal to or in excess of full market risk exposure amount of $37,500 (risk exposure
amount of $37,500 x 8 percent regulatory capital requirement equals $3,000; the regulatory capital requirement is
then multiplied by a factor of 12.5, which effectively requires the nonbank SD to hold regulatory capital in an
amount equal to at least 100 percent of the market risk exposure amount ($3,000 x 12.5 factor equals $37,500)).
167 See 2022 Proposal at 48103.
168 Id. Using the example above, if the market risk exposure amount for the equity securities under the Japanese
Capital Rules was calculated to be $37,500, the Japanese nonbank SD would be required to hold an amount of
regulatory capital equal to or in excess of $45,000 (market risk exposure amount of $37,500 x 120 percent).
169 23.101(a)(1)(i)(B) and paragraph (1) of the definition of the term BHC equivalent risk-weighted assets in 17 CFR
23.100. See also 2022 Proposal at 48102.
170 12 CFR 217.32. Lower credit risk factors are assigned to entities with lower credit risk and higher credit risk
factors are assigned to entities with higher credit risk. For example, a credit risk factor of 0 percent is applied to
weighted asset amount for credit risk by multiplying each exposure by a credit conversion factor
that ranges from 0 percent to 100 percent, depending on the type of exposure.171
In comparison, the Commission noted that Japanese Capital Rules require a Japanese
nonbank SD to calculate its standardized counterparty risk equivalent amount by multiplying its
exposure under a given transaction by the specific risk weight applicable to the counterparty
under the provisions of the Japanese Capital Rules.172 In this regard, the Japanese Capital Rules
impose risk weights ranging from 0 percent to 25 percent on exposures to governmental financial
institutions, non-governmental financial institutions, general corporations, and individuals.173
For certain exposures, credit ratings are used to determine the percentage of the counterparty
credit risk exposure and, if no credit ratings are available, the Japanese nonbank SD generally
applies a 25 percent risk weight.174 A Japanese nonbank SD is required to include the full
amount of the counterparty risk equivalent amount in its aggregate risk equivalent amount.175 As
noted above, a Japanese nonbank SD is also required to maintain a “capital adequacy amount”
that equals or exceeds 120 percent of the firm’s “risk equivalent amount.” Therefore, a Japanese
nonbank SD is effectively required to maintain an amount of qualifying capital that is equal to or
in excess of 120 percent of its credit risk equivalent amount.
With respect to credit risk for derivatives positions, the Commission explained that under
the CFTC Capital Rules, a nonbank SD may compute standardized credit risk exposures, using
either the current exposure method (“CEM”) or the standardized approach for measuring
counterparty credit risk (“SA-CCR”).176 Both CEM and SA-CCR are non-model, rules-based

exposures to the U.S. government, the Federal Reserve Bank, and U.S. government agencies (12 CFR 217.32(a)(1)),
and a credit risk factor of 100 percent is assigned to an exposure to foreign sovereigns that are not members of the
Organization of Economic Co-operation and Development (12 CFR 217.32(a)(2)). See also discussion in 2022
Proposal at 48102.
171 12 CFR 217.33. See also discussion in 2022 Proposal at 48102.
172 See 2022 Proposal at 48103-48104.
173 Article 15(3) of the Notice on Capital. See also discussion in 2022 Proposal at 48104.
174 Id.
175 Id.
176 17 CFR 217.34 and 17 CFR 23.100 (defining the term BHC risk-weighted assets and providing that a nonbank
SD that does not have model approval may use either CEM or SA-CCR to compute its exposures for over-thecounter derivative contracts without regard to the status of its affiliate with respect to the use of a calculation
approach under the Federal Reserve Board’s capital rules). See also discussion in 2022 Proposal at 48102.

approaches to calculating counterparty credit risk exposures for derivatives positions. Credit risk
exposure under CEM is the sum of: (i) the current exposure (i.e., the positive mark-to-market) of
the derivatives contract; and (ii) the potential future exposure, which is calculated as the product
of the notional principal amount of the derivatives contract multiplied by a standard credit risk
conversion factor set forth in the rules of the Federal Reserve Board.177 Credit risk exposure
under SA-CCR is defined as the exposure at default amount of a derivatives contract, which is
computed by multiplying a factor of 1.4 by the sum of: (i) the replacement costs of the contract
(i.e., the positive mark-to market); and (ii) the potential future exposure of the contract.178
In comparison, the Japanese Capital Rules require a Japanese nonbank SD that is not
approved to use credit risk models to calculate its exposure using the CEM.179 Under the CEM,
a Japanese nonbank SD calculates its exposures for over-the-counter derivatives using a
standardized rules-based approach, and is required to hold an amount of qualifying capital that
equals or exceeds 120 percent of the aggregate derivatives exposures.
As discussed in the 2022 Proposal, both the CFTC Capital Rules and the Japanese Capital
Rules also provide that, if approved by NFA or the FSA, respectively, nonbank SDs may also
use internal models to calculate market and/or credit risk exposures.180 The Commission noted
that the internal market and credit risk models under the Japanese Capital Rules and the CFTC
Capital Rules are based on the BCBS framework and preliminarily found that such models must
meet comparable quantitative and qualitative requirements covering the same risks, including
comparable model risk management requirements.181 In this regard, the Commission observed

12 CFR 217.34.
12 CFR 217.132(c).
179 See 2022 Proposal at 48104.
180 Id. at 48102-48104.
181 Id. For a discussion of the qualitative and quantitative requirements that models must meet under the CFTC
Capital Rules and the Japanese Capital Rules, see 2022 Proposal at 48102-48103 and 48104, respectively. In this
context, the Commission notes that, as emphasized by IBAJ, the expected exposure method is the only internal
model allowed for purposes of calculating credit risk under the Japanese Capital Rules. IBAJ Letter at pp. 5-6. The
Commission had erroneously indicated, in referring to credit risk models under the Japanese Capital Rules, that
internal credit risk models can also further include estimation of the likelihood of default of counterparties and that
credit risk models may include internal ratings based on the estimation of default probabilities, consistent with the
Basel framework and subject to the same model risk management guidelines. 2022 Proposal at 48098 and 48104.
177
that both rule sets address the same types of risk, with similar allowed methodologies, calibrated
to similar risk levels and under similar controls.182 The Commission also noted that the Japanese
Capital Rules and the CFTC Capital Rules contain comparable requirements for the management
of model risk, which depend on a series of controls, including the independence of validation,
ongoing monitoring and audit.
In addition, the Japanese Capital Rules require a Japanese nonbank SD to calculate a
basic risk equivalent amount (i.e., an operational risk exposure amount) as a component of the
firm’s risk equivalent amount. The basic risk equivalent amount is computed as an amount equal
to 25 percent of the Japanese nonbank SD’s defined annual operating expenses, and is intended
to provide a capital cushion to cover risks that may occur in the course of executing ordinary
business operations, such as errors in business transactions.183
One commenter, Better Markets, noted that the CFTC Bank-Based Approach requires
nonbank SDs to maintain an aggregate of common equity tier 1 capital, additional tier 1 capital,
and tier 2 capital equal to or greater than 8 percent of the non-bank SD’s total risk-weighted
assets, provided that common equity tier 1 capital must comprise at least 6.5 percent of the 8
percent of risk-weighted assets.184 Better Markets stated that, in contrast, the Japanese Capital
Rules require Japanese nonbank SDs to hold capital equal to or greater than 120 percent of their
risk-weighted assets, including 50 percent that must be held in Basic Items.185 Better Markets
further asserted that in stating that the 120 percent of risk-weighted assets required by the
Japanese capital rules equates to an “effective minimum capital requirement of 9.6 percent of
risk-weighted assets,” the Commission did not provide an analysis of how the CFTC calculated

The Commission hereby rectifies its summary of the relevant Japanese Capital Rules and specifies that these
statements do not apply to credit risk models under the Japanese Capital Rules. The Commission, however,
maintains its conclusion that model requirements under the CFTC Capital Rules and the Japanese Capital Rules are
comparable.
182 See 2022 Proposal at 48105.
183 Article 178(1)(iii) of the COO and Article 16 of the Notice on Capital. See also discussion in 2022 Proposal at
48104.
184 Better Markets Letter at p 9.
185 Id. at p. 10.

that effective minimum and did not disclose how much of the 9.6 percent is held in Basic Items
as opposed to Supplementary Items.186 In Better Markets’ view, without this information and
analysis, no comparability determination can be made because U.S. nonbank SDs are required to
maintain 6.5 percent of the total 8 percent of risk-weighted assets in the highest form of capital,
namely common equity tier 1 capital.187
Another commenter, IBAJ, offered a contrasting view, stating that Japanese nonbank SDs
must maintain capital equal to 120 percent of market risk, credit risk, and basic risk equivalent
amounts and that such amount of capital translated into an effective capital ratio requirement of
9.6 percent of risk weighted assets, which is higher than the 8 percent capital ratio required by
the Basel standards or CFTC Capital Rules.188 As discussed immediately below, the
Commission agrees with the IBAJ that the capital ratio required by the Japanese Capital Rules
exceeds the capital ratio required by the CFTC Capital Rules under the Bank-Based Approach.
In response to the comment asserting that the Commission did not provide an analysis
supporting the statement that the Japanese Capital Rules impose on Japanese nonbank SDs “an
effective minimum requirement of 9.6 percent of the risk-weighted assets,” the Commission
notes that the 9.6 percent figure is intended to express the Japanese minimum capital as a capital
ratio in a manner consistent with the CFTC Capital Rules for purposes of a comparison.
Specifically, the Japanese Capital Rules require a Japanese nonbank SD to maintain regulatory
capital in an amount that equals or exceeds 120 percent of the aggregate of the firm’s riskweighted assets. In contrast, the CFTC Capital Rules require a nonbank SD to maintain a
minimum capital ratio to total risk-weighted assets of 8 percent. Converting the Japanese Capital
Rules’ requirement to an equivalent capital ratio under the CFTC Capital Rules would result in
the capital ratio of 8 percent being increased by 20 percent, effectively requiring nonbank SDs to

Id.
Id.
188 IBAJ Letter at p. 2.
186
maintain a ratio of total regulatory capital to risk-weighted assets of 9.6 percent (i.e., 8 percent
plus 20 percent of 8 percent).189
In addition, the Japanese Capital Rules’ standardized approach to calculating minimum
capital requirements also results in a higher regulatory capital requirement for counterparty credit
risk. Although the standardized credit risk weights under the Japanese Capital Rules range from
0 to 25 percent, whereas those applicable under the CFTC Capital Rules range from 0 to 150
percent, the Japanese Capital Rules’ requirement that Japanese nonbank SDs hold 120 percent of
the firm’s risk-weighted assets would yield a higher capital requirement. For example, for an
exposure that is subject to the highest risk weight for counterparty credit risk, the Japanese
Capital Rules would require a Japanese nonbank SD to hold capital equal to 30 percent of the
exposure amount (i.e., 25 percent risk weight multiplied by 120 percent capital requirement),
whereas the CFTC Capital Rules would require a nonbank SD to hold capital equal to 12 percent
of the exposure amount (i.e., 150 percent risk weight multiplied by 8 percent capital
requirement).
Furthermore, the Commission notes that under the Japanese Capital Rules, the total riskweighted assets include amounts for operational and similar risks arising from a Japanese
nonbank SD’s activities (i.e., basic risk equivalent amount). These risk-weighted asset amounts
are included in the risk equivalent amount in all circumstances, whether the nonbank SD uses a
standardized approach or a model approach to calculating risk-weighted assets.190 As such, the
basic risk equivalent amount increases the amount of the risk-weighted assets and thus the
amount of regulatory capital that a Japanese nonbank SD is required to maintain. Taking these
factors into account in the computation of risk-weighted assets and regulatory capital under the
Japanese Capital Rules, the Commission believes that a nonbank SD is generally required to

See 2022 Proposal at 48104 and fn. 125.
In contrast, the CFTC Capital Rules do not require nonbank SDs to include an operational risk charge in the
firm’s risk-weighted assets if the firm uses a standardized approach to calculating risk-weighted asset amounts. An
operational risk component is included in the firm’s risk-weighted assets only if the firm uses a model to calculate
risk-weighted asset amounts for credit risk. See definition of BHC equivalent risk-weighted assets in Commission
Regulation 23.100 (cross referencing subparts E and D of 12 CFR part 217). 17 CFR 23.100.
189
maintain a higher level of regulatory capital under the Japanese Capital Rules than it would be
under the CFTC Capital Rules.
Moreover, to the extent the Japanese Capital Rules might require a lesser amount of
common equity tier 1 capital than the CFTC Capital Rules, the Commission believes that the
difference will be generally offset and mitigated by the higher amount of regulatory capital
required by the Japanese Capital Rules. Accordingly, the Commission finds that the Japanese
Capital Rules and the CFTC Capital Rules are comparable in purpose and effect with respect to
the minimum amount of capital and type of capital required by these rules.
In conclusion, the Commission finds that the Japanese Capital Rules and the CFTC
Capital Rules are comparable in purpose and effect with respect to the computation of minimum
capital requirements based on a nonbank SD’s risk-weighted assets. The Commission finds that
notwithstanding the differences discussed above, the Japanese Capital Rules and the CFTC
Capital rules have a comparable approach to the computation of market risk exposure amounts
and credit risk exposure amounts for on-balance sheet and off-balance sheet exposures, which
are intended to achieve comparable regulatory outcomes by ensuring that a nonbank SD
maintains a sufficient level of regulatory capital to absorb decreases in firm assets, absorb
increases in firm liabilities, and meet obligations to counterparties and creditors, without the firm
becoming insolvent.
c. Minimum Capital Requirement Based on the Uncleared Swap Margin Amount
As noted above, prong (iii) of the CFTC Capital Rules’ Bank-Based Approach requires a
nonbank SD to maintain regulatory capital in an amount equal to or greater than 8 percent of the
firm’s total uncleared swaps margin amount associated with its uncleared swap transactions to
address potential operational, legal, and liquidity risks.191

More specifically, 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 uncleared swap margin amount was to establish a method of developing a
minimum amount of capital for a nonbank SD to meet its obligations as an SD to market participants, and to cover
potential operational risk, legal risk and liquidity risk, and not just the risks of its trading portfolio. See 85 FR 57462
at 57485.
The Japanese Capital Rules differ from the CFTC Capital Rules in that they do not
impose a capital requirement on Japanese nonbank SDs based on a percentage of the margin for
uncleared swap transactions.192 In the 2022 Proposal, the Commission described, however, how
certain Japanese capital and liquidity requirements may compensate for the lack of direct
analogue to the 8 percent uncleared swap margin amount requirement.193 Specifically, the
Commission noted that under the Japanese Capital Rules the risk equivalent amount (i.e., the
firm’s risk-weighted assets) is calculated as the sum of the market risk equivalent amount, the
counterparty risk equivalent amount, and the basic risk equivalent amount.194 As discussed, the
basic risk equivalent amount is computed as an amount equal to 25 percent of the Japanese
nonbank SD’s defined annual operating expenses, and is intended to provide a capital cushion to
cover risks that may accrue in the course of executing ordinary business operations, such as
errors in business transactions.195 In addition, the Japanese Capital Rules require a Japanese
nonbank SD to deduct the carrying value of fixed assets from its Basic Items and Supplemental
Items in computing its regulatory capital, which promotes a degree of liquidity into the Japanese
nonbank SD’s regulatory capital by requiring assets that are more liquid than fixed assets to
support the Basic Items and Supplemental Items that are used to meet the Japanese nonbank
SD’s minimum capital requirement. As stated in the 2022 Proposal, the Commission
preliminarily determined that the inclusion of an operational risk charge as a separate component
of the risk equivalent amount, including by Japanese nonbank SDs that do not use internal
models, and the deduction of the carrying value of fixed assets from regulatory capital, would
achieve a comparable outcome to the Commission’s requirement for nonbank SDs to hold
regulatory capital in excess of 8 percent of its uncleared swap margin amount.196

See 2022 Proposal at 48104.
Id. at 48105.
194 Article 178(1)(iii) of the COO and Article 16 of the Notice on Capital. The basic risk equivalent amount is
calculated as 25 percent of certain defined operating expenses incurred by the Japanese nonbank SD over a 12month period, and includes general expenses, selling expenses, and financial expenses.
195 See 2022 Proposal at 48105.
196 Id.
192
Focusing on the absence of a capital requirement based on a percentage of the margin for
uncleared swap transactions under the Japanese Capital Rules, Better Markets asserted that the
Japanese Capital Rules are not only different from the CFTC Capital Rules in form and
substance, but lead to a regulatory outcome that is not comparable.197 In support, Better Markets
noted that, whereas the CFTC relies on an approach that requires nonbank SDs to hold qualifying
capital in an amount equal to at least 8 percent of the nonbank SD’s uncleared swap margin
amount, the Japanese Capital Rules are based on “an arbitrary percentage of a company’s
operating expenses, which would be closer in concept to liquidity needs.”198
Other commenters agreed with the Commission’s preliminary determination that the
Japanese Capital Rules and CFTC Capital Rules are comparable notwithstanding the absence in
the Japanese Capital Rules of a capital requirement based on uncleared swap margin.199 In this
regard, FSA asserted that the Japanese Capital Rules are largely comparable in outcome even in
the absence of the uncleared swap margin requirement because the Japanese capital adequacy
ratio takes into account operational risk.200
The Associations and IBAJ expressed the view that the Japanese Capital Rules are
comparable in purpose and effect to the Commission’s requirements for a nonbank SD to hold
regulatory capital equal to or greater than 8 percent of its uncleared swap margin amount.201 The
commenters explained that under the Japanese Capital Rules, liquidity risk is covered through
the deduction of the balance sheet carrying value of fixed assets, and operational risk and legal
risk are covered by the basic risk equivalent amount, which is a simplified but conservative
approach to calculating a proxy for operational risks under the Basel standards.202 Under the
approach, basic risk is incrementally added to market risk and credit risk, which further increases

Better Markets Letter at p. 7.
Id.
199 Associations Letter at p. 2; FSA Letter at p. 1; IBAJ Letter at p. 2.
200 FSA Letter at p. 1.
201 Associations Letter at p. 2; IBAJ Letter at p. 2.
202 Id.
197
the required capital amount under the Japanese Capital Rules.203 The commenters further
explained that the Japanese Capital Rules’ basic risk equivalent amount is computed as an
amount equal to 25 percent of the Japanese nonbank SD’s defined annual operating expenses,
and is intended to provide a capital cushion to cover risk that may accrue in the course of
executing ordinary business operations, such as errors in business transactions.204 According to
the commenters, such amount combined with market risk, credit risk, and the deduction of the
carrying value of fixed assets will broadly capture obligations to market participants, potential
operational risk, legal risk, and liquidity risk, as well as market risk and credit risk.205 The
commenters further noted that the calculation will capture both the trading portfolio as well as
non-trading assets, whereas the CFTC’s requirement to hold 8 percent of nonbank SD’s
uncleared swap margin amount will not capture non-trading assets.206 As such, the commenters
concluded that the Japanese Capital Rules’ basic risk equivalent requirement is sufficiently
comparable to the CFTC Capital Rules’ uncleared swap margin requirement.207
The Commission believes that the Japanese Capital Rules’ approach to calculating the
basic risk equivalent amount, which accounts for operational risk and legal risk, and the
deduction of the balance sheet carrying value of fixed assets to reflect liquidity risk, support the
comparability of the Japanese Capital Rules and the CFTC Capital Rules even in the absence of a
separate capital requirement in the Japanese Capital Rules requiring Japanese nonbank SDs to
have qualified capital equal to or greater than 8 percent of the amount of uncleared swap margin.
In conclusion, the Commission finds that the Japanese Capital Rules and the CFTC
Capital Rules are comparable in purpose and effect with respect to the requirement that a
nonbank SD’s minimum level of regulatory capital reflects potential operational risk exposures
in addition to market risk and credit risk exposures. The Commission emphasizes that the intent

Id.
Associations Letter at p. 3; IBAJ Letter at p. 3.
205 Id.
206 Id.
207 Id.
203
of the minimum capital requirement based on a percentage of the nonbank SD’s uncleared swap
margin is to establish a minimum capital requirement that would help ensure that the nonbank
SD meets its obligations as an SD to market participants, and to cover potential operational risk,
legal risk, and liquidity risk in addition to the risks associated with its trading portfolio.208 The
Commission further notes that the minimum capital requirement based on a percentage of the
nonbank SD’s uncleared swap margin amount was conceived as a proxy, not an exact measure,
for inherent risk in the SD’s positions and operations, including operational risk, legal risk, and
liquidity risk.209 As the Commission noted in adopting the CFTC Capital Rules, although the
amount of capital required of a nonbank SD under the uncleared swap margin calculation is
directly related to the volume, size, complexity, and risk of the covered SD’s positions, the
minimum capital requirement is intended to cover a multitude of potential risks faced by the
SD.210 The Commission understands that other jurisdictions may adopt alternative measures to
cover the same risks. In this regard, the Japanese Capital Rules address comparable risks albeit
not through a requirement based on a Japanese nonbank SD’s uncleared swap margin amount.
Specifically, Japanese nonbank SDs are required to maintain a minimum level of regulatory
capital based on an aggregate of the firm’s total risk-weighted asset exposure amounts for market
risk, credit risk, and operational risk. The Commission further notes that a Japanese nonbank SD
is required to maintain regulatory capital in an amount that exceeds 120 percent of the total riskweighted assets, which is 20 percent higher than the CFTC Capital Rules. Accordingly, the
Commission has determined that, notwithstanding the differences in approaches, the Japanese
Capital Rules and CFTC Capital Rules are comparable in purpose and effect, and achieve
comparable regulatory outcomes, by requiring nonbank SDs to maintain a sufficient minimum
level of regulatory capital to addresses potential market risk, credit risk, and operational risk, and
to help ensure the safety and soundness of the firm by requiring it to hold capital to absorb

See 2022 Proposal at 48102 (referencing 85 FR 57462).
85 FR 57462 at 57497.
210 85 FR 57462 at 57485 and 57497.
208
decreases in firm assets, absorb increases in firm liabilities, and meet its obligations to
counterparties and creditors, without the firm becoming insolvent.
3. Final Determination
Based on its analysis of comments and its holistic assessment of the respective
requirements discussed in Section II.C.2.a., b., and c. above, the Commission adopts the
Comparability Determination and Comparability Order as proposed with respect to the minimum
capital requirements and calculation of regulatory capital, subject to the condition that Japanese
nonbank SDs must maintain a minimum level of regulatory capital in the form of Basic Items
that equals or exceeds the equivalent of $20 million U.S. dollars.
D. Nonbank Swap Dealer Financial Reporting Requirements
1. Proposed Determination
The Commission detailed the requirements of the CFTC Financial Reporting Rules in the
2022 Proposal.211 Specifically, the 2022 Proposal notes that the CFTC Financial Reporting
Rules require nonbank SDs to file with the Commission and NFA periodic unaudited and annual
audited financial reports.212 The unaudited financial reports must include: (i) a statement of
financial condition; (ii) a statement of income/loss; (iii) a statement demonstrating compliance
with, and calculation of, the applicable regulatory minimum capital requirement; (iv) a statement
of changes in ownership equity; (v) a statement of changes in liabilities subordinated to claims of
general creditors; and (vi) such further material information necessary to make the required
statements not misleading.213 The annual audited financial reports must include the same
financial statements that are required to be included in the unaudited financial reports, and must
further include: (i) a statement of cash flows; (ii) appropriate footnote disclosures; and (iii) a
reconciliation of any material differences between the financial statements contained in the
annual audited financial reports and the financial statements contained in the unaudited financial

2022 Proposal at 48106-48107.
Id. and 17 CFR 23.105(d) and (e).
213 Id. and 17 CFR 23.105(d)(2).
211
reports prepared as of the nonbank SD’s year-end date.214 In addition, a nonbank SD must attach
to each unaudited and audited financial report an oath or affirmation that to the best knowledge
and belief of the individual making the affirmation the information contained in the financial
report is true and correct.215 The individual making the oath or affirmation must be a duly
authorized officer if the nonbank SD is a corporation, or one of the persons specified in the
regulation for business organizations that are not corporations.216
The CFTC Financial Reporting Rules also require a nonbank SD to file the following
financial information with the Commission and NFA on a monthly basis: (i) a schedule listing
the nonbank SD’s financial positions reported at fair market value;217 (ii) schedules showing the
nonbank SD’s counterparty credit concentration for the 15 largest exposures in derivatives, a
summary of its derivatives exposures by internal credit ratings, and the geographic distribution of
derivatives exposures for the 10 largest countries;218 and (iii) for nonbank SDs approved to use
internal capital models, certain model metrics, such as aggregate value-at-risk (“VaR”) and
counterparty credit risk information.219
The CFTC Financial Reporting Rules further require a nonbank SD to provide the
Commission and NFA with information regarding the custodianship of margin for uncleared
swap transactions (“Margin Report”).220 The Margin Report must contain: (i) the name and
address of each custodian holding initial margin or variation margin on behalf of the nonbank SD
or its swap counterparties; (ii) the amount of initial and variation margin required by the
uncleared margin rules held by each custodian on behalf of the nonbank SD and on behalf its
swap counterparties; and (iii) the aggregate amount of initial margin that the nonbank SD is

Id. and 17 CFR 23.105(e)(4).
Id. and 17 CFR 23.105(f).
216 Id.
217 Id. and 17 CFR 23.105(l) and Schedule 1 of Appendix B to Subpart E of part 23 (“Schedule 1”). Schedule 1
includes a nonbank SD’s holding of U.S Treasury securities, U.S. government agency debt securities, foreign debt
and equity securities, money market instruments, corporate obligations, spot commodities, and cleared and
uncleared swaps, security-based swaps, and mixed swaps in addition to other position information.
218 Id. and schedules 2, 3 and 4, respectively, of Commission Regulation 23.105(l). 17 CFR 23.105(l).
219 Id. and 17 CFR 23.105(k) and (l), and appendix B to Subpart E of part 23.
220 Id. and 17 CFR 23.105(m).
214
required to collect from, or post with, swap counterparties for uncleared swap transactions
subject to the uncleared margin rules.221
A nonbank SD electing the Bank-Based Capital Approach is required to file the
unaudited financial report, Schedule 1, schedules of counterparty credit exposures, and the
Margin Report with the Commission and NFA no later than 17 business days after the applicable
month end reporting date.222 A nonbank SD must file its annual report with the Commission and
NFA no later than 60 calendar days after the end of its fiscal year.223
The 2022 Proposal also detailed relevant financial reporting requirements of the Japanese
Financial Reporting Rules.224 The Japanese Financial Reporting Rules require a Japanese
nonbank SD to submit monthly monitoring survey reports (“Monthly Monitoring Report”) to the
FSA.225 The Monthly Monitoring Report must include information on the Japanese nonbank
SD’s capital adequacy ratio, and the status of the firm’s business operations and accounting
(including a balance sheet and profit/loss statement), market risk, counterparty risk, operational
risk, and liquidity risk.226 The Monthly Monitoring Report are typically submitted by a Japanese
nonbank SD within two to three weeks of the end of each month.227
A Japanese nonbank SD is also required to submit a business report to the Commissioner
of the FSA within three months of the end of the firm’s fiscal year (“Annual Business
Report”).228 The Annual Business Report must include a balance sheet, profit/loss statement,

Id.
Id.
223 Id.
224 2022 Proposal at 48106-48110.
225 Id. and section II-1-4 (General Supervisory Process) of the Supervisory Guidelines for FIBO, which directs the
FSA as part of its offsite monitoring to require FIBOs (including the Japanese nonbank SDs) to submit a monitoring
survey report regarding the following matters: capital adequacy ratio, status of business operations and accounting
(including a balance sheet and profit and loss statement), status of segregated management of customer assets,
market risk, counterparty risk, operational risk, and liquidity risk. The FSA has, pursuant to Article 56–2(1) of the
FIEA, ordered the Japanese nonbank SDs to submit monthly monitoring reports to the FSA.
226 Id.
227 The Commission noted that there are various types of reports which are required of the Japanese nonbank SDs
under “Reporting orders’’ issued by the FSA in accordance with Article 56–2(1) of the FIEA. Some of these reports
are required to be submitted on a monthly basis, whereas other reports are required to be submitted on a quarterly
basis, semi-annual basis, or annual basis. The FSA typically does not set a specific filing deadline and instead
requests all reports to be submitted “without delay.” In case of monthly reports, the normal practice is for firms to
submit such reports within two to three weeks from the prior month-end.
228 2022 Proposal at 48107 and Article 46-3(1) of the FIEA and Article 172 of the COO.
221
statement of changes in shareholders’ equity, balance of subordinated debt, and a statement of
capital adequacy ratio.229 Furthermore, a Japanese nonbank SD is required to prepare financial
statements and business reports every business year pursuant to the Japanese Companies Act
(“Annual Audited Financial Report”).230 The Annual Audited Financial Report includes the
firm’s balance sheet, profit/loss statement, and statement of changes in shareholders’ equity, and
such statements are required to be audited by an accounting auditor.231 The Annual Audited
Financial Report must be submitted to, and approved by, the shareholders at a meeting within
three months of the Japanese nonbank SD’s fiscal year-end.232
Based on its review of the FSA Application and the relevant Japanese laws and
regulations, the Commission preliminarily determined that, subject to the conditions specified in
the 2022 Proposal and discussed below, the Japanese Financial Reporting Rules are comparable
to CFTC Financial Reporting Rules in purpose and effect.233 The Commission noted that both
sets of rules provide the FSA and the Commission with financial information necessary to
monitor a nonbank SD’s compliance with capital requirements and to assess a nonbank SD’s
overall safety and soundness. Specifically, both CFTC Financial Reporting Rules and the
Japanese Financial Reporting Rules require a nonbank SD to file statements of financial
condition, statements of profit and loss, and statements of regulatory capital that, collectively,
provide information for the FSA, Commission, and NFA to assess a nonbank SD’s overall ability
to absorb decreases in the value of firm assets, absorb increases in the value of firm liabilities,

2022 Proposal at 48107 and Appended Forms No.12 of the COO.
2022 Proposal at 48107 and Japanese Companies Act (Act No. 86 of 2005).
231 2022 Proposal at 48107 and Article 328(1) and (2), Article 435(2), and 436(2)(i) of the Companies Act, and
Article 59 of the Rules of Corporate Accounting (Ordinance of the Ministry of Justice No. 13 of 2006). The audit
requirement applies to a “Large Company,” which is defined by Article 2(vi) of the Companies Act as a stock
company that satisfies any of the following requirements: (i) that the amount of stated capital in the balance sheet as
of the end of the firm’s most recent business year is JPY 500 million or more; or (ii) that the total sum of the
liabilities section of the balance sheet as of the end of the firm’s most recent business year is JPY 20 billion or more.
The FSA has represented that each of the current CFTC-registered Japanese nonbank SDs is a Large Company
under the Companies Act, and is subject to the audit requirement for its financial statements. FSA Application p.
18.
232 Id.
233 See 2022 Proposal at 48106-48110.
229
and cover losses from business activities, including swap dealing activities, without the firm
becoming insolvent.234
The proposed conditions in the proposed Comparability Order were intended to ensure
that the Commission and NFA receive appropriate and timely financial information from
Japanese nonbank SDs in order to monitor the firms’ compliance with FSA capital requirements
and to assess the firms’ overall safety and soundness. The proposed conditions would require a
Japanese nonbank SD to provide the Commission and NFA with copies of its Monthly
Monitoring Report, Annual Business Report, and Annual Audited Financial Report.235 The
proposed conditions would also require the Monthly Monitoring Report, Annual Business
Report, and Annual Audited Financial Report to be translated into the English language.236 The
Monthly Monitoring Report and the Annual Business Report also must have balances converted
from yen to U.S. dollars. The Commission further recognized that the requirement to translate
balances denominated in yen to U.S. dollars on the audited financial statements may have an
unintended impact on the opinion expressed by the public accountant on the financial statements.
The Commission, therefore, proposed to accept the Annual Audited Financial Report
denominated in yen, but required the report to be translated into the English language.237
The proposed conditions also would require a Japanese nonbank SD to file with the
Commission and NFA its: (i) Monthly Monitoring Reports within 15 business days of the earlier
of the date the report is filed with the FSA or 35 calendar days after the month-end reporting
date;238 (ii) Annual Business Report within 15 business days of the earlier of the date the report

Id.
See 2022 Proposal at 48107 and Article 46–3(1) of the FIEA, Article 172 of the COO, and Appended Forms
No.12 of the COO.
236 In the 2022 Proposal, the Commission proposed that the translation of audited financial statements into the
English language would not be required to be subject to the audit of the public accountants. A Japanese nonbank SD
would be required to report the exchange rate that it used to convert balances from yen to U.S. dollars to the
Commission and NFA as part of the financial reporting.
237 See 2022 Proposal at 48108.
238 2022 Proposal at 48108 and proposed Condition 8. As noted, the FSA does not set a specific filing date for
Monthly Monitoring Reports, electing to instead require firms to file such reports “without delay.” The Commission
proposed to establish a due date that is no later than 35 calendar days from the reporting date to set a definitive filing
date that also provides Japanese nonbank SDs with sufficient time to translate the reports into English and convert
balances to U.S. dollars.
234
is filed with the FSA or the date that the report is required to be filed with the FSA;239 and (iii)
Annual Audited Financial Report within 15 business days of the approval of the report at the
Japanese nonbank SD’s shareholder meeting.240 The Commission stated that, in its preliminary
view, the proposed filing dates provided sufficient time for the respective reports to be translated
into the English language with balances converted from yen to U.S. dollars, as applicable.241
The Commission also proposed a condition to require Japanese nonbank SDs to file with
the Commission and NFA, on a monthly basis, Schedule 1 showing the aggregate securities,
commodities, and swap positions of the firm at fair market value as of the reporting date.242 The
Commission explained that Schedule 1 provides the Commission and NFA with detailed
information regarding the fair market value of the nonbank SD’s financial positions as of the end
of each month, including the firm’s swaps positions, which allows the Commission and NFA to
monitor the types of investments and other activities that the firm engages in and would assist the
Commission and NFA in monitoring the safety and soundness of the firm.243 The Commission
proposed to require that Schedule 1 be filed by a Japanese nonbank SD along with the firm’s
Monthly Monitoring Report. The Commission also proposed to require that Schedule 1 be
prepared in the English language with balances reported in U.S. dollars.
The Commission also proposed a condition to require a Japanese nonbank SD to submit a
statement by an authorized representative or representatives of the Japanese nonbank SD that, to
the best knowledge and belief of the person(s), the information contained within each Monthly
Monitoring Report, Schedule 1, Annual Business Report, and Annual Audited Financial Report,
is true and correct, including as it relates to the translation of the report into the English language
and the conversion of balances to U.S. dollars.244 The statement by an authorized representative

2022 Proposal at 48108 and proposed Condition 9.
2022 Proposal at 48108 and proposed Condition 10.
241 See 2022 Proposal at 48108.
242 See id. In response to a comment by the IBAJ, the Commission confirms that its intent was to require that
Schedule 1 of Appendix B to Subpart E of part 23 be filed at the same time as the Monthly Monitoring Report,
consistent with Condition (11) of the Order. IBAJ Letter at p. 6.
243 See 2022 Proposal at 48108.
244 Id. at 48108-48109 and proposed Condition 12.
239
or representatives of the Japanese nonbank SD was intended to be the equivalent of the oath or
affirmation required of nonbank SDs under Commission Regulation 23.105(f),245 to ensure that
reports filed with the Commission and NFA were prepared and submitted by firm personnel with
knowledge of the financial reporting of the firm who can attest to the accuracy of the reporting
and translation.246
The Commission further proposed a condition that would require a Japanese nonbank SD
to file a Margin Report with the Commission and NFA on a monthly basis.247 The Commission
noted that a Margin Report would assist the Commission and NFA in their assessment of the
safety and soundness of the Japanese nonbank SDs by providing information regarding the
firm’s swaps book and the extent to which it has uncollateralized swap exposures to
counterparties or has not met its margin obligations to swap counterparties. The Commission
explained that this information, along with the list of custodians holding both the firm’s and
counterparties’ swaps collateral, would assist with identifying potential financial impacts to the
nonbank SD resulting from defaults on its swap transactions.
In the Commission’s preliminary view, its proposed approach of requiring Japanese
nonbank SDs to provide the Commission and NFA with copies of the Monthly Monitoring
Reports, Annual Business Reports, and Annual Audited Financial Reports that the firms
currently file with the FSA or otherwise prepare struck an appropriate balance of ensuring that
the Commission and NFA receive the financial reporting necessary for the effective monitoring
of the financial condition of the nonbank SDs, while also recognizing the appropriateness of
providing substituted compliance based on the existing FSA financial reporting requirements and
regulatory structure.248

17 CFR 23.105(f). Commission Regulation 23.105(f) requires a nonbank SD to attach to each unaudited and
audited financial report an oath or affirmation that to the best knowledge and belief of the individual making the
affirmation the information contained in the financial report is true and correct. The individual making the oath or
affirmation must be a duly authorized officer if the nonbank SD is a corporation, or one of the persons specified in
the regulation for business organizations that are not corporations.
246 See 2022 Proposal at 48109.
247 Id.
248 Id.
The Commission’s preliminary determination did not require a Japanese nonbank SD to
file the model metrics and counterparty credit exposure information required by Commission
Regulations 23.105(k) and (l),249 respectively, in recognition that NFA’s current SD risk
monitoring program requires all SDs, including Japanese nonbank SDs, to file with NFA on a
monthly basis certain risk metrics that are comparable with the risk metrics contained in
Commission Regulation 23.105(k) and (l) and address the market risk and credit risk of the SD’s
positions.250 Specifically, the Commission noted that NFA’s monthly risk metric information
includes: (i) VaR for interest rates, credit, foreign exchange, equities, commodities, and total
VaR; (ii) total stressed VaR; (iii) interest rate, credit spread, foreign exchange market, and
commodity sensitivities; (iv) total swaps current exposure both before and after offsetting against
collateral held by the firm; and (v) a list of the 15 largest swaps counterparty current
exposures.251
Furthermore, the Commission recognized that although the Japanese Financial Reporting
Rules do not contain an analogue to the CFTC’s requirements for nonbank SDs to file monthly
model metric information and counterparty exposure information, the FSA has access to
comparable information.252 More specifically, the Commission noted that the FSA would
perform the initial approval and ongoing assessment of the performance of a Japanese nonbank
SD’s models as part of its oversight function and may be better positioned to monitor a Japanese
nonbank SD’s model metrics and performance and to assess the Japanese nonbank SD’s credit

Commission Regulation 23.105(k) requires a nonbank SD that has obtained approval from the Commission or
NFA to use internal capital models to submit to the Commission and NFA each month information regarding its risk
exposures, including VaR, and requires certain credit risk exposure information from model and non-model
approved firms. 17 CFR 23.105(k). Commission Regulation 23.105(l) requires each nonbank SD to provide
information to the Commission and NFA regarding its counterparty credit concentration for the 15 largest exposures
in derivatives, a summary of its derivatives exposures by internal credit ratings, and the geographic distribution of
derivatives exposures for the 10 largest countries in Schedules 2, 3, and 4, respectively. 17 CFR 23.105(l).
250 2022 Proposal at 48109.
251 See 2022 Proposal at 48109 and NFA Financial Requirements, section 17 – Swap Dealer and Major Swap
Participant Reporting Requirements, and Notice to Members – Monthly Risk Data Reporting for Swap Dealers
(May 30, 2017) (“NFA Notice I-17-10”), available here:
https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4817.
252 Under the Japanese Financial Reporting Rules, the FSA has broad powers to request any information necessary
for the exercise of its functions. FSA Application at p. 16 (referencing Article 56-2 of the FIEA) and discussion in
2022 Proposal at 48113.
exposures as part of the FSA’s overall monitoring of the financial condition of the firm.253 As
such, the FSA would have access to information allowing it to assess the ongoing performance of
risk models and to monitor the Japanese nonbank SD’s credit exposures, which may be
comprised of credit exposures to primarily Japanese counterparties.
2. Comment Analysis and Final Determination
The Commission received comments regarding the comparability of financial reporting
and specific comments addressing several of the financial reporting issues on which the
Commission solicited feedback. Regarding the scope of the financial information that a Japanese
nonbank SD should be required to file, Better Markets stated that the 2022 Proposal does not
adequately support the Commission’s preliminary conclusion that the content of the Monthly
Monitoring Reports, Annual Business Reports, and Annual Audited Financial Reports required
pursuant to the Japanese Capital Rules are comparable with the requirements of the CFTC
Financial Reporting Rules.254 In contrast, FSA stated that the Commission should limit the
request of financial information to the extent consistent and sufficient with the purpose of the
Commission’s capital requirements to efficiently and effectively achieve its supervisory and
monitoring objectives.255 IBAJ stated that the Commission should limit the financial information
required to be filed to the types of financial information required of nonbank SDs under
Commission Regulation 23.105.256 IBAJ further stated that, consistent with the types of
schedules and data nonbank SDs are required to file under Commission Regulation 23.105, the
Commission should require Japanese nonbank SDs to file the following information from the
Monthly Monitoring Report: (i) Form 1-1 Capital Ratio Summary; (ii) Form 1-2 Capital Ratio:
Deductible Assets; (iii) Form 1-3 Market Risk; (iv) Form 1-4 Counterparty Risk; (v) Form 2-1
Monthly Financial Statement (1); and (vi) Form 2-2 Monthly Financial Statement (2). IBAJ also

See 2022 Proposal at 48109.
Better Markets Letter at p. 10.
255 FSA Letter at p. 2.
256 IBAJ Letter at p. 4.
253
stated that other financial information contained within the Monthly Monitoring Report should
not be required as the information is either not submitted by nonbank SDs under Commission
Regulation 23.105, such as client assets segregation status and transaction volume, or the
information is similar to the information contained in the quarterly risk exposure report and
monthly risk data report that Japanese nonbank SDs already provide to the Commission and
NFA.257 IBAJ also asserted that limiting the scope of information to the six items noted above
from the Monthly Monitoring Report would be consistent with the financial information that
Commission staff has required from Japanese nonbank SDs under CFTC Staff Letter 22-10.258
The Commission has reviewed the comments and believes that the Japanese Financial
Reporting Requirements, subject to the conditions below, are comparable to the CFTC Financial
Reporting Requirements in purpose and effect in that both the Japanese rules and the CFTC
regulations provide information necessary for the monitoring of the financial condition of a
nonbank SD. In response to the comments, the Commission is modifying the conditions in the
final Comparability Order to list specific schedules of the Monthly Monitoring Report that each
Japanese nonbank SD is required to file with the Commission and NFA. Specifically, the
Commission agrees that the Comparability Order should specify the required information that a
Japanese nonbank SD must submit to the Commission and NFA from its Monthly Monitoring
Report to be consistent with the types of capital and general financial statement information that
a nonbank SD is required to file under Commission Regulation 23.105. This modification would

Id.
Id. and CFTC Staff Letter No. 22-10, Extension of Time-Limited No-Action Position for Foreign Based Nonbank
Swap Dealers domiciled in Japan, Mexico, the United Kingdom, and the European Union, issued by the Market
Participants Division on August 17, 2022. CFTC Staff Letter No. 22-10, which extended the expiration of CFTC
Staff Letter 21-20, provides that the Market Participants Division (“MPD”) would not recommend an enforcement
action to the Commission if a non-U.S. nonbank SD covered by the letter (“covered nonbank SDs”), subject to
certain conditions, complied with their respective home-country capital and financial reporting requirements in lieu
of the Commission’s capital and financial reporting requirements set forth in Commission Regulations 23.100
through 23.106, pending the Commission’s determination of whether the capital and financial reporting
requirements of certain foreign jurisdictions are comparable to the Commission’s corresponding requirements. The
relevant conditions include that a covered nonbank SD domiciled in Japan must: (i) be registered as a Type I FIBO
with the FSA; (ii) submit to MPD financial information required by the FSA within 15 days of submitting such
information to the FSA; and (iii) submit to the Commission a statement of financial condition, statement of
income/loss, and statement of regulatory capital to the extent that such financial information is not required by the
FSA.
257
ensure that the Commission receives the relevant financial information necessary to monitor the
general financial condition and capital compliance of a Japanese nonbank SD, while eliminating
the requirement for Japanese nonbank SDs to provide other information contained in the
Monthly Monitoring Report that is specific to certain requirements in Japan and beyond the
overall financial condition and capital compliance of the firm.
Therefore, consistent with the statement above, the Commission is modifying Condition
8 of the Comparability Order to provide that a Japanese nonbank SD must file Form 1-1 Capital
Ratio Summary (“Form 1-1”), Form 1-2 Capital Ratio: Deductible Assets (“Form 1-2”), Form 13 Market Risk (“Form 1-3”), Form 1-4 Counterparty Risk (“Form 1-4”), Form 2-1 Monthly
Financial Statement (1) (“Form 2-1”), and Form 2-2 Financial Statement (2) (“Form 2-2”) of the
Monthly Monitoring Report with the Commission and with NFA on a monthly basis. Final
Condition 8 will continue to require a Japanese nonbank SD to file such forms translated into the
English language with balances converted to U.S. dollars,259 and, as further discussed below, will
require that such forms be filed with the Commission and NFA within 35 calendar days after the
end of each month.
The Commission finds that the financial information provided by Japanese nonbank SDs
in the specified forms of the Monthly Monitoring Report, the Annual Business Report, and the
Annual Audited Financial Report is comparable to the unaudited and audited financial
information provided by nonbank SDs under the relevant provisions of Commission Regulation
23.105(d) and (e), respectively. With respect to Better Markets’ comment regarding the
sufficiency of the support for a finding of comparability of the financial reporting requirements,
the Commission believes that the description of the reporting forms’ content demonstrates the
similarity between the required information. In this regard, Form 2-1 and Form 2-2 of the
Monthly Monitoring Report present a Japanese nonbank SD’s statement of financial condition

The condition will also specify that Japanese nonbank SDs must use a commercially reasonable and observable
yen/U.S. dollar spot rate as of the date of the reports.
and statement of profit/loss, respectively. Form 2-1 and Form 2-2 provide information that is
necessary for the monitoring of the financial condition of a Japanese nonbank SD and are
comparable to the statement of financial condition and statement of profit/loss required by the
Commission of nonbank SDs under Commission Regulation 23.105(d)(2).
Form 1-1, Form 1-2, Form 1-3, and Form 1-4 detail the calculation of a Japanese
nonbank SD’s capital ratio. Form 1-3 and Form 1-4 provide details concerning a Japanese
nonbank SD’s calculation of market risk and counterparty credit risk, respectively, that is
incorporated into the firm’s calculation of its risk-weighted assets. Form 1-3 details market risk
by asset class (e.g., equity, interest rate, foreign exchange, commodity, and crypto assets) and
contract type (e.g., spot transactions or forward transactions). Form 1-4 details counterparty
credit risk by transaction type (e.g., foreign exchange, interest rates, and equity). Form 1-2
details the deductions that a Japanese nonbank SD must take in computing its Basic and
Supplemental capital to reflect illiquid assets (e.g., fixed assets). Form 1-1 summarizes the
Japanese nonbank SD’s capital calculation of its Basic and Supplemental Items and further
contains the firm’s overall capital ratio to demonstrate compliance with the Japanese Capital
Rules. Forms 1-1 through 1-4 of the Monthly Monitoring Report require a Japanese nonbank SD
to file financial information regarding its capital ratio that is comparable to the capital ratio
reporting requirements under Commission Regulation 23.105(d)(2), which requires a nonbank
SD to submit a statement of its capital requirement calculation and the firm’s compliance with
such capital requirement.
The Commission is also adopting Conditions 9 and 10 of the proposed Comparability
Order substantially as proposed.260 Final Conditions 9 and 10 require a Japanese nonbank SD to
file a copy of its Annual Business Report and Annual Audited Financial Report, respectively,
with the Commission and NFA. The Annual Business Report and Annual Audited Financial

Subject to the specification in final Condition 9 that the conversion of balances to U.S. dollars must be done
using a commercially reasonable and observable yen/U.S. dollar spot rate as of the date of the report.
Report are comparable to the annual audited financial report that each nonbank SD is required to
file with the Commission and NFA pursuant to Commission Regulation 23.105(e). Specifically,
information included in the Annual Business Report and Annual Audited Financial Reports
includes the Japanese nonbank SD’s statements of financial condition, statement of income or
loss, a statement demonstrating the firm’s capital levels and its compliance with the Japanese
Capital Rules, a statement of changes in ownership equity and a statement of subordinated debt.
This information is comparable to the audited financial information required by the Commission
from nonbank SDs under Commission Regulation 23.105(e) and detailed above.
The Annual Business Report and Annual Audited Financial Report must be translated
into English, and balances in the Annual Business Report must be converted into U.S. dollars.261
The Annual Business Report is required to be filed with the Commission and NFA within 15
business days of the earlier of the date that the report is filed, or is required to be filed, with the
FSA, and the Annual Audited Financial Report is required to be filed with the Commission and
NFA within 15 business days of the approval of the report at the shareholders’ meeting.
For purposes of clarity, the Commission notes that Japanese nonbank SDs may present
the financial information required to be provided to the Commission and NFA under the final
Comparability Order in accordance with generally accepted accounting principles that the
Japanese nonbank SD uses to prepare general purpose financial statements in Japan. This
clarification is consistent with proposed Condition 7, which the Commission adopts subject to a
minor modification in the final Comparability Order, requiring that the Japanese nonbank SD
prepares and keeps current ledgers and other similar records “in accordance with accounting
principles permitted by the [FSA].”262

As noted above, the 2022 Proposal included a proposal to permit balances in the Annual Audited Financial
Report to be presented in yen to avoid raising potential issues with respect to the audit opinion expressed on the
financial statements by the accountant engaged to conduct the audit of the Japanese nonbank SD’s financial
statements. See 2022 Proposal at 48108 and proposed Condition 10 at 48115. As previously stated herein, the
Commission is adopting Condition 10 in the final Comparability Order as proposed.
262 2022 Proposal at 48114. Proposed Condition 7 stated that Japanese nonbank SDs must prepare and keep current
ledgers and other similar records “in accordance with accounting principles required by the [FSA]”. To promote
In taking the position that Japanese nonbank SDs may provide financial reporting
prepared in accordance with the accounting standards applicable in their home jurisdiction, the
Commission considered the nature of the financial reporting information required from nonbank
SDs for purposes of monitoring their overall financial condition and compliance with capital
requirements. Specifically, the Commission notes that the requirements for how nonbank SDs
calculate their risk-weighted assets and capital ratio, in both Japan and the U.S., follow a rulesbased approach consistent with the Basel standards, and, consequently, the Commission does not
anticipate that a variation in the applicable accounting standards would materially impact this
calculation.263 In this regard, the Commission notes that Japanese nonbank SDs currently submit
financial reports, including a statement of financial condition and a statement of regulatory
capital, pursuant to CFTC Staff Letter 22-10.264 The reports provide the Commission with
appropriate information to assess the financial and operational condition of Japanese nonbank

consistency across the Comparability Determinations the Commission is adopting with respect to several other
jurisdictions and to reflect the fact that certain jurisdictions may not issue a formal approval of the accounting
standards used by nonbank SDs, the Commission is replacing the adjective “required” with the adjective “permitted”
in the reference to the accounting standards to be used by Japanese nonbank SDs.
263 Furthermore, the Commission’s approach to permitting Japanese nonbank SDs to maintain financial books and
records, and to file financial reports and other financial information, prepared in accordance with local accounting
standards is consistent with the SEC’s final comparability determinations for non-U.S. SBSDs. See Amended and
Restated Order Granting Conditional Substituted Compliance in Connection with Certain Requirements Applicable
to Non-U.S. Security-Based Swap Dealers and Major Security-Based Swap Participants Subject to Regulation in the
Federal Republic of Germany; Amended Orders Addressing Non-U.S. Security-Based Swap Entities Subject to
Regulation in the French Republic or the United Kingdom; and Order Extending the Time to Meet Certain
Conditions Relating to Capital and Margin, 86 FR 59797 (Oct. 28, 2021) at 59812 and Order Specifying the
Manner and Format of Filing Unaudited Financial and Operational Information by Security-Based Swap Dealers
and Major Security-Based Swap Participants that are not U.S. Persons and are Relying on Substituted Compliance
with Respect to Rule 18a–7, 86 FR 59208 (Oct. 26, 2021) (“SEC Manner and Format Order”) at 59219.
Specifically, the SEC stated that the use of local reporting requirements will avoid non-U.S. SBSDs “having to
perform and present two Basel capital calculations (one pursuant to local requirements and one pursuant to U.S.
requirements).” SEC Manner and Format Order at 59219. The SEC noted, in this regard, that the Basel standards
are international standards that have been adopted in the U.S. and in jurisdictions where substituted compliance is
available for capital under the SEC comparability determinations and that, therefore, requirements for how firms
calculate capital pursuant to the Basel standards generally should be similar. Id. In addition, if a Japanese nonbank
SD becomes registered with the SEC as an SBSD and is required to file a FOCUS Report, the Commission’s
approach to permitting Japanese nonbank SDs to maintain financial books and records, and file financial
information, prepared in accordance with local accounting standards would facilitate financial reporting by such
dually-registered entities. In such case, dually-registered entities would not have to perform multiple calculations
under different accounting standards or submit two different FOCUS Reports.
264 CFTC Staff Letter No. 22-10, Extension of Time-Limited No-Action Position for Foreign Based Nonbank Swap
Dealers domiciled in Japan, Mexico, the United Kingdom, and the European Union, August 17, 2022.

SDs, as well as the firms’ compliance with the capital ratios imposed on Japanese nonbank SDs
under the Japanese Capital Rules.
In addition, the Commission is adding a condition in the final Comparability Order to
specify that Japanese nonbank SDs that are registered with the SEC as an SBSD and required to
file a FOCUS Report with the SEC or its designee, must file a copy of the FOCUS Report with
the Commission and NFA within 35 calendar days after the end of each month. Currently, no
Japanese nonbank SD is registered as an SBSD. The Commission, however, is including the
condition in anticipation of potential future dual registrants. Under final Condition 12, a
Japanese nonbank SD that files a copy of the FOCUS Report will not be required to file the
financial reports and schedules specified in final Conditions 8 and 11 of the Comparability
Order. Final Condition 12 is also consistent with Commission Regulation 23.105(d)(3), which
mandates the filing of a FOCUS Report by dual registrants.265
One commenter, Better Markets, disagreed with the 2022 Proposal to the extent that the
Commission proposed not to require Japanese nonbank SDs that have been approved by the FSA
to use capital models to file the monthly model metric information required by Commission
Regulation 23.105(k) with the Commission or NFA.266 Commission Regulation 23.105(k)
requires nonbank SDs that have been approved by the Commission or NFA to use models to
compute market risk or credit risk for computing capital requirements to file certain information
with the Commission and NFA on a monthly basis.267 The information required to be filed
includes: (i) for nonbank SDs approved to use market risk models, a listing of any products that
the nonbank SD excludes from the approved market risk model and the amount of the
standardized market risk charge taken on such products; (ii) a graph reflecting, for each business
line of the nonbank SD, the daily intra-month VaR; (iii) the aggregate VaR for the nonbank SD;
and (iv) certain credit risk information for swaps, mixed swaps and security-based swaps,

17 CFR 23.105(d)(3).
Better Markets Letter at p. 11.
267 17 CFR 23.105(k).
265
including: (a) overall current exposure, (b) current exposure listed by counterparty for the 15
largest exposures, (c) the 10 largest commitments listed by counterparty, (d) maximum potential
exposure listed by counterparty for the 15 largest exposures, (e) aggregate maximum potential
exposure, (f) a summary report reflecting the SD’s current and maximum potential exposures by
credit rating category, and (g) a summary report reflecting current exposure for each of the top
ten countries to which the nonbank SD is exposed.268 Better Markets stated that by not requiring
the information contained in Commission Regulation 23.105(k), the Commission was proposing
to “take a back seat to the FSA and blindly accept [Japanese nonbank SDs’] assessments
resulting from their use of internal models to calculate risk,” and that such an approach undercuts
the comparability of the financial reporting and risk assessment of both regimes.269
The Commission does not agree that its approach is effectively deferring model oversight
to the FSA or that it is otherwise “blindly accept[ing]” the internal model-based assessments of
the Japanese nonbank SDs. As noted above, pursuant to NFA rules, all registered SDs, including
Japanese nonbank SDs, are required to submit to NFA, on a monthly basis, a list of specified risk
metrics related to the SD’s market risk and credit risk exposures.270 As part of its regulatory
oversight program, NFA uses the risk metrics information to identify firms that may pose
heightened risk and allocates appropriate oversight resources. NFA also may request additional
information from a nonbank SD to the extent it determines that information in the risk metrics or
other financial filings warrants a need for additional follow-up. Furthermore, Commission staff
has access to the collected risks metrics information and participates in NFA’s risk monitoring
function by regularly exchanging information and discussing potential risks with NFA staff.
As the list of specified risk metrics discussed above indicates, although the information
collected by NFA is not identical to the information required under Commission Regulation

17 CFR 23.105(k)(1).
Better Markets Letter at p. 11.
270 NFA Rulebook, Financial Requirements, section 17 Swap Dealer and Major Swap Participant Reporting
Requirements, available here:
https://www.nfa.futures.org/rulebooksql/rules.aspx?RuleID=SECTION%2017&Section=7, and NFA Notice I-1710.
268
23.105(k), there is a significant overlap in the data items. Working with industry participants,
NFA identified the risk data items listed in NFA Notice I-17-10 as relevant risk metrics to be
collected for oversight purposes, noting that most SDs use these or similar metrics as part of their
own risk management program. The Commission believes that the information required
pursuant to NFA Notice I-17-10 would provide the Commission and NFA with key data
allowing them to monitor nonbank SDs’ risk exposures. In addition, the Commission and NFA
have the ability to request additional information from its registrants, including Japanese
nonbank SDs, at any time.271 Finally, the Commission notes that the FSA, which will be
conducting the initial approval and ongoing assessment of the performance of the Japanese
nonbank SDs’ internal models, under a regulatory framework that the Commission finds
comparable to the CFTC Capital Rules, will have access to additional information that the FSA
deems relevant in the conduct of such approval and assessment. The Commission, therefore,
concludes that it is not necessary to require Japanese nonbank SDs relying on the final
Comparability Order to submit the model metric information mandated by Commission
Regulation 23.105(k).
Better Markets also noted that the proposed Comparability Determination was
conditioned on a Japanese nonbank SD submitting a statement by an authorized representative
that to the best knowledge and belief of the person the information contained in reports
submitted to the Commission is true and correct, in lieu of the oath or affirmation required by
Commission Regulation 23.105(f).272 Better Markets stated that there are significant legal
differences between a statement and the oath or affirmation required by the CFTC Financial
Reporting Rules, further highlighting the differences between the regulatory reporting
requirements of the U.S. and those of Japan.273

17 CFR 23.105(h), which provides that the Commission or NFA may, by written notice, require any SD to file
financial operational information at such time as may be specified by the Commission or NFA.
272 Better Markets Letter at p.10.
273 Id.
For completeness, the Commission notes that the proposed condition requires that an
authorized representative of the Japanese nonbank SD provide a statement that, to the best of the
knowledge and belief of the representative, the information contained in the financial reports
filed with the Commission and NFA is true and correct, including the applicable translation of
the reports to the English language and the conversion of balances to U.S. dollars. The proposed
condition was based on current Commission Regulation 23.105(f), which provides that a
nonbank SD must attach to each unaudited and annual audited financial report filed with the
Commission and NFA an oath or affirmation that to the best knowledge and belief of the
individual making the oath or affirmation the information in the financial reports is true and
correct. Similar to the intent of Commission Regulation 23.105(f), the purpose of the proposed
condition is to obtain a formal attestation from a representative with the appropriate knowledge
and authority that the information provided in the requisite financial reports is accurate and
properly translated. The Commission’s choice of language in using the term “statement” was not
intended to make a legal distinction between this term and the terms “oath” or “affirmation,” but
rather to select a generic term that is universally understood across jurisdictions to reflect the
above-referenced purpose. In practice, the Commission does not believe that there is a material
legal difference between the language of the proposed condition and the required oath or
affirmation required under Commission Regulation 23.105(f). Instead, the Commission is of the
view that the proposed condition would have the same legal effect as Commission Regulation
23.105(f) of providing the Commission with a stronger basis to take legal action if a Japanese
nonbank SD files erroneous information.
Commenters also addressed the Commission’s request for comment on the proposed
filing dates for the reports and information specified above and the compliance dates for any new
reporting obligations that the Comparability Order would impose on Japanese nonbank SDs.
IBAJ stated that the proposed filing of reports and information with the Commission and NFA

within 15 days of the date when the filing is made with the FSA is sufficient.274 Other
commenters requested that the Commission set the compliance date at least six months following
the issue date of the Comparability Order to adequately prepare for compliance with the
reporting conditions imposed by the Order.
The Commission believes that granting an additional period of time to allow Japanese
nonbank SDs to develop and implement the necessary systems and processes for compliance
with the Comparability Order is appropriate with respect to new reporting obligations imposed
on Japanese nonbank SDs under the final Order. For other reporting obligations, for which a
process already exists, such as the reports that Japanese nonbank SDs currently submit to the
Commission and NFA pursuant to CFTC Staff Letter 22-10 and/or prepare pursuant to the
Japanese Financial Reporting Rules, additional time for compliance does not appear necessary.
Accordingly, the Commission is setting a compliance date of 180 calendar days from the date of
publication of the final Comparability Order in the Federal Register, to comply with final
Conditions 11 and 13, which require Japanese nonbank SDs to file Schedule 1 and the Margin
Report with the Commission and NFA.
In an effort to align, where appropriate, the filing deadlines for financial reporting
obligations imposed by the Comparability Order on Japanese nonbank SDs with the filing
deadlines that the Commission proposed for nonbank SDs domiciled in several other
jurisdictions, the Commission is also setting the filing deadline in final Condition 8 to 35
calendar days after the end of each month.275 The filing deadline will apply to the selected forms
of the Monthly Monitoring Report, as well as to Schedule 1 and the Margin Report, which

IBAJ Letter at p. 6.
See Notice of Proposed Order and Request for Comment on an Application for a Capital Comparability
Determination Submitted on Behalf of Nonbank Swap Dealers Domiciled in the French Republic and Federal
Republic of Germany and Subject to Capital and Financial Reporting Requirements of the European Union, 88 FR
41774 (June 27, 2023) and 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 Capital and Financial
Reporting Requirements of the United Kingdom and Regulated by the United Kingdom Prudential Regulation
Authority, 89 FR 8026 (Feb. 5, 2024).
274
pursuant to final Conditions 11 and 13 must be filed with the selected forms of the Monthly
Monitoring Report.
In summary, the Commission is adopting the Comparability Order and conditions as
proposed with respect to the comparability of the CFTC Financial Reporting Requirements and
Japanese Financial Reporting Requirements, subject to the adjustments to the required content of
the Monthly Monitoring Report, the filing deadlines discussed above, the minor change in the
language of final Condition 7 to specify that Japanese nonbank SDs must keep current ledgers or
similar records in accordance with accounting principles “permitted” by the FSA, and the
specifications in final Conditions 8, 9, 11, and 13 that the conversion of balances to U.S. dollars
must be done using a commercially reasonable and observable yen/U.S. dollar spot rate as of the
date of the respective report. The Commission also grants an additional compliance period for
the new reporting obligations imposed on Japanese nonbank SDs as set forth in the final
Comparability Order below.
E. Notice Requirements
1. Proposed Determination
The Commission noted in the 2022 Proposal that the CFTC Financial Reporting Rules
require nonbank SDs to provide the Commission and NFA with written notice of certain defined
events.276 Commission Regulation 23.105(c) requires a nonbank SD to file written notice with
the Commission and NFA of the following events: (i) the nonbank SD’s regulatory capital is
less than the minimum amount required; (ii) the nonbank SD’s regulatory capital is less than 120
percent of the minimum amount required; (iii) the nonbank SD fails to make or to keep current
required financial books and records; (iv) the nonbank SD experiences a reduction in the level of
its excess regulatory capital of 30 percent or more from the amount last reported in a financial
report filed with the Commission; (v) the nonbank SD plans to distribute capital to equity holders
in an amount in excess of 30 percent of the firm’s excess regulatory capital; (vi) the nonbank SD

2022 Proposal at 48110. See, also, 17 CFR 23.105(c).

fails to post to, or collect from, a counterparty (or group of counterparties under common
ownership or control) required initial and variation margin, and the aggregate amount of such
margin equals or exceeds 25 percent of the nonbank SD’s minimum capital requirement; (vii) the
nonbank SD fails to post to, or collect from, swap counterparties required initial and variation
margin, and the aggregate amount of such margin equals or exceeds 50 percent of the nonbank
SD’s minimum capital requirement; and (viii) the nonbank SD is registered with the SEC as an
SBSD and files a notice with the SEC under applicable SEC Rules.277
The notices are part of the Commission’s overall program of helping to ensure the safety
and soundness of nonbank SDs and the swaps markets in general.278 Notices provide the
Commission and NFA with an opportunity to assess whether there is an actual or potential
financial and/or operational issue at a nonbank SD. In situations where there is an underlying
issue, Commission and NFA staff engage with the nonbank SD in an effort to minimize potential
adverse impacts on the firm, swap counterparties, and the larger swaps market.279
The 2022 Proposal also noted the that the Japanese Financial Reporting Rules include
notice requirements for Japanese nonbank SDs, although in a more limited manner than the
Commission’s notice requirements. The Japanese Financial Reporting Rules require a Japanese
nonbank SD to provide immediate notice to the FSA if the firm’s capital adequacy ratio falls
below 140 percent (i.e., “Japanese Early Warning Notice”).280 The Japanese Early Warning
Notice must be accompanied by a Plan Regarding Specific Voluntary Measures to Be Taken in
Order to Maintain the Capital Adequacy Ratio, which includes the concrete measures that the
Japanese nonbank SD will take to maintain a capital adequacy ratio above 140 percent.281 The

17 CFR 23.105(c).
Id.
279 See 2022 Proposal at 48110.
280 Id., citing Article 179 of the COO.
281 Id.
277
FSA also has the authority to examine the future outlook of the Japanese nonbank SD’s capital
adequacy ratio through hearings and to urge the firm to make voluntary improvement efforts.282
A Japanese nonbank SD is also required to file immediate notice with the FSA if the
firm’s capital adequacy ratio falls below the 120 percent minimum requirement.283 The
notification must include the Japanese nonbank SD’s Plan Regarding Specific Voluntary
Measures to Be Taken in Order to Improve the Capital Adequacy Ratio.284 The FSA will review
the plan and, when necessary, identify the specific method by which a Japanese nonbank SD
must bring its capital adequacy ratio back above the prescribed minimum level and the estimated
date of the recovery. In situations where the Japanese nonbank SD fails to maintain the
minimum level of regulatory capital, the FSA will also examine other aspects of the firm’s
operations, including the status of segregated management of customer assets and fund-raising.
If the FSA finds it to be necessary and appropriate in the public interest or for the protection of
investors, the Commissioner of the FSA may order a change of business methods, order assets to
be deposited, or issue orders with respect to matters that are otherwise necessary from a
supervisory perspective.285
If a Japanese nonbank SD’s capital adequacy ratio falls below 100 percent, the
Commissioner of the FSA may order the suspension of all or part of the firm’s business activities
for a period not to exceed three months if the FSA deems such action to be necessary and
appropriate for the public interest or for the protection of investors.286 If the Japanese nonbank

Id. citing section IV–2–2 (Supervisory Response to Cases of Financial Instruments Business Operators’ Capital
Adequacy Ratio Falling Below Prescribed Level) (1) of the Supervisory Guidelines for FIBO.
283 2022 Proposal at 48110, citing Article 179 of COO.
284 Id.
285 2022 Proposal at 48110-48111. Article 53(1) of the FIEA. Section IV–2–2 (Supervisory Response to Cases of
Financial Instruments Business Operators’ Capital Adequacy Ratio Falling Below Prescribed Level) (3) of the
Supervisory Guidelines for FIBO indicates four examples of the order: (i) to draft and implement measures
(including the drafting of specifics and the implementation schedule) to bring the capital adequacy ratio back above
the legally prescribed level and maintain the ratio above that level on a permanent basis; (ii) to implement measures
to ensure the protection of investors in preparation for an unexpected event, through appropriate management of
securities and cash and careful management of fund-raising; (iii) to avoid activities that could lead to wasteful use of
corporate assets; and (iv) to compile the projections of the balance sheet and fund-raising status on a daily basis and
the projection of the capital adequacy ratio in ways to reflect the specific measures to be implemented, in order to
bring the capital adequacy ratio back above the legally prescribed level.
286 2022 Proposal at 48111. Article 53(2) of the FIEA.
SDs capital adequacy ratio does not exceed 100 percent, and the FSA determines that the firm’s
capital adequacy ratio status is not likely to recover, the Commissioner of the FSA may rescind
the registration of the firm.287
Furthermore, in addition to the above measures, the FSA may order a Japanese nonbank
SD to change its business methods or to otherwise take measures that are necessary for
improving its business operations or the state of its assets if the FSA finds such action necessary
and appropriate in the public interest or for the protection of investors.288 Finally, the Prime
Minister of Japan may rescind the registration of a Japanese nonbank SD, or order the suspension
of all or a part of its business activities for a period of no longer than six months, if the Japanese
nonbank SD violates a disposition by a government agency,289 or is likely to become insolvent
due to the state of its business and assets.290
Based on its review of the FSA Application and the relevant Japanese laws and
regulations, the Commission preliminarily determined that the Japanese Financial Reporting
Rules and the CFTC Financial Reporting Rules were comparable in purpose and effect with
respect to the requirements in Commission Regulation 23.105(c)(1) and (2) for nonbank SDs to
provide notice if the firm fails to maintain the minimum level of regulatory capital or falls below
120 percent of the minimum level of regulatory capital. Therefore, the Commission proposed to
condition the Comparability Order on a Japanese nonbank SD providing the Commission and
NFA with written notice within 24 hours of the firm filing notice with the FSA, pursuant to
Article 179(3) of the COO, that its capital adequacy ratio had fallen below 140 percent or 120
percent.291 The Commission noted that upon receipt of a notice, Commission staff and NFA
staff would engage with the FSA and the Japanese nonbank SD to obtain an understanding of the
facts that led to the filing of the notice and would discuss with the FSA its plan for any ongoing

Id.
Id.
289 Id.
290 Id.
291 Id.
287
Article 53(3) of the FIEA.
Article 51 of the FIEA.
Article 52(1)(vii) of the FIEA.
Article 52(1)(viii) of the FIEA

monitoring of the Japanese nonbank SD. Accordingly, the Commission stated that its proposal
would not require the Japanese nonbank SD to file copies of its recovery plan that it filed with
the FSA with the Commission or NFA. The Commission stated that to the extent it needed
further information from the Japanese nonbank SD, the Commission expected to request such
information as part of its interaction with the Japanese nonbank SD and from its discussions with
the FSA.292 The Commission believed that its proposed conditions would ensure that the
Commission and NFA received the appropriate information covered by Commission Regulation
23.105(c)(1) and (2), while also removing the obligation for the Japanese nonbank SD to file
separate and duplicative notices with the Commission/NFA and the FSA.
The Commission, however, also acknowledged that the notice provisions of the Japanese
Financial Reporting Rules differ in certain respects from the CFTC Financial Reporting Rules.293
Specifically, unlike the CFTC Financial Reporting Rules, the Japanese Financial Reporting
Rules do not contain explicit requirements for a Japanese nonbank SD to notify the FSA if the
firm fails to make or keep current books and records required by the FSA, experiences a
specified decrease in its capital adequacy ratio when compared to levels previously reported, or
fails to collect or post required initial margin and/or variation margin for uncleared swap and
non-cleared security-based swap transactions with counterparties that exceed certain threshold
levels.294 The Japanese Financial Reporting Rules also do not require a Japanese nonbank SD to
provide the FSA with advance notice of capital withdrawals initiated by equity holders that
exceed defined amounts or percentages of the firm’s excess regulatory capital.295
To address these differences and to ensure that the Commission and NFA receive
appropriate notices of events that may have potential adverse impacts on registered SDs, the
Commission proposed to condition the Comparability Order to require Japanese nonbank SDs to

See 2022 Proposal at 48112.
Id.
294 See 17 CFR 23.105(c)(3), (4), and (7).
295 See 17 CFR 23.105(c)(5) (requiring a nonbank SD to provide written notice to the Commission and NFA two
business days prior to the withdrawal of capital by action of the equity holders if the amount of the withdrawal
exceeds 30 percent of the nonbank SD’s excess regulatory capital). See 2022 Proposal at 48111.
292
file certain additional notices directly with the Commission and NFA. In this regard, the
Commission stated that the maintenance of current books and records is a fundamental and
essential component of operating as a registered nonbank SD, and that the failure to comply with
such a requirement may indicate an inability of the firm to promptly and accurately record
transactions ensuring compliance with regulatory requirements, including regulatory capital
requirements.296 As such, the Commission proposed to condition the proposed Comparability
Order on a Japanese nonbank SD providing the Commission and NFA with a written notice
within 24 hours if the firm fails to make or to keep current books and records required by the
FSA.297 The Commission stated that, in this context, books and records would include current
ledgers or other similar records which show or summarize, with appropriate references to
supporting documents, each transaction affecting the Japanese nonbank SD’s asset, liability,
income, expense, and capital accounts in accordance with the accounting principles permitted by
the FSA.298
The Commission further proposed to condition the Comparability Order on a Japanese
nonbank SD filing a notice with the Commission and NFA if: (i) a single counterparty, or group
of counterparties under common ownership or control, fails to post required initial margin or pay
required variation margin on uncleared swap and non-cleared security-based swap positions that,
in the aggregate, exceeds 25 percent of the Japanese nonbank SD’s minimum capital
requirement; (ii) counterparties fail to post required initial margin or pay required variation
margin to the Japanese nonbank SD for uncleared swap and non-cleared security-based swap
positions that, in the aggregate, exceeds 50 percent of the Japanese nonbank SD’s minimum
capital requirement; (iii) a Japanese nonbank SD fails to post required initial margin or pay
required variation margin for uncleared swap and non-cleared security-based swap positions to a

2022 Proposal at 48111.
Id. at 48111-48112. See also, proposed Condition 18 at 48115.
298 Id. at 48111. For comparison, see Commission Regulation 23.105(b) (similarly defining the term “current books
and records” as used in the context of Commission’s requirements). 17 CFR 23.105(b).
296
single counterparty or group of counterparties under common ownership and control that, in the
aggregate, exceeds 25 percent of the Japanese nonbank SD’s minimum capital requirement; and
(iv) a Japanese nonbank SD fails to post required initial margin or pay required variation margin
to counterparties for uncleared swap and non-cleared security-based swap positions that, in the
aggregate, exceed 50 percent of the Japanese nonbank SD’s minimum capital requirement. The
Commission proposed to require this notice so that, in the event that such a notice is filed, the
Commission and NFA may commence communication with the Japanese nonbank SD and the
FSA to obtain an understanding of the facts that led to the failure to exchange material amounts
of initial margin or variation margin in accordance with the applicable margin rules, and to
assess whether there is a concern regarding the financial condition of the firm that may impair its
ability to meet its financial obligations to customers, counterparties, creditors, and general
market participants, or otherwise adversely impact the firm’s safety and soundness.299
The Commission also proposed to require that a Japanese nonbank SD file any notices
required under the proposed Comparability Order with the Commission and NFA in English and,
where applicable, with any balances reported in U.S. dollars. The Commission stated that each
notice required by the proposed Comparability Order had to be filed in accordance with
instructions issued by the Commission or NFA.300
The Commission did not propose to require a Japanese nonbank SD to file notices with
the Commission concerning withdrawals of capital or changes in capital levels as such
information would be reflected in the financial statement reporting filed with the Commission
and NFA as conditions of the order, and because the Japanese nonbank SD’s capital levels are
also monitored by the FSA. As such, the Commission preliminarily considered that the separate
reporting of the information to the Commission would be superfluous.301

Id. See also, proposed Condition 19 at 48115.
Id.
301 Id.
299
2. Comment Analysis and Final Determination
The Commission received several comments with respect to the notice provisions. IBAJ
noted, with respect to the proposed requirement in proposed Condition 18 that a Japanese
nonbank SD file notice with the Commission and NFA within 24 hours of the firm failing to
make or keep current the financial books and records required by the FSA, that it is practically
challenging for a firm to submit a notification prior to the discovery of the relevant failure.302
IBAJ recommended that the condition require a notice “following the discovery” by the Japanese
nonbank SD of its failure to maintain current financial books and records.303
Maintaining current books and records of all financial transactions is a fundamental
recordkeeping requirement for a registered nonbank SD, and is essential in order to provide
management with the information necessary to ensure that financial transactions are timely and
accurately reported and that the firm is in compliance with capital and other regulatory
requirements. The Commission believes that it is necessary for a nonbank SD to maintain
internal controls and procedures to affirmatively monitor that books and records are being
maintained on a current basis. Therefore, the Commission is adopting Condition 18 (renumbered
as final Condition 19) as proposed.304 For further clarification of this condition, the Commission
also confirms that the requirement for Japanese nonbank SDs to file a notice with the
Commission if the firm fails to maintain current books and records will apply with respect to
books and records addressing the Japanese nonbank SD’s financial condition and financial
reporting requirements.
IBAJ also recommended a technical edit to the proposed condition requiring Japanese
nonbank SDs to file a notice in case of a failure to exchange material amounts of initial margin
or variation margin. Specifically, IBAJ suggested that the phrase “to the Japanese nonbank SD”

IBAJ Letter at p. 7.
Id.
304 The Commission also notes that final Condition 19 is consistent with Commission Regulation 23.105(c)(3),
which requires nonbank SDs subject to the Commission’s notice requirements to file notice within 24 hours if the
firm does not maintain current books and records. 17 CFR 23.105(c)(3).
302
be added after the phrase “a single counterparty, or group of counterparties under common
ownership or control, fails to post required initial margin or pay required variation margin” in
prong (i) of proposed Condition 19.305 The Commission considers this edit appropriate as it
reflects the intent of the Condition as set forth in the 2022 Proposal, and has revised proposed
Condition 19 (renumbered as Condition 20 of the final Order) by adding the phrase “to the
Japanese nonbank SD.” Separately, for purposes of clarity, the Commission notes that, in
proposing a notice condition based on thresholds of “required” margin, the Commission’s intent
was to set the notice trigger by reference to margin amounts that are legally required to be
exchanged under the applicable margin requirements. To determine the applicable margin
requirements, the Commission will consider the framework set forth in Commission Regulation
23.160.306 To the extent Japanese nonbank SDs intending to rely on the Comparability Order
have inquiries regarding the scope of uncleared swap margin transactions to be monitored for
purposes of complying with final Condition 20, MPD will discuss such inquiries with the
Japanese nonbank SD during the confirmation process referenced in final Condition 6 of the
Comparability Order.
Finally, IBAJ requested that the Commission clarify the meaning of the term “minimum
capital requirement” in proposed Condition 19.307 The Commission notes that the concept of
“minimum capital requirement” refers to the minimum amount of capital that a Japanese
nonbank SD is required to hold pursuant to the Japanese Capital Rules. The Commission
understands that this amount corresponds to the Japanese nonbank SD’s required “capital
adequacy amount” (i.e., 120 percent of the Japanese nonbank SD’s risk equivalent amount). To
more accurately reflect the intent of the condition, however, the Commission will set forth the
notice requirement in proposed Condition 19 (renumbered as final Condition 20) by reference to

IBAJ Letter at p. 7.
Commission Regulation 23.160 governs the cross-border application of the CFTC margin requirements for
uncleared swaps depending on the category of entities involved in the transactions and the availability of substituted
compliance. 17 CFR 23.160.
307 Id. at p. 8 (asking whether “minimum capital requirement” in this context meant the amount calculated by
multiplying the risk equivalent amount and 120 percent under the Japanese Capital Rules).
305
the Japanese nonbank SD’s risk equivalent amount. By using the Japanese nonbank SD’s risk
equivalent amount as a threshold reference, the Commission will more closely align the
condition with Commission Regulation 23.105(c)(7).
As discussed in Section II.E.1. above, the notice provisions are central part of the
Commission’s and NFA’s oversight of nonbank SDs. To ensure that the Commission and NFA
receive appropriate and timely notice of potential capital issues with Japanese nonbank SDs, the
Commission is adopting proposed Conditions 16 and 17, which require a Japanese nonbank SD
to file notice with the Commission and NFA within 24 hours of filing notice with the FSA that
the firm’s capital adequacy requirement has fallen below 140 percent and 120 percent,
respectively.308
Furthermore, the Commission did not receive any comments with respect to the
following proposed notice conditions: (i) the Japanese nonbank SD files notice with the
Commission and NFA within 24 hours of being informed by the FSA that the firm is not in
compliance with any component of the Japanese Capital Rules or Japanese Financial Reporting
Rules (proposed Condition 14); (ii) the Japanese nonbank SD files notice with the Commission
and NFA within 24 hours if the firm fails to maintain regulatory capital in the form of Basic
Items, as defined in Article 176 of the COO, equal to or in excess of the U.S. dollar equivalent of
$20 million (proposed Condition 15); or (iii) the Japanese nonbank SD files notice of the FSA
approving a change in the firm’s fiscal year-end date, which must be filed with the Commission
and NFA at least 15 business days prior to the effective date of the change (proposed Condition
20). The Commission, having considered the 2022 Proposal, is adopting the above conditions as
proposed.309

Proposed Conditions 16 and 17 have been renumbered as Conditions 17 and 18, respectively, in the final
Comparability Order.
309 The Commission is renumbering proposed Conditions 14, 15, 19, and 20 as Conditions 15, 16, 20, and 21,
respectively, in the final Comparability Order.
Commenters also requested that the Commission set the compliance date at least six
months following the issue date of the Comparability Order to allow Japanese nonbank SDs to
adequately prepare for compliance with the notice reporting obligations imposed by the
Comparability Order.310 Similar to its position with regard to the financial reporting obligations,
the Commission believes that granting an additional period of time to allow Japanese nonbank
SDs to establish and implement the necessary processes to comply with the notice requirements
imposed by the Comparability Order is appropriate with respect to certain notice obligations.
Specifically, the Commission understands that establishing a process for monitoring failures to
collect or post initial margin or variation margin for uncleared swap transactions that exceed
specified thresholds for purposes of complying with final Condition 20 may take time.
Conversely, the Commission does not believe that additional time is necessary for implementing
a process of providing a notice to the Commission and NFA in connection with the occurrence of
events that Japanese nonbank SDs currently monitor and/or report to the FSA. The Commission
is also of the view that, given the nature of the notice obligation, Japanese nonbank SDs should
be in a position to comply with all other notice obligations, including those requiring Japanese
nonbanks SDs to provide notice to the Commission and NFA if they fail to make or keep current
financial books and records, or if they fail to maintain regulatory capital in the form of Basic
Items equal to, or in excess of, the U.S. dollar equivalent of $20 million, immediately upon
effectiveness of the Comparability Order. Accordingly, the Commission is setting a compliance
date of 180 calendar days after the publication of the Comparability Order in the Federal register
with respect to the notice reporting obligations under final Condition 20 of the Comparability
Order. Commenters did not address any other aspects of the proposed Comparability
Determination or Comparability Order concerning the comparability of the Japanese and CFTC
nonbank SD notice requirements.

IBAJ Letter at p. 4 and Associations Letter at p. 4.

In conclusion, the Commission finds that the regulatory notice provisions of Japanese
Financial Reporting Rules and the CFTC Financial Reporting Rules, after consideration of the
conditions imposed in the final Comparability Order, are comparable in purpose and effect, and
achieve comparable regulatory outcomes, by providing timely notice to the FSA, and to the
Commission and NFA, of specified events at a nonbank SD that may potentially indicate an
ongoing issue with the safety and soundness of the firm and/or its ability to meet its obligations
to swap counterparties, creditors, or other market participants without the firm becoming
insolvent. As such, the Commission adopts the final Comparability Order and conditions as
proposed with respect to the Commission’s analysis of comparability of the Japanese and
Commission’s nonbank SD notice reporting requirements, subject to the technical edits in
Condition 20 discussed above. The Commission is also adopting a compliance date for certain
notice reporting requirements as discussed above in the final Comparability Order.
F. Supervision and Enforcement
1. Proposed Determination
In the 2022 Proposal, the Commission discussed the oversight of nonbank SDs, noting
that the Commission and NFA conduct ongoing supervision of nonbank SDs to assess their
compliance with the CEA, Commission regulations, and NFA rules by reviewing financial
reports, notices, risk exposure reports, and other filings that nonbank SDs are required to file
with the Commission and NFA.311 As discussed, the Commission and NFA also conduct
periodic examinations as part of their supervision of nonbank SDs, including routine onsite
examinations of nonbank SDs’ books, records, and operations to ensure compliance with CFTC
and NFA requirements.312

See 2022 Proposal at 48112.
See id. Section 17(p)(2) of the CEA requires NFA as a registered futures association to establish minimum
capital and financial requirements for nonbank SDs and to implement a program to audit and enforce compliance
with such requirements. 7 U.S.C. 21(p)(2). Section 17(p)(2) further provides that NFA’s capital and financial
requirements may not be less stringent than the capital and financial requirements imposed by the Commission.
311
The Commission also referred to the financial reports and notices required under the
CFTC Financial Reporting Rules, noting that the reports and notices provide the Commission
and NFA with information necessary to ensure the nonbank SD’s compliance with minimum
capital requirements; assess the firm’s overall safety and soundness and ability to meet its
financial obligations to customers, counterparties, creditors, and general market participants; and
identify potential issues at a nonbank SD that may impact the firm’s ability to maintain
compliance with the CEA and Commission regulations.313 As discussed in the 2022 Proposal,
the Commission and NFA also have the authority to require a nonbank SD to provide any
additional financial and/or operational information as they may specify to monitor the safety and
soundness of the firm.314
The Commission further noted that it has authority to take disciplinary actions against a
nonbank SD for failing to comply with the CEA and Commission regulations. In this regard,
Section 4b-1(a) of the CEA provides the Commission with exclusive authority to enforce the
capital requirements imposed on nonbank SDs adopted under Section 4s(e) of the CEA.315 NFA
also may take disciplinary actions against nonbank SDs for failure to comply with NFA rules.316
With respect to the FSA’s authority to supervise Japanese nonbank SDs and carry out
enforcement actions, the Commission stated that the FSA has supervision, audit, and
investigation authority with respect to Japanese nonbank SDs, including the authority to require
such firms to provide all necessary information for the FSA to carry out its supervisory
responsibilities.317 Specifically, as discussed in the 2022 Proposal, the FSA has the authority to

See 2022 Proposal at 48112-48113.
17 CFR 23.105(h). See also 2022 Proposal at 48112-48113.
315 Id. at 48113.
316 NFA is required by the CEA to maintain rules providing that its member and persons associated with its
members, including nonbank SDs, shall be appropriately disciplined by expulsion, suspension, fine, censure, or
being suspended or barred from being associated with all members, or any other fitting penalty, for any violation of
its rules. 7 U.S.C. 21(b)(8); see also Commission Regulation 170.6 (17 CFR 170.6), which requires, among other
things, a registered futures association to take vigorous action against members that engage in activities in violation
of the association’s rules and to impose discipline that is fair and has a reasonable basis in fact.
317 FSA Application, p. 16.
313
require Japanese nonbank SDs to submit documents to the FSA and to conduct onsite inspections
at the business offices of the Japanese nonbank SDs.318
The Commission noted that the FSA also monitors the capital adequacy ratios of
Japanese nonbank SDs through supervisory measures on an ongoing basis, referring to the
system of notice requirements, discussed in Section E.1. above, that obligate Japanese nonbank
SDs to provide notice to the FSA if certain triggering conditions are met. The Commission also
discussed the FSA’s authority to address actual cases of a Japanese nonbank SD’s failure to
maintain its required capital adequacy ratio. Specifically, as discussed, a Japanese nonbank SD
is required to submit a notification and an action plan to the FSA if the Japanese nonbank SD’s
capital adequacy ratio falls below 120 percent.319 The FSA will review the plan and, when
necessary, identify the specific method by which the Japanese nonbank SD is required to bring
its capital adequacy ratio back above the prescribed minimum level. The FSA also may order a
Japanese nonbank SD to change its business methods, order assets to be deposited, or issue
orders with respect to matters that are otherwise necessary from a supervisory perspective, if the
FSA finds it in the public interest or for the protection of customers to take such actions.320
Furthermore, a Japanese nonbank SD may have all or parts of its business suspended for a period
of up to six months or have its registration revoked if the firm violates certain laws or regulations
in connection with the financial instruments business or services,321 or if the firm is likely to
become insolvent.322 Finally, a Japanese nonbank SD is subject to fines and other possible
actions if it fails to submit documents that are required by law to be filed with the FSA.323 Based
on its analysis of the FSA’s supervisory regime, the Commission preliminarily found that the
FSA has the necessary powers and ability to supervise and enforce Japanese nonbank SDs’
compliance with Japanese capital adequacy and financial reporting requirements.

Article 56-2 of the FIEA. See 2022 Proposal at 48113.
Article 53(2) of the FIEA.
320 Id.
321 Article 52(1)(vii) of the FIEA.
322 Article 52(1)(viii) of the FIEA.
323 Article 198-6 of the FIEA. See 2022 Proposal at 48113.
318
The Commission also cited its long history of regulatory cooperation with the FSA,
noting that the Commission and the FSA have entered into a Memorandum of Cooperation
(“MOC”) with regard to the cooperation and the exchange of information in the supervision and
oversight of regulated entities that operate on a cross-border basis in both the U.S. and Japan
(“Cross-Border Covered Entities”), including nonbank SDs registered with the Commission and
FIBOs registered with the FSA.324 As discussed in the 2022 Proposal, pursuant to the MOC, the
Commission and FSA have expressed an intent to consult regularly, as appropriate, regarding:
(i) general supervisory issues, including regulatory, oversight, or other related developments; (ii)
issues relevant to the operations, activities, and regulation of Cross-Border Covered Entities; and
(iii) any other areas of mutual supervisory interest, and to meet periodically to discuss their
respective functions and regulatory oversight programs.325 The MOC further provides for the
Commission and FSA to inform each other of certain events, including any material events that
could adversely impact the financial or operational stability of a Cross-Border Covered Entity,
and provides a procedure for the Commission or FSA to conduct on-site examinations in,
respectively, Japan or the U.S.326 The Commission stated that, pursuant to the terms of the
MOC, it intends to communicate and consult with the FSA regarding the supervision of the
financial and operational condition of Japanese nonbank SDs.327
Finally, in addition to preliminarily finding that the FSA has the necessary powers and
authorities to conduct supervisory programs, the Commission also noted that it retains

Memorandum of Cooperation Related to the Supervision of Cross-Border Covered Entities (Mar. 10, 2014),
available here: https://www.cftc.gov/idc/groups/public/%40internationalaffairs/documents/file/cftcjfsamoc031014.pdf. In addition, both the Commission and the FSA are signatories to the IOSCO Multilateral
Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information
(revised May 2012), which covers primarily information sharing in the context of enforcement matters. See 2022
Proposal at 48111-48112.
325 MOC, paragraphs 19 and 26.
326 MOC, paragraph 22 and 29. Event-triggered notification in paragraph 22 of the MOC includes any known
adverse material change in the ownership, operating environment, operations, financial resources, management, or
systems and controls of a Cross-Border Covered Entity, and the failure of a Cross-Border Covered Entity to satisfy
any of its requirements for continued authorization or registration where that failure could have a material adverse
effect in the jurisdiction of the Commission or FSA.
327 See 2022 Proposal at 48113.
examination authority and enforcement authority over Japanese nonbank SDs.328 The ability of
the Commission to exercise its enforcement authority over Japanese nonbank SD is not
conditioned upon a finding by the FSA of a violation of the Japanese Capital Rules or Japanese
Financial Reporting Rules. In addition, as each Japanese nonbank SD is a member of NFA, the
firm is subject to NFA membership rules, examination authority, and disciplinary process.329
2. Comment Analysis and Final Determination
In response to the Commission’s request for comment, Better Markets stated that to
ensure that the Commission fulfills its obligation to protect the U.S. financial system, it must
ensure, on an ongoing basis, that each grant of substituted compliance remains appropriate over
time by, at least, requiring that each order granting substituted compliance, and each
memorandum of understanding with a foreign regulatory authority, impose an obligation that the
applicant, as appropriate: (1) periodically apprise the Commission of the activities and results of
its supervision and enforcement programs, to ensure that they remain sufficiently robust to deter
and address violations of the law; and (2) immediately apprise the Commission of any material
changes to the regulatory regime, whether explicit (i.e., rules changes) or implicit (i.e., changes
in how a rule is interpreted, applied, or enforced).330
As discussed above, the Commission has entered into an MOC with the FSA, which sets
forth a comprehensive framework for cooperation, timely communications, and exchange of
information between the agencies. In addition, the 2022 Proposal includes a proposed condition
requiring the FSA to notify the Commission of any material changes to the information
submitted in the FSA Application, including, but not limited to, proposed and final material
changes to the Japanese Capital Rules or Japanese Financial Reporting Rules and proposed and
final material changes to the FSA’s supervisory authority or supervisory regime over Japanese

2022 Proposal at 48094 – 48095. In discussing the comparability framework, the Commission noted that a nonU.S. nonbank SD that has received confirmation of its ability to operate under a Comparability Order remains
subject to the Commission’s examination authority and may be subject to a Commission enforcement action if the
firm fails to comply with a foreign jurisdiction’s capital adequacy or financial reporting requirements.
329 7 U.S.C. 21(p).
330 Better Markets Letter at pp. 6-7.
nonbank SDs. The Commission has included this condition in its final Comparability Order and
further expanded it to require that a Japanese nonbank SD relying on the Comparability Order
provide such notice.331 As such, the Commission believes that the comment concerning the
nature and extent of cooperation and communication between the CFTC and the FSA with
respect to the supervision and oversight of Japanese nonbank SDs is adequately addressed.
Furthermore, in issuing a Comparability Order, the Commission is not ceding its
supervisory and enforcement authority. Japanese nonbank SDs that are subject to a
Comparability Order are registered with the Commission as SDs and are members of NFA, and,
as such, are subject to the CEA, Commission regulations, and NFA membership rules and
requirements. Japanese nonbank SDs covered by the Comparability Order also remain subject to
the Commission’s examination authority with respect to all elements of the CEA and
Commission regulations, including capital and financial reporting.332 Therefore, the
Commission and NFA have an ongoing obligation to conduct oversight, including potential
examination, of Japanese nonbank SDs. In this regard, Japanese nonbank SDs covered by a
Comparability Order are not only required to provide the Commission and NFA with
information pursuant to the conditions in the order, they are also required to directly provide the
Commission and NFA with additional information upon the Commission’s and/or NFA’s request
in order to facilitate the ongoing supervision of such firms.333 Further, Section 17 of NFA’s SD
Financial Requirements rule provides that each SD member of NFA must file the financial,
operational, risk management and other information required by NFA in the form and manner
prescribed by NFA.334 The ability to obtain information directly from Japanese nonbank SDs

Condition 22 of the final Comparability Order. Final Condition 22 requires that the “Japanese nonbank SD or the
[FSA]” provide a notice of material changes to the information submitted in the FSA Application. Although the
FSA is the applicant, the Commission believes that Japanese nonbank SDs who rely on the Comparability Order and
are responsible for complying with the terms of the Order must also have an obligation to inform the Commission
and NFA of material changes to the information submitted in the FSA Application. Japanese nonbank SDs may act
individually or in coordination with the FSA to ensure that the Commission and NFA receive a timely notice.
332 17 CFR 23.106(a)(4)(ii).
333 17 CFR 23.105(h).
334 NFA Financial Requirements, Section 17. Swap Dealer and Major Swap Participant Reporting Requirements,
available at NFA’s website: https://www.nfa.futures.org/rulebooksql/index.aspx.
ensures that the Commission and NFA have access to the information necessary to monitor the
financial condition of such firms and to assess the firms’ compliance with applicable capital and
financial reporting requirements.
In addition, as detailed in Section I.E. above, the conditions set forth in the Comparability
Order reflect that the Commission and NFA have a continuing obligation to conduct ongoing
oversight, including potential examination, of Japanese nonbank SDs to ensure compliance with
the Comparability Order. Specifically, as part of this oversight, the conditions require Japanese
nonbank SDs to file directly with the Commission and NFA financial reports and notices that are
comparable to the financial reports and notices filed by nonbank SDs domiciled in the U.S. In
addition to requiring Japanese nonbank SDs to maintain current books and records reflecting all
transactions,335 the conditions further require each Japanese nonbank SD covered by the
Comparability Order to file directly with the Commission and NFA: (i) notice that the firm was
informed by the FSA that it is not in compliance with any component of the Japanese Capital
Rules or Japanese Financial Reporting Rules;336 (ii) monthly and annual financial reports;337 (iii)
notice that the firm’s capital adequacy ratio has fallen below 140 percent or 120 percent;338 (iv)
notice that the firm has failed to maintain regulatory capital in the form of Basic Items in amount
equal to or in excess of the equivalent of $20 million;339 and (v) notice that the firm has failed to
make or keep current financial books and records required by the FSA.340 The Comparability
Order further requires a Japanese nonbank SD or the FSA to provide notice to the Commission
of any material changes to the information submitted in the application, including, but not
limited to, proposed and final material changes to the Japanese Capital Rules or Japanese
Financial Reporting Rules and proposed and final material changes to the FSA’s supervisory

Condition 7 of the final Comparability Order.
Condition 15 of the final Comparability Order.
337 Conditions 8, 9 and 10 of the final Comparability Order.
338 Conditions 17 and 18 of the final Comparability Order.
339 Condition 16 of the final Comparability Order.
340 Condition 19 of the final Comparability Order.
335
authority or supervisory regime over Japanese nonbank SDs.341 The financial information and
notices required to be filed directly with the Commission and NFA under the Comparability
Order, and through the Commission’s and NFA’s direct authority to obtain additional
information from Japanese nonbank SDs, will allow the Commission and NFA to conduct
ongoing oversight of such firms to assess their overall safety and soundness.
In conclusion, the Commission finds that the FSA maintains a supervisory program over
Japanese nonbank SDs that is comparable to the Commission’s supervisory program over
nonbank SDs. The FSA’s supervisory program is comparable in purpose and effect to the
Commission’s supervisory program in that both programs are designed to monitor the safety and
soundness of nonbank SDs through a combination of periodic financial reporting, notice
reporting, and examination. Also, as noted above, the Commission and NFA will continue to
conduct oversight of Japanese nonbank SDs through conditions in the Comparability Order
imposing obligations on the firms to provide financial reporting and notices directly to the
Commission and NFA.
In addition, the Commission finds that the FSA and Commission have comparable and
sufficient enforcement authority over nonbank SDs. As discussed in Section II.F.1. above, the
FSA and the Commission may sanction nonbank SDs for noncompliance with capital and
financial reporting requirements by imposing fines or, if necessary, revoking the firms’
registration. Furthermore, as discussed above, NFA may also take disciplinary action against a
nonbank SD for failure to comply with its rules, including nonbank SD capital and financial
reporting requirements. Accordingly, the Commission is adopting the Comparability Order as
proposed with respect to the Commission’s analysis concerning the comparability of the
supervisory programs and enforcement authorities of the Commission, NFA, and FSA with
respect to nonbank SD capital and financial reporting.
III.

Final Capital Comparability Determination and Comparability Order

Condition 22 of the final Comparability Order.

A. Commission’s Final Comparability Determination
Based on the FSA’s Application and the Commission’s review of applicable Japanese
laws and regulations, as well as the review of comments submitted in response to the
Commission’s request for comment on the FSA Application and the proposed Comparability
Determination and Comparability Order, the Commission finds that the Japanese Capital Rules
and the Japanese Financial Reporting Rules, subject to the conditions set forth in the
Comparability Order below, achieve comparable outcomes and are comparable in purpose and
effect to the CFTC Capital Rules and CFTC Financial Reporting Rules. In reaching this
conclusion, the Commission recognizes that there are certain differences between the Japanese
Capital Rules and CFTC Capital Rules and certain differences between the Japanese Financial
Reporting Rules and the CFTC Financial Reporting Rules. The Comparability Order below is
subject to conditions that are necessary to promote consistency in regulatory outcomes, or to
reflect the scope of substituted compliance that would be available notwithstanding certain
differences. In the Commission’s view, the differences between the two rule sets are not
inconsistent with providing a substituted compliance framework for Japanese nonbank SDs
subject to the conditions specified in the Order below.
Furthermore, the Comparability Determination and Comparability Order are limited to
the comparison of the Japanese Capital Rules to the Bank-Based Approach under the CFTC
Capital Rules. As noted previously, the FSA has not requested, and the Commission has not
performed, a comparison of the Japanese Capital Rules to the Commission’s NLA Approach or
TNW Approach.
B. Order Providing Conditional Capital Comparability Determination for Japanese
Nonbank Swap Dealers
IT IS HEREBY DETERMINED AND ORDERED, pursuant to Commodity Futures
Trading Commission (“CFTC” or “Commission”) Regulation 23.106 (17 CFR 23.106) under the
Commodity Exchange Act (“CEA”) (7 U.S.C. 1 et seq.) that a swap dealer (“SD”) organized and

domiciled in Japan and subject to the Commission’s capital and financial reporting requirements
under Sections 4s(e) and (f) of the CEA (7 U.S.C. 6s(e) and (f)) may satisfy the capital
requirements under Section 4s(e) of the CEA and Commission Regulation 23.101(a)(1)(i) (17
CFR 23.101(a)(1)(i)) (“CFTC Capital Rules”), and the financial reporting rules under Section
4s(f) of the CEA and Commission Regulation 23.105 (17 CFR 23.105) (“CFTC Financial
Reporting Rules”), by complying with certain specified Japanese laws and regulations cited
below and otherwise complying with the following conditions, as amended or superseded from
time to time:
(1)

The SD is not subject to regulation by a prudential regulator defined in Section
1a(39) of the CEA (7 U.S.C. 1a(39));

(2)

The SD is organized under the laws of Japan and is domiciled in Japan (a
“Japanese nonbank SD”);

(3)

The Japanese nonbank SD is registered as a Type I Financial Instruments
Business Operator (“FIBO”) with the Japan Financial Services Agency;

(4)

The Japanese nonbank SD is subject to and complies with: Articles 28(1), 29, 463, 46-6(2), 47, 52(1), 53(1) through (3), 56-2, and 198-6 of the Financial
Instruments and Exchange Act (Act No. 25 of 1948); Section II-1-4 (General
Supervisory Processes), Section IV-2-1 (Preciseness of Capital Adequacy Ratio),
and Section IV-2-2 (Supervisory Response to Cases of Financial Instruments
Business Operators’ Capital Adequacy Ratio Falling Below Prescribed Level) of
the Comprehensive Guidelines for Supervision of Financial Instruments Business
Operators; Articles 172, 176, 177(8), 178(1), 179(3), and Appended Forms No. 12
of the Cabinet Office Order on Financial Instruments Business (Cabinet Office
Order No. 52 of 2007); Articles 1 through 17 of the Financial Services Agency
Notice No. 59 of 2007; Articles 2(vi), 328(1) and (2), 435(2), and 436(2)(i) of the
Japanese Companies Act (Act No. 86 of 2005); and Articles 59 and 76 of the

Rules of Corporate Accounting (Ordinance of the Ministry of Justice No. 13 of
2006) (collectively, the “Japanese Capital Rules and Japanese Financial Reporting
Rules”);
(5)

The Japanese nonbank SD maintains at all times an amount of regulatory capital
in the form of Basic Items, as defined in Article 176 of the Cabinet Office Order
No. 52 of 2007, equal to or in excess of the equivalent of $20 million in United
States dollars (“U.S. dollars”). The Japanese nonbank SD shall use a
commercially reasonable and observed yen/U.S. dollar exchange rate to convert
the value of the yen-denominated Basic Items to U.S. dollars;

(6)

The Japanese nonbank SD has filed with the Commission a notice stating its
intention to comply with the Japanese Capital Rules and Japanese Financial
Reporting Rules in lieu of the CFTC Capital Rules and the CFTC Financial
Reporting Rules. The notice of intent must include the Japanese nonbank SD’s
representation that the firm is organized and domiciled in Japan; is a registered
FIBO; and is subject to, and complies with, the Japanese Capital Rules and
Japanese Financial Reporting Rules. The Japanese nonbank SD may not rely on
this Comparability Order until it receives confirmation from Commission staff,
acting pursuant to authority delegated by the Commission under Commission
Regulation 140.91(a)(11) (17 CFR 140.91(a)(11)), that the Japanese nonbank SD
may comply with the Japanese Capital Rules and Japanese Financial Reporting
Rules in lieu of the CFTC Capital Rules and CFTC Financial Reporting Rules.
Each notice filed pursuant to this condition must be prepared in the English
language and submitted to the Commission via email to the following address:
MPDFinancialRequirements@cftc.gov;

(7)

The Japanese nonbank SD prepares and keeps current ledgers and other similar
records in accordance with accounting principles permitted by the Financial
Services Agency;

(8)

The Japanese nonbank SD files with the Commission and with the National
Futures Association (“NFA”) a copy of Forms 1-1 Capital Ratio Summary, 1-2
Capital Ratio: Deductible Assets, 1-3 Market Risk, 1-4 Counterparty Risk, 2-1
Monthly Financial Statement (1), and 2-2 Monthly Financial Statement (2) of its
Monthly Monitoring Report that is required to be filed with the Financial Services
Agency pursuant to Article 56-2(1) of the Financial Instruments and Exchange
Act. The selected forms of the Monthly Monitoring Report must be translated
into the English language and balances must be converted to U.S. dollars, using a
commercially reasonable and observable yen/U.S. dollar spot rate as of the date of
the reports. The selected forms of the Monthly Monitoring Report must be filed
with the Commission and NFA within 35 calendar days after the end of each
month;

(9)

The Japanese nonbank SD files with the Commission and with NFA a copy of its
Annual Business Report that is required to be filed with the Financial Services
Agency in accordance with Article 46-3(1) of the Financial Instruments and
Exchange Act and Article 172 of the Cabinet Office Order on Financial
Instruments Business. The Annual Business Report must be translated into the
English language and balances must be converted to U.S. dollars, using a
commercially reasonable and observable yen/U.S. dollar spot rate as of the date of
the report. The Annual Business Report must be filed with the Commission and
NFA within 15 business days of the earlier of the date the Annual Business
Report is filed with the Financial Services Agency or the date that the Annual
Business Report is required to be filed with the Financial Services Agency;

(10)

The Japanese nonbank SD files with the Commission and with NFA a copy of its
Annual Audited Financial Report that is required to be prepared pursuant to
Article 435(2) of the Japanese Companies Act (Act No. 86 of 2005). The Annual
Audited Financial Report must be translated into the English language and
balances may be reported in yen. The Annual Audited Financial Report must be
filed with the Commission and NFA within 15 business days of approval of the
report at the shareholders’ meeting of the Japanese nonbank SD;

(11)

The Japanese nonbank SD files Schedule 1 of appendix B to Subpart E of Part 23
of the Commission’s regulations (17 CFR 23 Subpart E – appendix B) with the
Commission and NFA on a monthly basis. Schedule 1 must be prepared in the
English language with balances reported in U.S. dollars, using a commercially
reasonable and observable yen/U.S. dollar spot rate as of the date of the report,
and must be filed with the Commission and NFA with the selected forms of the
Japanese nonbank SD’s Monthly Monitoring Report required under Condition (8)
of this Comparability Order;

(12)

A Japanese nonbank SD that is a registered securities-based swap dealer with the
U.S. Securities and Exchange Commission (“SEC”) and is required to file a
monthly Form X–17A–5 (“FOCUS Report”) with the SEC, or its designee, must
file a copy of the FOCUS Report with the Commission and NFA within 35
calendar days after the end of each month. A Japanese nonbank SD that files a
FOCUS Report with the Commission and NFA pursuant to this Condition is not
required to file the financial reports and schedules specified in Conditions 8 and
11 of this Comparability Order;

(13)

The Japanese nonbank SD files a margin report containing the information
specified in Commission Regulation 23.105(m) (17 CFR 23.105(m)) with the
Commission and with NFA on a monthly basis (“Margin Report”). The Margin

Report must be prepared in the English language with balances reported in U.S.
dollars, using a commercially reasonable and observable yen/U.S. dollar spot rate
as of the date of the report, and must be filed with the Commission and NFA with
the selected forms of the Japanese nonbank SD’s Monthly Monitoring Report;
(14)

The Japanese nonbank SD submits with the specified forms of the Monthly
Monitoring Report set forth in Condition 8, Schedule 1 of appendix B to Subpart
E of Part 23 specified in Condition 11, the Margin Report specified in Condition
13, the Annual Business Report specified in Condition 9, and the Annual Audited
Financial Report specified in Condition 10, a statement by an authorized
representative or representatives of the Japanese nonbank SD that to the best
knowledge and belief of the representative or representatives the information
contained in the applicable forms, schedules, and reports, including as applicable
the translation of the forms, schedules, and reports into the English language and
conversion of balances to U.S. dollars, is true and correct. The statement must be
prepared in the English language;

(15)

The Japanese nonbank SD files a notice with the Commission and NFA within 24
hours of being informed by the Financial Services Agency that the firm is not in
compliance with any component of the Japanese Capital Rules or Japanese
Financial Reporting Rules. The notice must be prepared in the English language;

(16)

The Japanese nonbank SD files a notice with the Commission and NFA within 24
hours if it fails to maintain regulatory capital in the form of Basic Items, as
defined in Article 176 of the Cabinet Office Order No. 52 of 2007, equal to or in
excess of the U.S. dollar equivalent of $20 million using a commercially
reasonable and observed yen/U.S. dollar exchange rate. The notice must be
prepared in the English language;

(17)

The Japanese nonbank SD provides the Commission and NFA with notice within
24 hours of filing a notice with the Financial Services Agency pursuant to Article
179 of the Cabinet Office Order on Financial Instruments Business that the firm’s
capital adequacy ratio has fallen below the early warning level of 140 percent.
The notice filed with the Commission and NFA must be prepared in the English
language;

(18)

A Japanese nonbank SD provides the Commission and NFA with notice within 24
hours of filing a notice with the Financial Services Agency pursuant to Article
179 of the Cabinet Office Order on Financial Instruments Business that the firm’s
capital adequacy ratio has fallen below 120 percent. The notice filed with the
Commission and NFA must be prepared in the English language;

(19)

The Japanese nonbank SD files a notice with the Commission and NFA within 24
hours if it fails to make or keep current the financial books and records required
by the Financial Services Agency. The notice must be prepared in the English
language;

(20)

The Japanese nonbank SD files a notice with the Commission and NFA within 24
hours of the occurrence of any of the following: (i) a single counterparty, or
group of counterparties under common ownership or control, fails to post required
initial margin or pay required variation margin to the Japanese nonbank SD on
uncleared swap and non-cleared security-based swap positions that, in the
aggregate, exceeds 25 percent of the Japanese nonbank SD’s risk equivalent
amount; (ii) counterparties fail to post required initial margin or pay required
variation margin to the Japanese nonbank SD for uncleared swap and non-cleared
security-based swap positions that, in the aggregate, exceeds 50 percent of the
Japanese nonbank SD’s risk equivalent amount; (iii) the Japanese nonbank SD
fails to post required initial margin or pay required variation margin for uncleared

swap and non-cleared security-based swap positions to a single counterparty or
group of counterparties under common ownership and control that, in the
aggregate, exceeds 25 percent of the Japanese nonbank SD’s risk equivalent
amount; or (iv) the Japanese nonbank SD fails to post required initial margin or
pay required variation margin to counterparties for uncleared swap and noncleared security-based swap positions that, in the aggregate, exceeds 50 percent of
the Japanese nonbank SD’s risk equivalent amount. The notice must be prepared
in the English language;
(21)

The Japanese nonbank SD files a notice with the Commission and NFA of a
change in its fiscal year-end approved or permitted to go into effect by the
Financial Services Agency. The notice required by this paragraph will satisfy the
requirement for a nonbank SD to obtain the approval of NFA for a change in
fiscal year-end under Commission Regulation 23.105(g) (17 CFR 23.105(g)).
The notice of change in fiscal year-end must be prepared in the English language
and filed with the Commission and NFA at least 15 business days prior to the
effective date of the Japanese nonbank SD’s change in fiscal year-end;

(22)

The Japanese nonbank SD or the Financial Services Agency notifies the
Commission of any material changes to the information submitted in the
application, including, but not limited to, proposed and final material changes to
the Japanese Capital Rules or Japanese Financial Reporting Rules and proposed
and final material changes to the Financial Services Agency’s supervisory
authority or supervisory regime over Japanese nonbank SDs. The notice must be
prepared in the English language; and

(23)

Unless otherwise noted in the conditions above, the reports, notices, and other
statements required to be filed by the Japanese nonbank SD with the Commission
and NFA pursuant to the conditions of this Comparability Order must be

submitted electronically to the Commission and NFA in accordance with
instructions provided by the Commission or NFA.
IT IS ALSO HEREBY DETERMINED AND ORDERED that this Comparability Order
becomes effective upon its publication in the Federal Register, with the exception of Conditions
11, 13, and 20, which will become effective 180 calendar days after publication of the
Comparability Order in the Federal Register.
Issued in Washington, DC, on July 3, 2024, by the Commission.

Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendices will not appear in the Code of Federal Regulations.
Appendices to Order Granting Conditional Substituted Compliance in Connection with
Certain Capital and Financial Reporting Requirements Applicable to Nonbank Swap
Dealers Subject to Regulation by the Financial Services Agency of Japan—Voting
Summary and Chairman’s and Commissioners’ Statements
Appendix 1—Voting Summary
On this matter, Chairman Behnam and Commissioners Johnson, and Goldsmith Romero,
and Mersinger voted in the affirmative. Commissioner Pham voted to concur. No
Commissioner voted in the negative.
Appendix 2—Supporting Statement of Chairman Rostin Behnam
I support the Commission’s approval of four comparability determinations and related
orders finding that the capital and financial reporting requirements in Japan, Mexico, the
European Union (France and Germany), and the United Kingdom (for swap dealers (SDs)
designated for prudential supervision by the UK Prudential Regulation Authority (PRA)) are
comparable to the Commission’s capital and financial reporting requirements applicable to
nonbank SDs. These are the first comparability determinations that the Commission has finalized

for applications filed following the July 2020 adoption of its regulatory framework for
substituted compliance for non-U.S. domiciled nonbank SDs.1 There are currently 15 non-U.S.
nonbank SDs that are eligible to comply with these conditional orders: three in Japan; three in
Mexico; two in Germany and one in France for the EU; and six in the UK that are PRAdesignated.
As part of the process leading to the Commission’s final comparability determinations
and orders, Commission staff engaged in a thorough analysis of each foreign jurisdictions’
capital and financial reporting frameworks and considered the public comments received on the
proposed determinations and orders. Based on those reviews, the Commission has determined
that the respective foreign jurisdictions’ rules are comparable in purpose and effect, and achieve
comparable outcomes, to the CFTC’s capital and financial reporting rules. Specifically, the
Commission considered the scope and objectives of the foreign regulators’ capital adequacy and
financial reporting requirements; the ability of those regulators to supervise and enforce
compliance with their respective capital and financial reporting requirements; and other facts or
circumstances the Commission deemed relevant for each of the applications.
In certain instances, the Commission found that a foreign jurisdiction’s rules impose
stricter standards. In limited circumstances, where the Commission concluded that a foreign
jurisdiction lacks comparable and comprehensive requirements on a specific issue, the
Commission included a targeted condition designed to impose an equally stringent standard. The
Commission has issued the final orders consistent with its authority to issue a comparability
determination with the conditions it deems appropriate. These conditions aim to ensure that the
orders only apply to nonbank SDs that are eligible for substituted compliance in these respective
jurisdictions and that those non-U.S. nonbank SDs comply with the foreign country’s capital and
financial reporting requirements as well as certain additional capital, financial reporting,

Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020). The
Commission issued the final rule on July 24, 2020.
recordkeeping, and regulatory notice requirements. This approach acknowledges that
jurisdictions may adopt unique approaches to achieving comparable outcomes. As a result, the
Commission has focused on whether the applicable foreign jurisdiction’s capital and financial
reporting requirements achieve comparable outcomes to the corresponding Commission
requirements for nonbank SDs, not whether they are comparable in every aspect or contain
identical elements.
With these comparability determinations, the Commission fully retains its enforcement
and examination authority as well as its ability to obtain financial and event specific reporting to
maintain direct oversight of nonbank SDs located in these four jurisdictions. The avoidance of
duplicative requirements without a commensurate benefit to the Commission’s oversight
function reflects the Commission’s approach to recognizing the global nature of the swap
markets with dually-registered SDs that operate in multiple jurisdictions, which mandate prudent
capital and financial reporting requirements. This is, however, an added benefit and not the
Commission’s sole justification for issuing these comparability determinations.
The comparability orders will become effective upon their publication in the Federal
Register. For several order conditions, the Commission is granting an additional compliance
period of 180 calendar days. To rely on a comparability order, an eligible non-U.S. nonbank SD
must notify the Commission of its intention to satisfy the Commission’s capital and financial
requirements by substituted compliance and receive a Commission confirmation before relying
on a determination.
I appreciate the hard work and dedication of the staff in the Market Participants Division
over the past several years to propose and finalize these four determinations. I also thank the
staff in the Office of the General Counsel and the Office of International Affairs for their support
on these matters.
Appendix 3—Statement of Commissioner Kristin N. Johnson

I support the Commodity Futures Trading Commission’s (Commission or CFTC)
issuance of four final capital and financial reporting comparability determinations and related
orders (together, Final Comparability Determinations) for non-U.S. nonbank swap dealers
(foreign nonbank SDs) and non-U.S. nonbank major swap participants (foreign nonbank MSPs)
organized and domiciled in the United Kingdom (UK), the European Union (specifically, France
and Germany), Mexico, and Japan.1
The Final Comparability Determinations allow eligible foreign nonbank SDs to satisfy
certain capital and financial reporting requirements under the Commodity Exchange Act (CEA)
and Commission regulations if they: (1) are subject to, and comply with, comparable capital and
financial reporting requirements under the laws and regulations applicable in their home
countries and (2) comply with the conditions enumerated in the applicable Final Comparability
Determination. Under this conditional substituted compliance framework, foreign nonbank SDs
in the relevant jurisdictions that comply with these conditions are deemed to be in compliance
with the Commission’s capital and financial reporting requirements.
Well-calibrated capital requirements create a cushion to absorb unexpected losses in
times of market stress, and well-calibrated financial reporting requirements provide the
Commission with information to monitor the business operations and financial condition of
registered SDs. These tools are critical to managing systemic risk and fostering the stability of
U.S. derivatives markets and the U.S. financial system. The Commission’s substituted
compliance framework addresses the need to promote sound global derivatives regulation while
mitigating potentially duplicative cross-border regulatory requirements for non-U.S. market
participants operating in our markets. Where the Commission permits substituted compliance, it
must retain sufficient oversight, examination, and enforcement authority to ensure compliance
with the foreign jurisdiction’s laws and the conditions to substituted compliance.

Though the Final Comparability Determinations will apply to foreign nonbank MSPs in the relevant jurisdictions,
there are no such MSPs currently registered with the Commission at this time. I will refer only to SDs herein.
Crucially, while these Final Comparability Determinations permit foreign nonbank SDs
to comply with home country regulations in lieu of compliance with Commission regulations, the
Commission is also imposing important guardrails to ensure continuous supervision of the
operations and financial condition of the foreign SD.
Background
For an example of the detrimental consequences of failing to adequately capitalize
nonbank swap market participants, one need look no further than the 2008 global financial crisis.
According to the U.S. Government Accountability Office, the crisis, which threatened the
stability of the U.S. financial system and the health of the U.S. economy, may have led to $10
trillion in losses, including large declines in employment and household wealth, reduced tax
revenues from lower economic activity, and lost economic output.2 In response to the crisis, in
2010, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the Dodd-Frank Act), which amended the CEA to create a new regulatory framework for
swaps.
As amended, Section 4s(e) of the CEA directs the Commission and prudential regulators
to impose minimum capital requirements on SDs registered with the Commission. Section 4s(e)
adopts separate approaches for the imposition of minimum capital requirements on bank and
nonbank SDs. For bank SDs, prudential regulators are authorized to set the minimum capital
requirements. For nonbank SDs, the Commission is authorized to set those requirements. The
amended CEA also sets out financial reporting requirements for SDs. Under Section 4s(f) of the
CEA, registered SDs are required to make financial condition reports and other reports regarding
transactions and positions as mandated by Commission regulations.
In 2020, the Commission adopted regulations implementing both the capital and financial
reporting requirements for SDs, which were amended in 2024 (the Capital and Financial

United States Government Accountability Office, Financial Regulatory Reform: Financial Crisis Losses and
Potential Impacts of the Dodd-Frank Act (Jan. 2013), https://fraser.stlouisfed.org/title/gao-reports-testimonies6136/financial-regulatory-reform-622249.
Reporting Rules).3 The Capital and Financial Reporting Rules set minimum capital levels that
nonbank SDs must maintain and financial reporting requirements that nonbank SDs must comply
with, including filing periodic unaudited financial statements and an annual audited financial
report.4
Like the U.S., many other nations adopted their own regulatory regimes to govern swaps
markets in the aftermath of the financial crisis. Since then, regulators from around the world
have endeavored to improve the resilience of swaps markets and establish a global set of
standards on critical risk management issues, such as capital and financial reporting
requirements. These efforts led to the development of the Principles for Financial Market
Infrastructures, to which many jurisdictions, including our own, look for guidance.5
The Dodd-Frank Act amendments specifically address the cross-border application of the
CFTC’s swaps regime. Section 2(i) of the CEA establishes that the CEA’s swaps provisions
apply to foreign swaps activities that have a “direct and significant” connection to, or effect on,
U.S. markets. In line with Section 2(i) of the CEA, the Capital and Financial Reporting Rules set
out a substituted compliance framework in Commission Regulation 23.106 for foreign nonbank
SDs seeking to comply with the Commission’s capital and financial reporting requirements.
The substituted compliance framework consists of comparability determinations that
afford “due consideration [to] international comity principles” while being “consistent with …
the Commission’s interest in focusing its authority on potential significant risks to the U.S.
financial system.”6 The determinations involve an assessment of the home-country requirements
that is a principles-based, holistic approach, focusing on whether the applicable home-country

Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020).
The reporting requirements imposed on bank SD and bank MSPs were “more limited” “as the financial condition
of these entities will be predominantly supervised by the applicable prudential regulator and subject to its capital and
financial reporting requirements.” Id. at 57513. In May 2024, the Commission adopted amendments to the Capital
and Financial Reporting Rules that codified two previously-issued staff letters providing interpretive guidance and
no-action relief and made other technical amendments. 89 FR 45569 (May 23, 2024).
5 Principles for Financial Market Infrastructures, Bank for International Settlements and International Organization
of Securities Commissions (Apr. 2012), https://www.bis.org/cpmi/publ/d101a.pdf.
6 Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to Swap Dealers
and Major Swap Participants, 85 FR 56924, 56924 (Sept. 14, 2020).
3
requirements have comparable objectives and achieve comparable outcomes to the
Commission’s Capital and Financial Reporting Rules.
Today’s Final Comparability Determinations
The Final Comparability Determinations will apply to 15 foreign nonbank SDs currently
registered with the Commission and subject to oversight by the UK Prudential Regulation
Authority, the European Central Bank, the Mexican Comisión Nacional Bancaria y de Valores,
and the Financial Services Agency of Japan. I commend staff for their hard work on the Final
Comparability Determinations, including their work to thoroughly and thoughtfully analyze and
address comments.
Importantly, while the Final Comparability Determinations permit foreign nonbank SDs
in the relevant jurisdictions to comply with home country regulations in lieu of compliance with
Commission regulations, there are numerous protections in place to ensure the Commission’s
ability to supervise on an ongoing basis the adequacy of the foreign nonbank SDs’ compliance.
The Final Comparability Determinations all include key conditions with which the foreign
nonbank SDs must comply. For example, each of the Final Comparability Determinations
requires that the foreign nonbank SDs provide monthly and annual financial reports to the
Commission—and the Commission can request additional information as required to facilitate
ongoing supervision. Each Final Comparability Determination also requires the foreign nonbank
SDs to notify the Commission if adverse events occur, such as a significant decrease in excess
regulatory capital, a significant failure of a counterparty to post required margin, or noncompliance with certain capital or financial reporting requirements. Finally, in recognition of the
fact that a country’s capital standards and financial reporting requirements may change over
time, the Final Comparability Determinations require the foreign nonbank SDs to provide notice
of material changes to the home country capital or financial reporting frameworks.
Moreover, the foreign nonbank SDs subject to these determinations are registered with
the Commission and are members of the National Futures Association (NFA). Therefore, these

entities are subject to the CEA, Commission regulations, and NFA membership rules, and each
entity remains subject to Commission supervisory, examination and enforcement authority. As
noted in the Final Comparability Determinations, if a foreign SD fails to comply with its home
country’s capital and financial reporting requirements, the Commission may initiate an action for
a violation of the Commission’s Capital and Financial Reporting Rules.
As I have previously noted,7 it is important to recognize foreign market participants’
compliance with the laws and regulations of their regulators when the requirements lead to an
outcome that is comparable to the outcome of complying with the CFTC’s corresponding
requirements. Respect for partner regulators in foreign jurisdictions advances the Commission as
a global standard setter for sound derivatives regulation and enhances market stability.
I thank the staff in the Market Participants Division for their hard work on these matters,
particularly Amanda Olear, Tom Smith, and Lily Bozhanova.
Appendix 4—Concurring Statement of Commissioner Caroline D. Pham
I respectfully concur with the order granting conditional substituted compliance in
connection with certain capital and financial reporting requirements applicable to nonbank swap
dealers subject to regulation by the Financial Services Agency of Japan (JFSA) (Japan Final
Order) because I believe the order imposes a condition relating to financial reporting that
exceeds the scope of CFTC Regulation 23.105.
I would like to thank Amanda Olear, Thomas Smith, Rafael Martinez, Warren Gorlick,
Liliya Bozhanova, Joo Hong, and Justin McPhee from the CFTC’s Market Participants Division
for their truly hard work on the Japan Final Order and for addressing some of my concerns. I

Kristin N. Johnson, Commissioner, CFTC, Combatting Systemic Risk and Fostering Integrity of the Global
Financial System Through Rigorous Standards and International Comity (Jan. 24, 2024),
https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement012424; Kristin N. Johnson, Commissioner,
CFTC, Statement in Support of Notice and Order on EU Capital Comparability Determination (June 7,
2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement060723c; Kristin N. Johnson,
Commissioner, CFTC, Statement in Support of Proposed Order and Request for Comment on Mexican Capital
Comparability Determination (Nov. 10,
2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement111022c; Kristin N. Johnson,
Commissioner, CFTC, Statement in Support of Proposed Order on Japanese Capital Comparability Determination
(July 27, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement072722c.
commend the staff for their tireless efforts for over a decade to finalize the CFTC’s capital
comparability determinations. I would also like to thank the JFSA for their assistance and
support.
I have repeatedly stated the need for a pragmatic, outcomes-based approach to the
CFTC’s capital comparability determinations, based on recognition of the Basel Committee for
Banking Supervision (BCBS) Framework for International Bank Based Capital Standards,1 that
mitigates market fragmentation while promoting financial stability. However, the Japan Final
Order overreaches on its conditions relating to financial reporting requirements.
The International Bankers Association of Japan (IBAJ) requested that the CFTC limit the
financial information required to be filed by Japanese nonbank swap dealers with the CFTC and
National Futures Association (NFA) to the types of financial information required of U.S.
nonbank swap dealers under CFTC Regulation 23.105.2 By requiring the filing of the full home
regulator report, the CFTC and NFA will receive information from Japanese nonbank swap
dealers that exceeds the scope of Regulation 23.105. For example, IBAJ stated that the out-ofscope information the CFTC and NFA would receive includes information on client assets
segregation status, mutual fund and deemed securities transaction volumes, the status of the
deemed securities, and other various asset management business status reports that do not relate
to swap dealing activity.3 Accordingly, the CFTC is not entitled to that information. By way of
another example, the CFTC does not receive information regarding the consumer banking
activity of bank swap dealers.
Instead of taking the common-sense approach of requiring the same information in
Regulation 23.105 that is applicable to U.S. entities, the CFTC is requiring more information

1 Concurring

Statement of Commissioner Caroline D. Pham Regarding Proposed Swap Dealer Capital and Financial
Reporting Comparability Determination (July 27, 2022),
https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement072722; Bank for International Settlements
Basel Committee on Banking Supervision, The Basel Framework,
https://www.bis.org/baselframework/BaselFramework.pdf.
2 International Bankers Association of Japan, Letter Re: Japan Swap Dealer Capital Comparability Determination,
87 FR 48092 (August 8, 2022), (Oct. 6, 2022), 3-4.
3 Id.

from Japanese nonbank swap dealers. The CFTC’s justification for exceeding the scope of
Regulation 23.105 in the Japan Final Order is so that the CFTC can see the totality of the home
regulator report to better determine whether there is extraneous information that is not necessary
and can be eliminated.
Mere curiosity is not a sufficient justification to contravene principles of international
comity and respect for other sovereign nations that is the foundation of the global financial
system. Not only did the IBAJ identify the specific extraneous information that is outside the
scope of the CFTC’s regulations, but also, I do not understand why the CFTC would set
ourselves up to have to amend the Japan Final Order to address this overreach in the future.
Regrettably, this is not the only time that the CFTC appears to take a less deferential
approach to Japanese law and, therefore, a more punitive approach to Japanese entities in
contrast to other jurisdictions. I question the inequity that is inherent in the CFTC’s view of
Japan, which has certain banking and financial services laws that are stricter than the United
States. Japan is a member of the G7, and its regulators are members of the Financial Stability
Board (FSB), BCBS, International Organization of Securities Commissions (IOSCO), and many
other international fora dedicated to safeguarding the global financial system. The CFTC has
entered into multiple Memorandum of Understanding (MOU) with the JFSA. It goes without
saying that Japan protects Japanese citizens and their assets. The Commission must show the
same respect for Japanese laws that it provides to other jurisdictions, particularly because Japan
is a key international partner and ally to the United States.
On May 25, 2024, the G7 Finance Ministers and Central Bank Governors’ Communiqué
stated: “We also reiterate our strong commitment to a free, fair, and rules-based multilateral
system. Building on the legacy of the Japanese G7 Presidency, we will advance our cooperation
to enhance global economic resilience and economic security and protect our economies from

systemic shocks and vulnerabilities.”4 I urge the Commission to honor this commitment by the
United States.
[FR Doc. 2024-15092 Filed: 7/17/2024 8:45 am; Publication Date: 7/18/2024]

4 G7

Finance Ministers and Central Bank Governors’ Communiqué, Stresa, 23-25 May 2024,
https://www.consilium.europa.eu/media/muhnmsh1/stresa-communique-25-may-2024.pdf.