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 Dealer
Subject to Regulation by the Mexican Comision Nacional Bancaria y de Valores and
Banco de Mexico
AGENCY: Commodity Futures Trading Commission.
ACTION: Order.
SUMMARY: On December 13, 2022, the Commodity Futures Trading Commission
(“Commission” or “CFTC”) published in the Federal Register a notice and request for
comment on an application submitted by Morgan Stanley Mexico, Casa de Bolsa, S.A. de
C.V., Goldman Sachs Mexico, Casa de Bolsa, S.A. de C.V., and Casa de Bolsa Finamex,
S.A. de C.V. requesting that the Commission determine that CFTC-registered nonbank
swap dealers organized and domiciled in Mexico 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 Mexico. The Commission also solicited public comment on a
proposed 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 received. The final order
provides that a nonbank swap dealer organized and domiciled in Mexico may satisfy the
capital requirements and financial reporting rules under the applicable provisions of the
Commodity Exchange Act and Commission regulations by complying with certain
specified Mexican 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, 202-4185283, 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; 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 is issuing an order finding that registered nonbank swap dealers organized
and domiciled in Mexico (“Mexican 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 Mexican 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 December 13, 2022 in the Federal Register, as modified in certain
aspects to address comments and to clarify its terms.3

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

7 U.S.C. 6s(e).

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).
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).
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).

margin requirements for uncleared swap transactions extends to nonbank SDs and
nonbank MSPs, including nonbank 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 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

7 U.S.C. 6s(e)(1) and (2).

Margin and Capital Requirements for Covered Swap Entities, 80 FR 74840 (Nov. 30, 2015).

Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 636
(Jan. 6, 2016).
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).

7 U.S.C. 6s(f)(1)(A).

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 non-U.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 designed to address and manage risks that arise from a firm’s
operation as a 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.

85 FR 57462.

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 a non-U.S. 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-U.S. 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 and may not petition the Commission for a
Comparability Determination. 17 CFR 23.101(a)(5) and (b)(4), respectively. 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).
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 line-by-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.
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

17 CFR 23.106(a)(3).

17 CFR 23.106(a)(3)(ii). See also 85 FR 57462 at 57521.

See 85 FR 57462 at 57521.

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 nonU.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 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.

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.
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
(“MOU”) 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

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.
23

17 CFR 23.106(a)(5).

17 CFR 23.106(a)(4).

Notices must be filed in electronic form to the following email address:
MPDFinancialRequirements@cftc.gov.
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 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 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 nonU.S. nonbank SD or non-U.S. nonbank MSP that the firm is subject to and complies with
the applicable 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

17 CFR 23.106(a)(4)(ii) and 17 CFR 140.91(a)(11).

17 CFR 23.106(a)(4)(ii). As noted above, 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).

Id.

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.
C. Mexico Application for a Comparability Determination for MexicoDomiciled Nonbank Swap Dealers
On September 29, 2021, Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V.,
Goldman Sachs Mexico, Casa de Bolsa, S.A. de C.V., and Casa de Bolsa Finamex, S.A.
de C.V. (the “Applicants”) submitted an application (the “Mexico Application”)
requesting that the Commission conduct a Comparability Determination and issue a
Comparability Order finding that compliance with certain designated capital
requirements of Mexico (the “Mexican Capital Rules”) and certain designated financial
reporting requirements of Mexico (the “Mexican Financial Reporting Rules”) by a
Mexican nonbank SD registered with the Mexican Comision Nacional Bancaria y de
Valores (Mexican Banking and Securities Commission) (“Mexican Commission”)30 as a
broker-dealer satisfies corresponding CFTC Capital Rules and the CFTC Financial
Reporting Rules applicable to a nonbank SD under sections 4s(e) and(f) of the CEA and
Commission Regulations 23.101 and 23.105.31

The Applicants represented that the Mexican Commission is a governmental agency that is part of the
Ministry of Finance, and has independent technical and executive powers. The Applicants further
represented that the Mexican Commission is in charge of the supervision and regulation of financial
entities, such as Mexican nonbank SDs, with the purpose of ensuring their stability and sound performance,
as well as maintaining a safe and sound financial system. The Mexico Application provides that: (i) the
scope of the Mexican Commission’s authority includes inspection, supervision, prevention, and correction
powers; (ii) the primary financial entities regulated by the Mexican Commission are commercial banks,
national development banks, regulated multiple purpose financial institutions, and broker-dealers, such as
Mexican nonbank SDs; and (iii) the Mexican Commission is also in charge of granting and revoking
broker-dealer licenses in Mexico. Mexico Application, p. 4 (fn. 10).
The Mexico Application was submitted by Colin D. Lloyd, Cleary Gottlieb Steen & Hamilton LLP, on
behalf of the Applicants. Mexico Application at p. 1. The Mexico Application is available on the
Commission’s website at: https://www.cftc.gov/LawRegulation/DoddFrankAct/CDSCP/index.htm.
The Applicants represented that the Securities Market Law (Ley del Mercado de
Valores, the “Law”)32 and the General Provisions Applicable to Broker-Dealers
(Disposiciones de Caracter General Aplicables a las Casa de Bolsa, the “General
Provisions”)33 issued by the Mexican Commission contain the Mexican Capital Rules and
the Mexican Financial Reporting Rules that apply to broker-dealers,34 including Mexican
nonbank SDs.35 The Law and General Provisions impose mandatory capital and liquidity
requirements that address quantifiable discretionary risks (credit risk, liquidity risk, and
market risk), quantifiable non-discretionary risks (legal risk, operational risk, and
technological risk), and non-quantifiable risks.36 The Applicants currently are the only
Mexican nonbank SDs registered with the Commission as SDs, and they represent that
they are licensed with the Mexican Commission as broker-dealers subject to the Mexican
Capital Rules and Mexican Financial Reporting Rules.
D. Proposed Comparability Determination and Proposed Comparability Order
for Mexico-Domiciled Nonbank Swap Dealers
On December 13, 2022, the Commission published the 2022 Proposal, seeking
comment on the Mexico Application and the Commission’s proposed Comparability
Determination and related Comparability Order.37 The 2022 Proposal set forth the

Published in the Federal Official Gazette (Diario Oficial de la Federacion) on December 30, 2005, as
amended.
33

Published in the Federal Official Gazette on September 6, 2004, as amended.

The Applicants represented that pursuant to the provisions set forth in Article 113 of the Law, brokerdealers, such as Mexican nonbank SDs, among other entities, are the only financial institutions that may
conduct securities intermediation transactions. Under Article 2 of the Law, securities intermediation is
defined as the customary and professional performance of any of the following activities in Mexico: (i)
actions for the purpose of facilitating the contact between the supply and demand of securities; (ii) the
execution of transactions with securities for the account of third parties as commission agent, attorney-infact, or in any other capacity, participating in the relevant legal transactions either personally or on behalf
of third parties; and (iii) the negotiation of securities on an intermediary’s own account with the general
public or with other intermediaries acting on their own account or on behalf of third parties. The
organization and operation of broker-dealers, such as Mexican nonbank SDs, is governed by the Law and
General Provisions. Mexico Application at p. 4 (fn. 11).
35

Mexico Application at p. 4.

Id.

2022 Proposal, 87 FR 76374 (Dec. 13, 2022).

Commission’s preliminary Comparability Determination and proposed Comparability
Order providing that, based on its review of the Mexico Application and applicable
Mexican laws and regulations, the Commission preliminarily found that the Mexican
Capital Rules and the Mexican 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.38 The Commission, however, noted that there were certain differences
between the Mexican Capital Rules and CFTC Capital Rules and certain differences
between the Mexican Financial Reporting Rules and the CFTC Financial Reporting
Rules. As such, the Commission included conditions in the proposed Comparability
Order.39 The proposed conditions were designed to promote consistency in regulatory
outcomes and 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 Mexican nonbank SDs for ongoing
compliance with the Comparability Order.40 The Commission further stated that the
identified differences would not be inconsistent with providing a substituted compliance

Id. at 76398. Consistent with the process specified in Section I.B. above for conducting Comparability
Determinations, the Commission provided the Applicants with an opportunity to review for factual
accuracy and completeness the Commission’s description of relevant Mexican laws and regulations on
which the proposed Comparability Determination and proposed Comparability Order were based. The
Commission has relied on Applicants’ review, and has incorporated feedback and corrections received
from the Applicants. As previously noted, a Comparability Determination and Comparability Order based
on an inaccurate description of foreign laws and regulations may not be valid.
39

See 2022 Proposal at 76398.

NFA is a registered futures association (“RFA”) 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 an RFA, 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 Mexican 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 an RFA.
framework for Mexican nonbank SDs subject to the conditions specified in the proposed
Comparability Order.41
The proposed Comparability Order was limited to the comparison of the Mexican
Capital Rules to the Bank-Based Approach under the CFTC Capital Rules (“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.42 As noted by the Commission in the 2022 Proposal, the Applicants had not
requested, nor has the Commission performed, a comparison of the Mexican Capital
Rules to the Commission’s TNW Approach or NLA Approach.43
E. General Comments on the Mexico Application and the Commission’s
Proposed Finding of Comparability Between the CFTC Capital Rules and
CFTC Financial Reporting Rules and the Mexican Capital Rules and
Mexican Financial Reporting Rules
The public comment period on the Mexico Application and the proposed
Comparability Determination and Comparability Order ended on February 13, 2023. The
Commission received three substantive comments letters addressing the proposal from
the following interested parties: Better Markets, Inc. (“Better Markets”); William J.
Harrington (“Harrington”); and a joint letter from the International Swaps and

Id.

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 76377 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.
43 Id.
Derivatives Association (“ISDA”) and the Securities Industry and Financial Markets
Association (“SIFMA”).44
The Associations expressed support for the proposed Comparability
Determination and proposed Comparability Order, agreeing with the Commission’s
overall analysis and determination of comparability of the Commission’s Capital and
Financial Reporting Rules and the Mexican Capital and Financial Reporting Rules.45
Conversely, two commenters disagreed with the CFTC’s proposed Comparability
Determination and proposed Comparability Order.46 Better Markets asserted that the
principles-based, holistic approach applied by the Commission, which assesses whether
the applicable foreign jurisdiction’s capital and financial requirements achieve a
comparable outcome to the corresponding CFTC’s requirements, is “insufficiently
rigorous, leaving far too much room for inaccurate and unwarranted comparability
determinations.”47
The Commission does not believe that the principles-based, holistic assessment
that it conducted on the comparability of the Mexican Capital Rules and Mexican
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

Letter from Dennis M. Kelleher, President and CEO, and Cantrell Dumas, Director of Derivatives Policy,
Better Markets (Feb. 13, 2023) (“Better Markets Letter”); Letter from William J. Harrington, Croatan
Institute (Feb. 13, 2023) (“Harrington Letter”); and Letter from Steven Kennedy, Global Head of Public
Policy, ISDA, and Kyle L. Brandon, Managing Director, Head of Derivatives Policy, SIFMA (together, the
“Associations”) (Feb. 13, 2023) (“Associations Letter”). The Commission received an additional comment
submission that did not provide any substantive comment on the 2022 Proposal. All comment letters for
the 2022 Proposal are available at: https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7341
(the public comment file).
45

Associations Letter at p. 2.

Better Markets Letter at p. 2; Harrington Letter at p. 11.

Better Markets Letter at p. 2.

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 Mexican Capital Rules and Mexican
Financial Reporting Rules are designed with the objective of ensuring overall safety and
soundness of the Mexican 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 jurisdictions 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.48 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 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.49
The approach and standards contained 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

See 2022 Proposal at 76381.

85 FR 57462 at 57521.

Policy Statement Regarding Compliance with Certain Swap Regulations.50 In the
Guidance, the Commission stated that in 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.51 The Commission emphasized that in this context,
“comparable does not necessarily mean identical.”52 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).53 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 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.54
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

Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78
FR 45292 (July 26, 2013) (“Guidance”).
51

Guidance at 45343.

Id.

Id.

See e.g., Comparability Determination for the European Union: Certain Entity-Level Requirements, 78
FR 78923 (December 27, 2013) at 78926.
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.55 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.56 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.57 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 Mexico Application, the process leading to the Commission’s
Comparability Determination involved Commission staff obtaining English language
translations of relevant Mexican laws, rules, and regulations cited in the Mexico
Application. Staff verified the assertions and citations contained in the Mexico
Application regarding the specific Mexican Capital Rules and Mexican Financial
Reporting Rules to the relevant English language versions of the Mexican laws, rules,
and regulations.58 Commission staff also evaluated the comparability of the Mexican

Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants – CrossBorder Application of the Margin Requirements, 81 FR 34817, 34836-34837(May 31, 2016).
56

Id.

Id.

Staff also reviewed the Mexican Commission’s website to confirm various provisions of Mexican laws
and regulations that were relevant to the proposed Comparability Determination and proposed
Comparability Order.
Capital Rules and Mexican 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 Mexican nonbank SDs and how such
process addresses risk, including market risk and credit risk of the Mexican 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 Mexican nonbank SD’s
minimum capital requirements; (iii) the financial reports and other financial information
submitted by a Mexican nonbank SD to the Mexican Commission, and whether such
information provides the Mexican Commission with the means necessary to effectively
monitor the financial condition of the Mexican nonbank SD; and (iv) the regulatory
notices and other communications between a Mexican nonbank SD and the Mexican
Commission that address potential adverse financial or operational issues that may
impact the firm.59 With respect to the ability of the Mexican Commission to supervise
and enforce compliance with the Mexican Capital Rules and Mexican Financial
Reporting Rules, the Commission’s assessment included a review of the Mexican
Commission’s surveillance program for monitoring compliance by Mexican nonbank
SDs with the Mexican Capital Rules and Mexican 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 Mexican Capital Rules and Mexican Financial Reporting Rules against
the CFTC Capital Rules and CFTC Financial Reporting Rules, as outlined above and
discussed in detail in section II below, was sufficiently rigorous for purposes of

2022 Proposal at 76381.

Id.

determining if the Mexican 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 Mexican capital and financial reporting requirements for Mexican nonbank
SDs do not satisfy the test for an order granting substituted compliance as the Mexican
Commission’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 gaps in the
Mexican Commission’s framework.”62 Better Markets claimed that the Commission
proposed 12 filing requirements that must be met as a condition for the comparability
determination, and stated that the Commission was not conducting a comparability
assessment, but was engaging in a “de facto rewriting” of Mexico’s laws and rules in the
form of conditions.63
The Commission disagrees that the inclusion of conditions in the Comparability
Order precludes a finding of comparability with respect to the Mexican Capital Rules and
Mexican 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. 3.

Id.

Id. at p. 2.

17 CFR 23.106(a)(5). 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
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,
principles-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 conditions in the
proposed Comparability Order reflects a “rewriting” of the Mexican laws and regulations
as asserted by Better Markets. Consistent with the Commission’s policy described above,

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).
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.
Comparability Determination for the European Union: Certain Transaction Level Requirements, 78 FR
78878 (December 27, 2013) at 78880.
67

Guidance at 45343.

a majority of the conditions contained in the proposed Comparability Order are designed
to ensure that: (i) the Mexican nonbank SD is eligible for substituted compliance based
on the Mexican 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 a Mexican nonbank SD’s
compliance with the Comparability Order and to assess the ongoing safety and soundness
of the Mexican nonbank SD. Specifically, there are 23 conditions in the final
Comparability Order. Four conditions set forth criteria that a Mexican nonbank SD must
meet to be eligible for substituted compliance pursuant to the Comparability Order.68
The four conditions ensure that only Mexican nonbank SDs that are within the scope of,
and comply with, the Mexican Capital Rules and Mexican Financial Reporting Rules that
were part of the Commission’s comparability assessment may apply for substituted
compliance.
Eight additional conditions require Mexican nonbank SDs within the scope of the
Comparability Order to provide notice to the Commission and NFA of certain defined
events,69 and a further two conditions require Mexican nonbank SDs to file with the
Commission and NFA copies of certain unaudited and audited financial reports that the

The four criteria provide that the Mexican nonbank SD: (i) is not subject to capital rules of a U.S.
prudential regulator (Condition 1); (ii) is organized and domiciled in Mexico (Condition 2); (iii) is licensed
by the Mexican Commission as a broker-dealer (i.e., casa de bolsa) (Condition 3); and (iv) is subject to the
Mexican Capital Rules and the Mexican Financial Reporting Rules that are part of the Commission’s
comparability assessment (Condition 4).
The eight conditions require a Mexican nonbank SD to provide notice to the Commission in the event
that the firm: (i) is informed by the Mexican Commission that it failed to comply with any component of
the Mexican Capital Rules or Mexican Financial Reporting Rules (Condition 15); (ii) it breaches its capital
conservation buffer requirement (Condition 16); (iii) fails to maintain regulatory capital in the form of
fundamental capital of at least the equivalent of $20 million (Condition 17); (iv) experiences a 30 percent
or more decrease in its excess regulatory capital as compared to that the excess regulatory capital last
reported (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 Mexican Capital Rules, Mexican Financial
Reporting Rules, or the supervisory authority of the Mexican Commission (Condition 22).
firms provide to their applicable authorities.70 In addition, two additional conditions
reflect administrative matters necessary to implement the substituted compliance
framework.71 Lastly, six conditions impose obligations on Mexican nonbank SDs that
align with certain of the Commission’s requirements for nonbank SDs. The six
conditions require a Mexican nonbank SD to: (i) maintain a minimum amount of
fundamental capital equal to or in excess the equivalent of $20 million (Condition 5); (ii)
provide notice if it seeks the approval of the Mexican Commission to use internal models
to compute market risk and/or credit risk and refrain from using internal models to
compute regulatory capital without the authorization of the Commission (Condition 7);
(iii) prepare and keep current financial books and records (Condition 8); (iv) 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); (v) file a monthly
report listing the custodians holding margin posted by, and collected by, the Mexican
nonbank SD, the amount of margin held by each custodian, and the aggregate amount of
margin required to be posted and collected by the Mexican nonbank SD (Condition 13);
and (vi) submit, with each filing of financial information, a statement by an authorized

The two conditions provide that a Mexican nonbank SD must file with the Commission and NFA: (i)
English language copies of certain financial reporting templates that the Mexican nonbank SD is required
to submit to the relevant Mexican authorities pursuant to Article 203 of the General Provisions and Article
202 and Exhibit 9 of the General Provisions, as applicable (Condition 9), and (ii) English language copies
of its annual audited financial statements and management report that are required to be prepared and
published pursuant to Article 203 of the General Provisions (Condition 10).
One of the administrative conditions provides that a Mexican nonbank SD must provide a notice to the
Commission of its intent to comply with the Comparability Order and the Mexican Capital Rules and
Mexican Financial Reporting Rules in lieu of the CFTC Capital Rules and CFTC Financial Reporting
Rules. The notice must include the Mexican nonbank SD’s representation that the firm is organized and
domiciled in Mexico, is licensed by the Mexican Commission as a casa de bolsa, and is subject to, and
complies with, the Mexican Capital Rules and the Mexican Financial Reporting Rules (Condition 6). A
second administrative condition provides that a Mexican 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 Mexican nonbank SD
provide a notice of its intent to comply with “applicable” Mexican Capital Rules and Mexican Financial
Reporting Rules. Given that “Mexican Capital Rules” and “Mexican Financial Reporting Rules” are terms
defined in the Comparability Order to include laws and regulations that apply to Mexican nonbank SDs, the
word “applicable” is superfluous and is, therefore, not included in the final Comparability Order.
representative that, to the best knowledge and belief of the person making the
representation, the information is true and correct (Condition 14).72
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 Mexican capital
and financial reporting framework, but rather to ensure that the Commission and NFA
receive information to conduct ongoing monitoring of Mexican nonbank SDs for
compliance with relevant capital and financial reporting requirements. As discussed
above, in issuing a Comparability Order, the Commission is not ceding its supervisory
and enforcement authorities. The Comparability Order permits Mexican nonbank SDs to
satisfy the Commission’s capital and financial reporting requirements by complying with
certain laws and/or regulations of Mexico that have been found to be comparable to the
Commission’s laws and/or regulations in purpose and effect. The Commission and NFA,
however, have a continuing obligation to conduct ongoing oversight, including potential
examination, of Mexican 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 Mexican nonbank SDs. The Commission
may also initiate an enforcement action against a Mexican nonbank SD that fails to
comply with the conditions of the Comparability Order.73

Another condition specifies that Mexican 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 Mexican
nonbank SD that files a FOCUS Report pursuant to Condition 12 will not be required to file the reports and
schedules specified in Conditions 9 and 11. Currently, no Mexican nonbank SD is registered as a SBSD.
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 76376-76377. See also 17 CFR
Furthermore, to the extent that a condition imposes a new obligation on Mexican
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.74 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].”75
Better Markets further stated that, if the Commission grants substituted
compliance with regard to materially different regulatory requirements, it must make a
well-supported 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.76 Better Markets further 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

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.
Guidance at 45343.

17 CFR 23.106(5).

Better Markets Letter at pp. 7-8.

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.”77 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, and each
MOU with a foreign regulatory authority, 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.78
Although the Commission disagrees that the Mexican Capital Rules and the
Mexican Financial Reporting Rules, as a whole, are materially different or do not achieve
comparable regulatory outcomes when compared to the CFTC Capital Rules and CFTC
Financial Reporting Rules, 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

Id. at p. 8.

Id.

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 Mexican Capital Rules and Mexican 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, Mexican 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 Mexican nonbank SDs’ ongoing compliance with the conditions set
forth in the final Comparability Order. In addition, the final Comparability Order
requires the Applicants to inform the Commission of changes to the relevant Mexican
Capital Rules and Mexican Financial Reporting Rules so that the Commission may assess
the continued effectiveness of the Comparability Order in ensuring that the Mexican laws
and regulations have the comparable regulatory objectives of the CEA and Commission
regulations of ensuring the safety and soundness of nonbank SDs.79 Commission staff
will also monitor the Mexican 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

Condition 22 of the final Comparability Order requires the Applicants to notify the Commission of any
material changes to the information submitted in their application, including, but not limited to, proposed
and final material changes to the Mexican Capital Rules or Mexican Financial Reporting Rules and
proposed and final material changes to the Mexican Commission’s supervisory authority or supervisory
regime over Mexican nonbank SDs. The Commission notes that it made certain non-substantive, clarifying
changes to the language of final Condition 22 as compared to the proposed condition.
the Mexican 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.80
Another commenter, Harrington, stated that the Commission “must prevent every
regulated [SD] globally from providing a non-margined swap contract with a flip clause
[…].”81 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.82 Based on Harrington’s
description, flip clauses present a risk to the SD in synthetic 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.83 Harrington argued that “[each] flip clause
exposes a derivative contract provider to the maximum loss of 100% of contract value of
each swap-contract-with-flip-clause.”84 Harrington recognized, however, that the CFTC
margin requirements for uncleared swap transactions address his concerns associated
with the inclusion of a flip clause.85 Nonetheless, according to the Harrington, risks arise

2022 Proposal at 76381 (n. 91).

Harrington Letter at p. 4.

William J. Harrington, Submission to the U.S. Securities and Exchange Commission Re: File No. S7-0812 (Nov. 19, 2018) at p.8.
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).
84

Harrington Letter at p. 11.

Harrington Letter at p. 4 (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”).
in circumstances when non-U.S. margin rules exempt SDs from margin obligations in
connection with swaps with a structured debt issuer.86
The Commission recognizes that given regulatory differences, some transactions
that are subject to the CFTC margin requirements for uncleared swaps may not be subject
to regulatory margin requirements in another jurisdiction. In connection with this
Comparability Determination, however, the Commission notes that both under the CFTC
Capital Rules and the Mexican Capital Rules, uncollateralized exposures from uncleared
swap transactions would generate a higher counterparty credit risk exposure amount than
the exposures resulting from transactions under which the counterparties have posted
collateral.87 Accordingly, the Commission does not believe that the respective sets of
rules adopt 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 Mexican Capital Rules.
II.

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

Mexican Capital Rules and the Mexican Financial Reporting Rules with the
corresponding CFTC Capital Rules and CFTC Financial Reporting Rules, as described in
the 2022 Proposal, further modified 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.88 Differences in how
jurisdictions approach and implement these regimes are expected, even among
Id. (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”).
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 Article 160 of the General
Provisions (similarly indicating that Mexican nonbank SDs are allowed to recognize the risk-mitigating
effect of collateral by deducting the amount of collateral from the exposure amount).
88

2022 Proposal at 76381.

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
Mexican Capital Rules for Mexican nonbank SDs, as set forth in the Mexico Application
and in the English language translation of certain applicable Mexican 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,
the Applicants are subject to a bank-based capital approach under the Mexican Capital
Rules. Accordingly, when the Commission makes its final determination herein about
the comparability of the Mexican Capital Rules with the CFTC Capital Rules, the
determination pertains to the comparability of the Mexican Capital Rules with the BankBased Approach under the CFTC Capital Rules. The Commission notes that any material
changes to the information submitted in the Mexico Application, including, but not
limited to, proposed and final material changes to the Mexican Capital Rules or Mexican
Financial Reporting Rules, as well as any proposed and final material changes to the
Mexican Commission’s supervisory authority or supervisory regime will require
notification to the Commission and NFA pursuant to Condition 22 of the final
Comparability Order.89 Therefore, if there are subsequent material changes to the
Mexican Capital Rules, Mexican Financial Reporting Rules, or the supervisory authority
or supervisory regime, the Commission will review and assess the impact of such
changes on the final Comparability Determination and Comparability Order as they are
then in effect, and may amend or supplement the Comparability Order as appropriate.90

Condition 22 of the final Comparability Order. The Commission notes that it made certain nonsubstantive changes to the language of final Condition 22 as compared to the proposed condition.
See 2022 Proposal at 76381. 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., (n. 91).
A. Regulatory Objectives of CFTC Capital Rules and CFTC Financial
Reporting Rules and Mexican Capital Rules and Mexican 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 Mexican Capital Rules and
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.91 The Commission further noted that the Mexican
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, decreases in the value of firm assets, and increases in the value of
firm liabilities without the banks becoming insolvent.92
The Commission observed that Mexican 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 non-model, standardized approaches.93 In addition, as
discussed in the 2022 Proposal, the Mexican Capital Rules’ and CFTC Capital Rules’
requirements for identifying and measuring on-balance sheet and off-balance sheet
exposures under the standardized approaches are also consistent with the requirements set

See 2022 Proposal at 76382.

The BCBS’s mandate is to strengthen the regulation, supervision and practices of banks with the purpose
of enhancing financial stability. See Basel Committee Charter available on the Bank for International
Settlement website: www.bis.org/bcbs/charter.htm. See also 2022 Proposal at 76382.
93

See 2022 Proposal at 76382.

forth under the BCBS framework for identifying and measuring on-balance sheet and offbalance sheet exposures.94
Finally, the Commission preliminarily found that the Mexican Capital Rules and
CFTC Capital Rules achieve comparable outcomes and are comparable in purpose and
effect in that both 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.95 As discussed in the 2022 Proposal and in section II.B.
below, both the Mexican 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, decreases in the value of
firm assets, and increases in the value of firm liabilities without the nonbank SD
becoming insolvent.96
The Commission further stated that it preliminarily found the Mexican Financial
Reporting Rules to be comparable in purpose and effect to the CFTC Financial Reporting
Rules as both sets of rules require nonbank SDs to provide the Mexican Commission and
the Banco de Mexico (“Mexican Central Bank”), as applicable, and the CFTC,
respectively, with 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.97 As discussed in the 2022
Proposal, in addition to providing the CFTC and Mexican Commission with information
Id.

Id.

Id.

Id.

necessary to comprehensively assess the financial condition of a nonbank SD on an
ongoing basis, the financial reports further provide the CFTC and Mexican Commission
with information regarding potential changes in a nonbank SD’s risk profile by disclosing
changes in account balances reported over a period of time.98 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.99
In assessing the comparability between the CFTC Financial Reporting Rules and
the Mexican 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 CFTC and the Mexican Commission 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 CFTC and the Mexican Commission 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 to cover losses from the firm’s business
activities, including the firm’s swap dealing activities and obligations to swap
counterparties.100
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

Id.

Id.

Id. at 76383.

Rules and the Mexican Capital Rules and Mexican Financial Reporting Rules and stated
that the differences mandated denial of the request for a comparability determination.101
Better Markets further stated that the imposition of conditions to achieve comparability
between the regimes is a de facto admission that the regulations are not comparable and
that the request should be denied.102 Better Markets observed that the conditions added
another set of capital and reporting requirements that Mexican nonbank SDs will have to
abide by in addition to the Mexican laws and rules, requiring the CFTC to monitor
compliance with all of the conditions, exacerbating the complexity of the administration
of the capital and financial reporting rules.103
As described herein and in the 2022 Proposal, Commission staff has engaged in a
detailed, comprehensive study and evaluation of the Mexican 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 Mexican Commission has a comprehensive oversight program for
monitoring Mexican nonbank SD’s compliance with relevant Mexican 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 Mexican nonbank
SDs that are subject to the laws and regulations assessed under the Comparability
Determination are eligible for substituted compliance; (ii) the Mexican nonbank SDs are
subject to supervision by the Mexican Commission; and (iii) the Mexican nonbank SDs
provide information to the Commission and NFA that is relevant to the ongoing

Better Markets Letter at pp. 8-13. Better Markets asserted that the Mexican capital rules are different
from the Commission’s capital rules with respect to the definition and types of capital permitted to meet
regulatory requirements; the approaches to ensuring adequate levels of capital; and, the minimum dollar
amount of regulatory capital required. Better Markets also stated that the reporting requirements are
different as demonstrated by the number of conditions included in the 2022 Proposal that would require
Mexican nonbank SDs to file additional reports with the Commission. Better Markets comments are
addressed in the appropriate sections below.
102

Id. at p. 2.

Id. at p. 13.

supervision of their operations and financial condition. Considering this thorough
analysis and the ongoing requirement for Mexican 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, oversight of the Mexican nonbank SDs in a manner consistent with the conduct of
oversight of U.S.-domiciled nonbank SDs. In light of the Commission’s ultimate
conclusion that the Mexican 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 CFTC Financial Reporting Rules and the Mexican
Capital Rules and Mexican Financial Reporting Rules are comparable in purpose and
effect, and have overall comparative objectives, notwithstanding the identified
differences. In this regard, the Commission notes that instead of conducting a line-byline assessment or comparison of the Mexican Capital and Mexican 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 the rules, 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 which are described in more detail below 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 Mexican 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 Mexican 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.104 The Commission explained
that the Mexican 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, all
defined in a manner that is consistent with the BCBS framework, 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.105 The Commission observed
that the Mexican 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 Mexican
Capital Rules and the CFTC Capital Rules emphasizing high quality capital instruments.
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

See 2022 Proposal at 76384.

Id.

forth in Commission Regulation 23.101.106 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.107 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.108 Total tier 1 capital is
composed of common equity tier 1 capital and further includes additional tier 1 capital.
Tier 2 capital includes certain types of instruments that include both debt and equity
characteristics such as qualifying subordinated debt.109 Subordinated debt must meet
certain conditions to qualify as tier 2 capital under the CFTC Capital Rules.110
The preliminary Comparability Determination also noted that the Mexican Capital
Rules limit the composition of regulatory capital to common equity tier 1 capital,
additional tier 1 capital, and tier 2 capital in a manner consistent with the BCBS
framework.111 As the Commission observed, the Mexican Capital Rules provide that: (i)

Id. at 76383 (citing to Commission Regulation 23.101(a)(1)(i)). 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.
107

12 CFR 217.20(b).

12 CFR 217.20(c).

12 CFR 217.20(d).

The subordinated debt must meet the 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.
See 2022 Proposal at 76383 and Article 162 of the General Provisions. As discussed in the 2022
Proposal, the Mexican Capital Rules employ different terminology to refer to the components of total
capital than the CFTC Capital Rules and the BCBS framework. For example, the Mexican Capital Rules
refer to total capital as “net capital,” common equity tier 1 capital as “fundamental capital,” and the 8
percent requirement is described as a “capitalization index” requirement. 2022 Proposal at 76379 (n. 67).
Where appropriate, this Comparability Determination uses the same terminology that is used in the CFTC
Capital Rules and in the BCBS framework, for ease of reference.
common equity tier 1 capital may generally be composed of retained earnings and
common equity instruments; (ii) additional tier 1 capital may include other capital
instruments and certain long-term convertible debt instruments; and (iii) tier 2 capital
may include certain qualifying subordinated debt instruments.112
Based on its comparative assessment, the Commission preliminarily found that
equity instruments that qualify as common equity tier 1 capital and additional tier 1
capital under the Mexican Capital Rules and the CFTC Capital Rules have similar
characteristics (e.g., the equity must be in the form of high-quality, committed, and
permanent capital) and the equity instruments generally have no priority to the
distribution of firm assets or income with respect to other shareholders or creditors of the
firm, which makes this equity available to a nonbank SD to absorb unexpected losses,
including counterparty defaults.113
The Commission also found that instruments that qualify as tier 2 capital under
the Mexican Capital Rules and the CFTC Capital Rules have similar characteristics.
Specifically, the Commission noted that the qualifying conditions imposed on
subordinated debt instruments under the Mexican Capital Rules and the CFTC Capital
Rules are comparable in that they are designed to ensure that the subordinated debt has
qualities that support its recognition by a nonbank SD as equity for capital purposes.114
The proposed conditions include, in the case of the CFTC Capital Rules, regulatory
requirements that effectively subordinate the claims of debt holders to interest and
repayment of the debt to the claims of other creditors of the nonbank SD, and, in the case
of the Mexican Capital Rules, regulatory requirements that provide Mexican nonbank

See 2022 Proposal at 76383.

Id.

Id.

SDs with the right to cancel scheduled interest payments and to convert the debt to
common equity of the firm.115
2. Comment Analysis and Final Determination
The Commission did not receive comments regarding its preliminary
determination that the Mexican Capital Rules are comparable in purpose and effect to the
CFTC Rules with respect to the types of and characteristics of a nonbank SD’s equity and
subordinated debt that qualifies as regulatory capital to meet minimum regulatory capital
requirements. Therefore, the Commission finds that the Mexican 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 Mexican 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 qualifies as regulatory
capital to meet minimum capital requirements under the Mexican Capital Rules.

Id., (referencing 17 CFR 240.18a-1d and Articles 162 and 162 Bis of the General Provisions).

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 in an amount 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 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;116 and (iv) the amount of capital required by
NFA.117
In comparison, the Mexican Capital Rules require each Mexican nonbank SD to
maintain qualifying regulatory capital to satisfy the following capital ratios, expressed as
a percentage of the firm’s total risk-weighted assets: (i) common equity tier 1 capital
equal to at least 4.5 percent of the firm’s risk-weighted assets; (ii) total tier 1 capital (i.e.,
common equity tier 1 capital plus additional tier 1 capital) equal to at least 6 percent of
the firm’s risk-weighted assets; (iii) total capital (i.e., an aggregate amount of common
equity tier 1 capital, additional tier 1 capital, and tier 2 capital) equal to at least 8 percent

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.
17 CFR 23.101(a)(1)(i). See also 2022 Proposal at 76388. 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.
of the firm’s risk-weighted assets; and (iv) an additional capital conservation buffer of 2.5
percent of the firm’s risk-weighted asset that must be met with common equity tier 1
capital.118
2. Preliminary Determination and Comment Analysis
While noting certain differences in the minimum capital requirements and
calculation of regulatory capital between the Mexican Capital Rules and the CFTC
Capital Rules, the Commission preliminarily found that the Mexican Capital Rules and
CFTC Capital Rules, subject to the proposed conditions in the 2022 proposed
Comparability Determination and proposed Comparability Order, achieve 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.119 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 Mexican 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 CFTC’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

2022 Proposal at 76386 and Articles 172 and 173 of the Law and Article 162 of the General Provisions.

See 2022 Proposal at 76388.

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.120
In comparison, the Commission observed that the Mexican Capital Rules contain
a requirement that each Mexican nonbank SD maintain a fixed amount of minimum paidin capital that is based on the services or activities performed by the firm.121 The
minimum paid-in capital requirement is a fixed value of capital that is indexed annually
to “Unidades de Inversion” (Inflation Indexed Units) (“UDIs”). Mexican nonbank SDs
that performed the broadest array of activities as of the year ending December 31, 2021
were subject to a minimum paid-in capital requirement that equaled approximately MXN
$90,000,000 (or USD $4,300,000).122
Although the Mexican Capital Rules and the CFTC Capital Rules both require
nonbank SDs to hold a minimum amount of regulatory capital that is not based on the
risk-weighted assets of the firms, the Commission recognized that the $20 million of
common equity tier 1 capital required under the CFTC Capital Rules is materially higher
than the estimated $4.3 million of minimum paid-in capital required under the Mexican
Capital Rules. In the Commission’s view, the $20 million represented a more appropriate
level of minimum capital to help ensure the safety and soundness of the nonbank SD that
is engaging in uncleared swap transactions.123 As such, the Commission proposed to
condition the Comparability Order to require each Mexican nonbank SD to maintain, at
all times, a minimum amount of peso-denominated fundamental capital equal to or in

85 FR 57492.

See 2022 Proposal at 76388, citing Article 10 of the General Provisions. The Commission also noted
that, in addition to the minimum paid-in-capital requirement, Mexican Central Bank also imposes limits on
a Mexican nonbank SD’s overall leverage. See 2022 Proposal at 76387 and Section C.B1 of Circular
115/2002, issued by the Mexican Central Bank on November 11, 2002, as amended.
Considering an exchange rate per USD of MXN $20.7882 as published by the Mexican Central Bank in
the Federal Official Gazette (Diario Oficial de la Federacion) on July 12, 2022. See 2022 Proposal at
76388.
123

See 2022 Proposal at 76388.

excess of the equivalent of $20 million.124 The Commission proposed that a Mexican
nonbank SD might convert the peso-denominated amount of this minimum capital
requirement to the U.S. dollar equivalent based on a commercially reasonable and
observed exchange rate.125
One commenter, Better Markets, asserted that the difference between the CFTC
Capital Rules $20 million minimum common equity tier 1 capital requirement and the
Mexican Capital Rules minimum paid-in capital requirement of approximately $4.3
million “demonstrates a fatal lack of comparability” between the CFTC Capital Rules and
the Mexican Capital Rules.126 As noted above, the Commission recognized the
difference in the requirement under the Mexican 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 a condition, however,
effectively addresses this difference by providing that a Mexican nonbank SD may not
avail itself of substituted compliance unless it maintains an amount of fundamental
capital denominated in pesos that is equal to or in excess of the equivalent of $20 million.
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 regulation in their home jurisdiction are deemed to be lacking.127 Therefore,
the Commission believes that the requirement for Mexican nonbank SDs to maintain an

Id. The Commission proposed that the minimum fixed amount of capital be held in fundamental capital,
given that the Commission had preliminarily found that fundamental capital, as defined in Articles 162 and
162 Bis of the General Provisions, is comparable to common equity tier 1 capital required under the CFTC
Capital Rules.
125

Id.

Better Markets Letter at p. 11.

Guidance at 45343.

amount of regulatory capital in the form of fundamental capital, as defined in Article 162
and Article 162 Bis of the General Provisions, equal to or in excess of the equivalent of
$20 million will impose an equally stringent standard to the analogue requirement under
the CFTC Capital Rules and will appropriately address the substantially lower minimum
fixed amount capital requirement under the Mexican Capital Rules. The Commission
proposed that the minimum fixed amount of capital be held in fundamental capital, given
that the Commission had preliminarily found that fundamental capital, as defined in
Articles 162 and 162 Bis of the General Provisions, is comparable to common equity tier
1 capital required under the CFTC Capital Rules.128
In conclusion, the Commission finds that the Mexican Capital Rules and the
CFTC Capital Rules, with the imposition of the condition for Mexican nonbank SDs to
maintain a minimum level of fundamental capital 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 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,

2022 Proposal at 76388.

with common equity tier 1 capital comprising at least 6.5 percent of the 8 percent.129
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 companies130
and are consistent with the BCBS framework.131 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.132
The Mexican Capital Rules contain capital requirements for Mexican nonbank
SDs that the Commission preliminarily found comparable in purpose and effect to the
requirements in prong (ii) of the CFTC Capital Requirements.133 Specifically, the
Mexican Capital Rules require each Mexican nonbank SD to maintain: (i) common
equity tier 1 capital equal to at least 4.5 percent of the Mexican nonbank SD’s riskweighted assets; (ii) total tier 1 capital (i.e., common equity tier 1 capital plus additional

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).
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.
132

See generally 85 FR 57461 at 57530.

See 2022 Proposal at 76388.

tier 1 capital) equal to at least 6 percent of the Mexican nonbank SD’s risk-weighted
assets; and (iii) total capital (i.e., an aggregate amount of common equity tier 1 capital,
additional tier 1 capital, and tier 2 capital) equal to at least 8 percent of the Mexican
nonbanks SD’s risk-weighted assets.134 In addition, the Mexican Capital Rules require
each Mexican nonbank SD to maintain an additional capital conservation buffer135 equal
to 2.5 percent of the Mexican nonbank SD’s risk-weighted assets, which must be met
with common equity tier 1 capital.136 Thus, a Mexican nonbank SD is effectively
required to maintain total qualifying regulatory capital equal to or greater than 10.5
percent of the firm’s risk-weighted assets, which is a higher capital ratio than the 8
percent required of nonbank SDs under prong (iii) of the CFTC Capital Rules.137
The Commission also preliminarily found that the Mexican Capital Rules and the
CFTC Capital Rules to be comparable with respect to the approaches used in the
calculation of risk-weighted amounts for market risk and credit risk in determining the
nonbank SD’s risk-weighted assets.138 The Commission also noted that Mexican
nonbank SDs are not currently authorized by the Mexican Commission to use models to
compute market risk or credit risk exposures.139 Therefore, Mexican nonbank SDs must
compute risk-weighted assets using standardized market risk and credit risk amounts set

Articles 172 and 173 of the Law and Article 162 of the General Provisions.

Mexico Application, p. 5.

Articles 172 and 173 of the Law and Article 162 of the General Provisions.

As noted above, the total capital requirement is the sum of the capital requirement equal to 8 percent of
the firm’s risk-weighted assets, plus the capital conservation buffer of 2.5 percent of the firm’s riskweighted assets. Articles 162 and 162 Bis of the General Provisions. See 2022 Proposal at 76388-76389.
138

2022 Proposal at 76389.

As discussed in the 2022 Proposal, the Mexican Capital Rules do not permit Mexican nonbank SDs to
use internal models to compute credit risk exposure amounts. Article 150 Bis of the General Provisions.
Also, although the Mexican Capital Rules permit a Mexican nonbank SD to calculate market risk exposure
amounts using internal models that comply with the guidelines issued by the Mexican Commission, the
Applicants represented that, as of the filing date of the Application, no Mexican nonbank SD was approved
to use internal models nor had any Mexican nonbank SD filed a model approval application with the
Mexican Commission. See 2022 Proposal at 76380.
forth in the Mexican Capital Rules, which generally results in calculated risk-weighted
asset amounts that are higher than model-based amounts.140
As the Commission observed, the standardized approaches under the Mexican
Capital Rules and CFTC Capital Rules for calculating risk-weighted asset amounts for
market risk and credit risk are both consistent with the approach under the BCBS
framework and follow the same structure that is now the common global standard: (i)
allocating assets to categories according to risk and assigning each category 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.141
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”).142 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,

For clarity, the Commission notes that it has not reviewed or evaluated the use of internal models to
compute market or credit risk exposure amounts under the Mexican Capital Rules. Therefore, a Mexican
nonbank SD that obtains the approval of the Mexican Commission to use models to compute market risk or
credit risk exposure amounts and seeks to use such models in lieu of the standardized charges under the
Commission’s Comparability Order, may do so only after the Commission has reviewed and evaluated the
use of the subject models for purpose of comparison to the corresponding CFTC requirements. The request
to use internal market or credit risk models in lieu of standardized risk-weighting requirements may require
the Commission to amend the Comparability Order. See 2022 Proposal at 76380 and 76389.
141

See 2022 Proposal at 76389.

See paragraph (3) of the definition of the term BHC equivalent risk-weighted assets in 17 CFR 23.100.

with the percentages applied to the market value or notional value increasing as the
expected or anticipated risk of the positions increases.143 For example, 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.144 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.145
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 qualifying regulatory capital equal to or greater than
100 percent of the amount of its market risk exposure amount.146
Comparable to the CFTC Capital Rules, the Mexican Capital Rules require a
Mexican nonbank SD to calculate its risk-weighted asset amounts for market risk based
on standardized risk-weighting requirements published by the Mexican Commission,
which include market risk-weighted amounts for interest rate, foreign exchange, precious

17 CFR 1.17(c)(5) and 17 CFR 240.18a-1(c)(1).

17 CFR 1.17(c)(5)(iii).

17 CFR 1.17(c)(5)(v), referencing SEC Rule 15c3-1(c)(2)(vi) (17 CFR 240.15c3-1(c)(2)(vi)).

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 risk-weighted 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)).
metals, and equity price risks.147 For derivatives positions, a Mexican nonbank SD is
required to calculate the risk-weighted asset amounts for market risk by using
standardized risk weights based on the nature of the instrument underlying the derivatives
position.148 The market risk-weighted asset amounts are based on cumulative
calculations for individual derivatives positions with limited recognition of offsets.149
The resulting total market risk-weighted asset amount, including market risk amount for
derivative positions, is multiplied by a factor of 12.5 to adjust the 8 percent multiplication
factor applied to all of the Mexican nonbank SD’s risk-weighted assets, which effectively
requires a Mexican nonbank SD to hold qualifying regulatory capital equal to or greater
than 100 percent of the firm’s market risk exposure amount.150
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.151 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.152 A nonbank

See 2022 Proposal at 76386 and Article 150 Bis of the General Provisions. The Mexican Capital Rules
do not have market risk charges specific to commodity risk as Mexican nonbank SDs are not permitted to
engage in physical commodity transactions. See id.
148

See 2022 Proposal at 76386 and Article 151 of the General Provisions.

See 2022 Proposal at 76386 and Article 152 of the General Provisions.

Id.

Commission Regulation 23.101(a)(1)(i)(B) and paragraph (1) of the definition of the term BHC
equivalent risk-weighted assets in Commission Regulation 23.100. See also 2022 Proposal at 76385.
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 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)).
SD with off-balance sheet exposures is required to calculate a risk-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.153
With respect to credit risk exposures for derivatives positions, the Commission
explained that under the CFTC Capital Rules, a nonbank SD may compute standardized
counterparty credit risk exposures using either the current exposure method (“CEM”) or
the standardized approach for measuring counterparty credit risk (“SA-CCR”).154 Both
CEM and SA-CCR are non-model, rules-based 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.155 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.156
In comparison, the Commission noted that Mexican Capital Rules also require a
Mexican nonbank SD to calculate risk-weighted amounts for credit risk, for both nonderivative and derivative positions, under a standardized approach by taking the
accounting value of each of its on-balance sheet and off-balance sheet positions,

12 CFR 217.33. See also discussion in 2022 Proposal at 76385.

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-the-counter 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 76385.
155

12 CFR 217.34.

12 CFR 217.132(c).

determining a conversion value to credit risk determined pursuant to Mexican regulation,
and then applying a specific risk weight based on the type of issuer or counterparty, as
applicable, and the assets’ credit quality.157 The resulting credit risk-weighted asset
amount is also multiplied by a factor of 12.5 to adjust the 8 percent multiplication factor
applied to all of the firm’s risk-weighted assets, which effectively requires the Mexican
nonbank SD to hold regulatory capital equal to or greater than 100 percent of the firm’s
total credit risk exposure.158
The Commission also noted certain differences between the Mexican Capital
Rules and the CFTC Capital Rules with respect to a nonbank SD’s computation of its
market risk exposures and credit risk exposures that are included in the firm’s riskweighted assets. As noted above, the CFTC Capital Rules and Mexican Capital Rules
both require a nonbank SD to maintain regulatory capital equal to or greater than 100
percent of the firm’s market risk exposure amount.159 The Mexican Capital Rules,
however, also require a Mexican nonbank SD to maintain regulatory capital equal to or
greater than 100 percent of its credit risk exposure amount.160 The CFTC Capital Rules
impose such requirement with respect to the credit risk exposure amount only to nonbank
SDs using internal models to compute their risk-weighted asset amounts for credit risk.161

See 2022 Proposal at 76386-76387 and Articles 159, 160, and 161 of the General Provisions. Mexican
nonbank SDs are required to use a standardized approach to computing all credit risk exposures as the
Mexican Capital Rules do not authorize the use of internal credit risk models. Mexico Application at p. 11.
158

2022 Proposal at 76387.

The CFTC Capital Rules and the Mexican Capital Rules both require a nonbank SD to maintain
regulatory capital equal to or in excess of 8 percent of the firm’s total risk-weighted assets. Both sets of
rules further require that the nonbank SD multiply its total market risk exposure amount by a factor of 12.5
and add the resultant amount to its total risk-weighted assets, which has the effect of requiring the nonbank
SD to hold regulatory capital equal to or greater than 100 percent of its market risk exposure amount.
The Mexican Capital Rules require a Mexican nonbank SD to multiply its total credit risk exposure
amount by a factor of 12.5 and to add the resultant amount to its total credit risk-weighted assets, which has
the effect of requiring the Mexican nonbank SD to hold regulatory capital equal to or greater than 100
percent of its credit risk exposure amount.
A nonbank SD that computes its credit risk exposures using internal models must multiply the resulting
capital requirement by a factor of 12.5. 12 CFR 217.131(e)(1)(iii), 217.131(e)(2)(iv), and
217.132(d)(9)(iii).
The difference in approaches to computing risk-weighted assets would generally result in
a nonbank SD having a larger amount of risk-weighted assets, and a higher minimum
capital requirement based on risk-weighted assets, under the Mexican Capital Rules as
compared to the CFTC Capital Rules.162
As further discussed in section III.C.1.c. below, the Commission also recognized
that under the Mexican Capital Rules Mexican nonbank SDs are required to account for
operational risk, in addition to market risk and credit risk, in computing their minimum
capital requirements.163
The Commission did not receive comments specifically addressing the
Commission’s comparative analysis of the minimum capital requirement based on riskweighted assets. In conclusion, the Commission finds that the Mexican 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. In this regard, the Commission finds that notwithstanding the differences
discussed above, the Mexican Capital Rules and the CFTC Capital rules have a
comparable approach to the computation of risk-weighted asset amounts for market risk
and credit risk for on-balance sheet and off-balance sheet exposures, which are intended
to ensure 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 (ii) of the CFTC Capital Rules’ Bank-Based Approach
requires a nonbank SD to maintain regulatory capital in an amount equal to or greater

See 2022 Proposal at 76389.

See 2022 Proposal at 76387.

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.164
The Commission stated that the intent of the requirement was to establish a method of
developing a minimum amount of required capital for a nonbank SD to meet its
obligations as a SD to market participants, and to cover potential operational, legal, and
liquidity risks.165
The Mexican Capital Rules differ from the CFTC Capital Rules in that they do
not impose a capital requirement on Mexican nonbank SDs based on a percentage of the
margin for uncleared swap transactions. In the 2022 Proposal, the Commission
described, however, how certain Mexican capital and liquidity requirements may
compensate for the lack of direct analogue to the 8 percent uncleared swap margin
amount requirement.166 Specifically, the Commission noted that the Mexican Capital
Rules require a Mexican nonbank SD to account for operational risk in computing their
minimum capital requirements.167 In this connection, the Mexican Capital Rules require
a Mexican nonbank SD to calculate an operational risk exposure amount equal to 15
percent of a Mexican nonbank SD’s average annual net positive income for the last three
years, on a rolling basis.168 The Mexican nonbank SD is then required to multiply the
operational risk exposure amount by a factor of 12.5 and add the resultant amount to the
total operational risk-weighted assets, which has the effect of requiring the Mexican

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 a SD to
market participants, and to cover potential operational risk, legal risk and liquidity risk, and not just the
risks of its trading portfolio. 85 FR 57462 at 57485.
165

See id.

See 2022 Proposal at 76389-76390.

2022 Proposal at 76387 and Article 161 Bis of the General Provisions.

The amount of the operational risk exposure is also subject to a floor equal to 5 percent and a ceiling
equal to 15 percent of the monthly average sum of market and credit risk exposure amounts, calculated
over the prior 36 months, also on a rolling basis. Article 161 Bis 3 of the General Provisions.
nonbank SD to hold regulatory capital equal to or greater than 100 percent of its
operational risk exposure amount.169
In addition, the Mexican Capital Rules require Mexican nonbank SDs to meet
quantitative liquidity requirements, whereby a Mexican nonbank SD must hold or invest
at least 20 percent of the firm’s total capital in liquid assets comprised of: (i) bank
deposits; (ii) highly liquid debt securities registered in Mexico; (iii) shares of debt
investment funds; (iv) reserve funds created to maintain funds available to cover
contingencies; and (v) high and low marketability shares subject to market value
discounts of 20 and 25 percent, respectively.170
Addressing the Commission’s request for comment regarding the comparability in
purpose and effect between the requirement under the Mexican Capital Rules for a
Mexican nonbank SD to account for operational risk by holding qualifying capital in an
amount equal to 15 percent of its average annual net positive income from the last three
years and the CFTC’s capital requirement based on a nonbank SD’s uncleared swap
margin amount, one commenter, Better Markets stated that the requirements are not
comparable.171 In this connection, Better Markets asserted that the inclusion of
operational risk as an additional risk exposure element in the calculation of the nonbank
SD’s total risk-weighted assets, the Mexican approach does not specifically address
potential operational risks for uncleared swaps. More specifically, Better Markets argued
that the approach mandated by the Mexican Capital Rules, which addresses the nonbank
SD’s total operational risk in the calculation of risk-weighted assets, provides for a lower
capital amount to cover uncleared swaps margin.172

See 2022 Proposal at 76387 and Article 161 Bis 5 of the General Provisions.

See 2022 Proposal at 76390 and Article 146 of the General Provisions.

Better Markets Letter at pp. 10-11.

Id. at 10.

In contrast, the Associations Letter stated that the Mexican Capital Rules set out
minimum capital level requirements that are sound, reflect similar regulatory concerns,
and lead to comparable regulatory outcomes as the CFTC’s Capital Rules, even if the
Mexican Capital Rules do not include a stand-alone requirement based on the uncleared
swap margin associated with an SD’s swap transactions.173 The Associations added that
although Mexico’s capital framework does not have a direct analogue to the 8 percent
uncleared swap margin requirement, it has various other measures that achieve the same
regulatory objective of ensuring that an SD maintains an amount of capital that is
sufficient to cover the full range of risks a Mexican SD may face. The Associations
explained that Mexico’s capital framework requires that a Mexican SD calculate risk
weighted assets incorporating risk exposure amounts composed of market, credit and
equity exposures, and operational risk. The Associations further stated that Mexican SDs
are subject to liquidity requirements that are designed to ensure that an SD has sufficient
liquid assets to meet its ongoing obligations and that Mexican SDs are subject to leverage
limitations that, similar to the uncleared swap margin requirement, are based principally
on volume and counterparties without regard to risk-weighting. Lastly, as noted by the
Associations, Mexican SDs must conduct regular stress tests to ensure that they have
sufficient resources to withstand adverse economic scenarios.174 Based on its holistic
assessment, the Commission believes that the requirement to include an operational riskweighted asset amount in the Mexican nonbank SD’s total risk-weighted assets, as well
as the various regulatory measures seeking to ensure that Mexican nonbank SDs hold
sufficient capital to cover the full range of risks that they may face, support the
comparability of the Mexican Capital Rules and the CFTC Capital Rules even in the
absence of a separate, stand-alone capital requirement that Mexican nonbank SDs must

Associations Letter at pp. 2-3.

Id.

have qualified capital equal to or greater than 8 percent of the amount of uncleared swap
margin.
In conclusion, the Commission finds that the Mexican 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 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.175 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.176 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.177 The Commission understands that other
jurisdictions may adopt alternative measures to cover the same risks. In this regard, the
Mexican Capital Rules address comparable risks albeit not through a requirement based
on a Mexican nonbank SD’s uncleared swap margin amount. Specifically, Mexican
nonbank SDs are required to maintain a minimum level of regulatory capital based on an

See 2022 Proposal at 76384-76385 (referencing 85 FR 57462 at 57492).

85 FR 57462 at 57497.

85 FR 57462 at 57485 and 57497.

aggregate of the firm’s total risk-weighted asset exposure amounts for market risk, credit
risk, and operational risk exposures. The Commission finds that, notwithstanding the
differences in approaches, the Mexican Capital Rules and CFTC Capital Rules are
comparable in purpose and effect in requiring nonbank SDs to maintain a minimum level
of regulatory capital that addresses potential market risk, credit risk, and operational risk
to help ensure the safety and soundness of the firm, and to ensure that the firm has
sufficient capital to absorb decreases in firm assets, absorb increases in firm liabilities,
and meet 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 sections 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 the calculation of regulatory capital, subject to the
condition that Mexican nonbank SDs must maintain a minimum level of regulatory
capital in the form of fundamental capital 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.178 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.179 The unaudited financial
reports must include: (i) a statement of financial condition; (ii) a statement of

2022 Proposal at 76391-76392.

Id. and 17 CFR 23.105(d) and (e).

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.180 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 reports prepared as of the nonbank SD’s year end
date.181 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.182 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.183
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;184 (ii)
schedules showing the nonbank SD’s counterparty credit concentration for the 15 largest

Id. and 17 CFR 23.105(d)(2).

Id. and 17 CFR 23.105(e)(4).

Id. and 17 CFR 23.105(f).

Id.

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.
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;185 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.186
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”).187 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 required to collect from, or post with, swap
counterparties for uncleared swap transactions subject to the uncleared margin rules.188
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.189 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.190
The 2022 Proposal also detailed relevant financial reporting requirements of the
Mexican Financial Reporting Rules.191 The Mexican Financial Reporting Rules require a

Id. and 17 CFR 23.105(l) and schedules 2, 3 and 4, respectively, of appendix B to subpart E of part 23.

Id. and 17 CFR 23.105(k) and (l), and appendix B to subpart E of part 23.

Id. and 17 CFR 23.105(m).

Id.

17 CFR 23.105(k), (l), and (m).

17 CFR 23.105(e)(1).

2022 Proposal at 76392.

Mexican nonbank SD to submit to the Mexican Commission quarterly consolidated
financial reports.192 The reports must contain a balance sheet, a statement of income/loss,
a statement of changes in equity, a statement of cash flows, and a statement showing the
firm’s compliance with minimum capital requirements.193 The quarterly consolidated
financial reports must be for the quarters ending March, June, and September of each
year, and must be filed with the Mexican Commission within the month following the
last day of each quarter.194
A Mexican nonbank SD is also required to submit an annual consolidated
financial report.195 The annual report must contain the same statements that are required
to be included in the quarterly consolidated financial report and must further include
appropriate footnote disclosures relating to, among other topics, nominal amounts of
derivatives contracts by type of instrument and by underlying valuation results, as well as
the results obtained in the assessment of the adequacy of the firm’s regulatory capital in
relation to credit, market, and operational risk requirements.196 The annual consolidated
financial report must be filed within 90 calendar days of the Mexican nonbank SD’s
fiscal year end, and must contain an audit report issued by an independent external
auditor.197
In addition to the above consolidated financial reports, a Mexican nonbank SD
must provide the Mexican Commission, on a monthly basis, with a balance sheet and
income statement, along with additional financial information.198 Such reports are due

Id. and Article 203 of the General Provisions.

Id. and Article 180 of the General Provisions.

Id. and Article 203 of the General Provisions.

Id.

Id. and Article 180 of the General Provisions.

Id. and Article 203 of the General Provisions.

Id. and Article 202 of the General Provisions.

within 20 days following the end of the respective month.199 On a quarterly basis, a
Mexican nonbank SD also must provide the Mexican Commission with additional
financial information regarding deferred income taxes, consolidation with respect to
balance sheet and income statements, stockholders equity statements, and cash flow
statements.200
A Mexican nonbank SD licensed to enter into derivatives transactions for its own
account is also required to file with the Mexican Central Bank, during May of each year,
a written communication issued by the Mexican nonbank SD’s internal audit committee
evidencing compliance in the performance of its derivatives transactions with each and
all applicable legal provisions and, when required by the Mexican Central Bank, a
Mexican nonbank SD also must provide the Mexican Central Bank with all the
information related to the derivatives transactions performed by the firm.201 Furthermore,
a Mexican nonbank SD licensed to perform derivatives transactions is required to file a
report with the Mexican Central Bank on a daily basis containing all the derivatives
transactions performed by the Mexican nonbank SD.202
Based on its review of the Mexico Application and the relevant Mexican laws and
regulations, the Commission preliminarily determined that, subject to the conditions
specified in the 2022 Proposal and discussed below, the Mexican Financial Reporting
Rules are comparable to the CFTC Financial Reporting Rules in purpose and effect.203
The Commission noted that both rule sets provide the Mexican Commission and Mexican
Central Bank, as applicable, and the Commission and NFA, respectively, with financial
information to monitor a nonbank SD’s compliance with capital requirements and to

Id.

Id. and Exhibit 9 of the General Provisions.

Id. and Provision 3.1.3 of the Rule 4/2012 issued by the Mexican Central Bank.

Id., and Mexico Application at p. 19.

2022 Proposal at 76392.

assess a nonbank SD’s overall safety and soundness. Specifically, both the CFTC
Financial Reporting Rules and the Mexican Financial Reporting Rules require nonbank
SDs to file statements of financial condition, statements of profit and loss, and statements
of regulatory capital that collectively provide information for the Mexican Commission,
CFTC, 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, and cover losses from
business activities, including swap dealing activities, without the firm becoming
insolvent.204
The proposed conditions in the proposed Comparability Order were intended to
ensure that the Commission and NFA receive appropriate and timely financial
information from Mexican nonbank SDs to monitor the firms’ compliance with the
Mexican Commission’s capital requirements and to assess the firms’ overall safety and
soundness. The proposed conditions would require a Mexican nonbank SD to provide
the Commission and NFA with copies of the monthly financial information, including a
copy of its balance sheet and income statement, that the firm files with the Mexican
Commission pursuant to Article 202 and Exhibit 9 of the General Provisions, as well as
copies of the quarterly consolidated reports and annual audited financial reports that the
firm files with the Mexican Commission pursuant to Article 203 of the General
Provisions.205 In addition, the Commission proposed a condition to require a Mexican
nonbank SD to provide as part of its monthly filing, a statement of regulatory capital.206
The proposed conditions would also require the annual audited and the unaudited
monthly and quarterly financial reports to be translated into the English language.207 The
unaudited monthly and quarterly financial reports also must have balances converted
Id.

2022 Proposal at 76393.

Id.

Id.

from Mexican pesos to U.S. dollars.208 Although the unaudited monthly and quarterly
financial reports must have balances converted from Mexican pesos to U.S. dollars, the
Commission stated that it would permit the annual audited financial report to be
presented in either U.S. dollars or Mexican pesos to avoid potential negative impacts that
such conversion may have on the firm’s annual audit and the audit opinion expressed by
the external auditor.209 The proposed conditions also would require a Mexican nonbank
SD to file with the Commission and NFA the requisite information and financial reports
within 15 business days of the earlier of the date the reports are filed with the Mexican
Commission or the date the reports are required to be filed with the Mexican
Commission.210 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 Mexican pesos to U.S. dollars, as applicable.211
In the Commission’s preliminary view, its approach of requiring Mexican
nonbank SDs to provide the Commission and NFA with copies of the monthly financial
information, and the quarterly and annual financial reports, that the firms file with the
Mexican Commission struck an appropriate balance of ensuring that the Commission
receives the financial reporting necessary for the effective monitoring of the financial
condition of the nonbank SDs, while also recognizing the propriety of providing
substituted compliance based on the existing Mexican financial reporting requirements
and regulatory structure.212
The Commission also proposed a condition to require Mexican nonbank SDs to
file with the Commission and NFA, on a monthly basis, Schedule 1 showing the

Id.

Id.

Id.

Id. and proposed Conditions 9 and 10.

Id. at 76393.

aggregate securities, commodities, and swap positions of the firm at fair market value as
of the reporting date.213 The Commission explained that Schedule 1 provides the
Commission and NFA with detailed information regarding the fair market value of
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.214 The Commission proposed to require
that Schedule 1 be filed by a Mexican nonbank SD along with the firm’s monthly
financial information filed pursuant to Article 202 and Exhibit 9 of the General
Provisions.215 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 Mexican nonbank SD to
submit a statement by an authorized representative or representatives of the Mexican
nonbank SD that, to the best knowledge and belief of the person(s), the information
contained within the monthly financial information, the quarterly financial report, and the
audited annual report, is true and correct, including as it relates to the translation of the
reports into the English language and the conversion of balances to U.S. dollars.216 The
statement by an authorized representative or representatives of the Mexican nonbank SD
was intended to be the equivalent of the oath or affirmation required of nonbank SDs
under Commission Regulation 23.105(f),217 to ensure that reports filed with the

Id. and proposed Condition 11.

Id.

Id.

Id. and proposed Condition 12.

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.
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.218
The Commission further proposed a condition that would require a Mexican
nonbank SD to file a Margin Report with the Commission and NFA on a monthly
basis.219 The Commission noted that a Margin Report would assist the Commission and
NFA in their assessment of the safety and soundness of the Mexican 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.220
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. Better Markets expressed a general
disagreement with the Commission’s preliminary finding of comparability, arguing that
the number and variety of conditions regarding financial reporting are the most
compelling evidence that the requirements are not comparable.221 More specifically,
Better Markets asserted that the 2022 Proposal did not provide a sufficient analysis
supporting the Commission’s preliminary finding of comparability between the various
reports required under the Mexican Financial Reporting Rules and their U.S.
2022 Proposal at 76393.

Id. and proposed Condition 13.

2022 Proposal at 76394.

Better Markets Letter at p. 12.

counterparts.222 In support of its statement, Better Markets noted that the Commission
did not provide its basis for determining that the financial reports submitted by Mexican
nonbank SDs would be useful to the Commission in monitoring the firms’ financial
condition.223 In this regard, Better Markets stated that the Commission did not mention
or describe whether the Mexican nonbank SDs must comply with the U.S. Generally
Accepted Accounting Principles (GAAP), the International Financial Reporting
Standards (IFRS), or another accounting standard adopted by Mexican authorities and
that without knowing this important information, it is impossible to comment on whether
the financial reports would be useful to the Commission.224
Better Markets also noted that the proposed comparability determination was
conditioned on a Mexican 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).225 Better Markets stated
that there are material 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 Mexico.226
As discussed in section I.E. above, the Commission does not believe that the
inclusion of conditions in the Comparability Order demonstrates that the Mexican
Financial Reporting Requirement are not comparable to CFTC Financial Reporting
Requirements in achieving the overall objectives of ensuring the safety and soundness
and effective monitoring of nonbank SDs. In addition, with respect to the comment

Id.

Id.

Id.

Id.

Id.

related to the proposed Comparability Order’s conditions regarding applicable accounting
standards, the Commission notes that, as discussed in the 2022 Proposal, the quarterly
and annual financial reports submitted by Mexican nonbank SDs will be prepared in
accordance with the Accounting Criteria for Broker-Dealers.227 For purposes of clarity,
the Commission confirms that Mexican 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
Mexican nonbank SD uses to prepare general purpose financial statements in Mexico.
This clarification is consistent with proposed Condition 8, which the Commission adopts
subject to a minor modification in the final Comparability Order, requiring that the
Mexican nonbank SD prepares and keeps current ledgers and other similar records “in
accordance with accounting principles permitted by the Mexican Commission.”228 In
taking the position that Mexican 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 that the
Commission requires from nonbank SDs for purposes of monitoring their overall
financial condition and compliance with capital requirements. Specifically, the
Commission notes that calculating a firm’s risk-weighted assets and capital ratio follows
a rules-based approach consistent with the Basel standards and, consequently, the
Commission does not anticipate that a variation in the applicable accounting standards

See 2022 Proposal at 76392.

2022 Proposal at 76399. Proposed Condition 8 stated that Mexican nonbank SDs must prepare and keep
current ledgers and other similar records “in accordance with accounting principles required by the
Mexican Commission.” To promote 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” to refer to the accounting standards to be used by
Mexican nonbank SDs.
would materially impact this calculation.229 In this regard, the Commission notes that
Mexican nonbank SDs currently submit financial reports, including a statement of
financial condition and a statement of regulatory capital, pursuant to CFTC Staff Letter
22-10.230 The reports provide the Commission with appropriate information to assess the
financial and operational condition of Mexican nonbank SDs, as well as the firms’
compliance with the capital ratios imposed on Mexican nonbank SDs under the Mexican
Capital Rules.
With respect to the comment related to the requirement for Mexican nonbank SDs
to submit a statement from an authorized representative, the Commission notes, for
completeness, that the proposed condition requires that an authorized representative of
the Mexican nonbank SD provide a statement that, to the best of the knowledge and

Furthermore, the Commission’s approach to permitting Mexican 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 SecurityBased 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 SecurityBased 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 Mexican nonbank SD becomes registered with the SEC as an SBSD and is
required to file an unaudited SEC Form X-17A-5 Part II (“FOCUS Report”), the Commission’s approach to
permitting Mexican nonbank SDs to maintain financial books and records, and to file financial information,
prepared in accordance with local accounting standards would facilitate financial reporting by such duallyregistered entity. In such case, dually registered entities would not have to perform multiple calculations
under different accounting standards or submit two different FOCUS Reports.
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 MPD on August 17, 2022. CFTC Staff Letter No. 22-10, which extended the expiration of CFTC Letter
21-20, provides that MPD would not recommend an enforcement action to the Commission if a non-U.S.
nonbank SD covered by the letter, subject to certain conditions, complied with their respective homecountry 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.
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 Mexican nonbank SD files erroneous information.
Finally, the Associations addressed the Commission’s request for comment on the
compliance dates for the reporting conditions that the proposed Comparability Order
would impose on Mexican nonbank SDs.231 The Associations requested that the
Commission set the compliance date at least six months following the issue date of the

Associations Letter at p. 4.

final Comparability Order to allow Mexican nonbank SDs to adequately prepare for
compliance with the reporting conditions imposed by the Comparability Order.232
The Commission believes that granting an additional period of time to allow
Mexican 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 Mexican nonbank SDs under the final Order. For other reporting
obligations, for which a process already exists, such as the reports that Mexican nonbank
SDs currently submit to the Commission and NFA pursuant to CFTC Staff Letter 22-10
and/or prepare pursuant to the Mexican Financial Reporting Rules, additional time for
compliance does not appear necessary. Accordingly, the Commission is setting a
compliance date of 180 calendar days after publication of the final Comparability Order
in the Federal Register for Mexican nonbank SDs to file Schedule 1 and the Margin
Report with the Commission and NFA under Conditions 11 and 13, respectively.
In an effort to align, where appropriate, the filing deadlines for financial reporting
obligations imposed by the Comparability Order on Mexican 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 9 for
the monthly financial information to 35 calendar days after the end of each month.233
The filing deadline will apply to the monthly financial information filed with the
Mexican Commission pursuant to Article 202 and Exhibit 9 of the General Provisions
Applicable to Broker-Dealers, as well as to Schedule 1 and the Margin Report, which

Id.

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).
pursuant to final Conditions 11 and 13 must be filed with the monthly financial
information.
In summary, the Commission adopts the final Comparability Order and conditions
substantially as proposed with respect to the comparability of the CFTC Financial
Reporting Rules and Mexican Financial Reporting Requirements. The Commission also
specifies, in final Conditions 9, 11, and 13, that the conversion of balances to U.S. dollars
must be done using a commercially reasonable and observable Mexican peso/U.S. dollar
spot rate as of the date of the respective report. Finally, the Commission grants an
additional compliance period for the new reporting obligations imposed on Mexican
nonbank SDs under the final Order set forth below.
E. Notice Requirements
1. Preliminary 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.234 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 fails to post to, or collect from, a counterparty (or group of

2022 Proposal at 76395 and 17 CFR 23.105(c).

counterparties under common ownership or control) required initial and variation margin
a counterparty, 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.235
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.236 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.237
With respect to Mexican nonbank SDs, the Commission noted that the Mexican
Financial Reporting Rules do not include explicit, predefined notice provisions that
require the firms to file prompt notice with the Mexican Commission, or other relevant
Mexican regulatory authority, in a manner that is comparable to the notice provisions set
forth in Commission Regulation 23.105(c).238 Therefore, the Commission proposed to
condition the Comparability Order to require Mexican nonbank SDs to file certain notices
mandated by Commission Regulation 23.105(c) with the Commission and NFA.239
Specifically, the Commission proposed to require a Mexican nonbank SD to file notice

17 CFR 23.105(c).

Id.

See 2022 Proposal at 76395.

Id.

Id.

with the Commission and NFA, within the timeframes set forth in the proposed
conditions, if the firm: (i) fails to make or keep current the books and records required by
the Mexican Commission; (ii) is informed by the Mexican Commission that the firm is
not in compliance with any component of the Mexican Capital Rules or Mexican
Financial Reporting Rules; (iii) maintains regulatory capital at a level that is below 120
percent of the minimum capital requirement set by the Mexican Capital Rules; (iv)
experiences a 30 percent or more decrease in its excess regulatory capital as compared to
the excess capital last reported in its financial forms filed with the Mexican Commission
pursuant to Article 202 and Exhibit 9 of the General Provisions; (v) fails to post or collect
initial margin or variation margin required under Mexican law and/or regulations or
CFTC margin rules to be exchanged for uncleared swaps and non-cleared security-based
swaps in amounts that exceed defined thresholds; and (vi) has received the approval of
the Mexican Commission to a change in the firm’s fiscal year end date.240 The notices
would have to be translated into English prior to being filed with the Commission and
NFA.241
The Commission proposed these conditions so that it and NFA would be alerted
to the occurrence of any of the defined events in a prompt manner, which would allow
the Commission and NFA to communicate with the impacted Mexican nonbank SD to
assess the seriousness of the matter and the effectiveness of any actions that the Mexican
nonbank SD may have taken to remediate the matter. As previously noted, the notices
provide the Commission with “early warning” of potential adverse financial and

The Commission noted that it was aware of the Mexican Commission’s intent to issue final rules
addressing the margin requirements for uncleared swaps. See 2022 Proposal at 76396 (n. 237). As further
noted in the 2022 Proposal, however, Mexican nonbank SDs are currently subject to the CFTC margin
requirements for uncleared swap transactions as set forth in Commission Regulation 23.160 for crossborder transactions. Id. 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.
241

Id. at 76396.

operational issues at a nonbank SD. The receipt of “early warning” notices are an
important component of the Commission’s and NFA’s programs for effectively
overseeing the safety and soundness of nonbank SDs.
2. Comment Analysis and Final Determination
Better Markets stated that the proposed notice provisions in the proposed
Comparability Determination and proposed Comparability Order represent regulatory
gaps between the Mexican Financial Reporting Rules and the CFTC Financial Reporting
Rules.242 The Commission recognized that the Mexican Financial Reporting Rules do
not include regulatory notices in a manner comparable to the CFTC Financial Reporting
Rules. To address the lack of regulatory notices under the Mexican Financial Reporting
Rules, the Commission included proposed conditions in the proposed Comparability
Order that are consistent with the notice provisions imposed by the Commission on
nonbank SDs under Commission Regulation 23.105(c). The proposed notice conditions
are intended to ensure that the Commission and NFA receive necessary information to
conduct ongoing monitoring of Mexican nonbank SDs for compliance with relevant
capital and financial reporting requirements.
As discussed in section I.E. above, in issuing a Comparability Order, the
Commission is not ceding its supervisory and enforcement authorities. The
Comparability Order permits Mexican nonbank SDs to satisfy the Commission’s capital
and financial reporting requirements by complying with certain laws and/or regulations
of Mexico that have been found to be comparable to the Commission’s laws and/or
regulations in purpose and effect. The Commission and NFA, however, have a
continuing obligation to conduct ongoing oversight, including potential examination, of
Mexican nonbank SDs to ensure compliance with the Comparability Order, including its

Better Markets Letter at p. 12.

conditions. To that effect, the notice conditions set forth in the Comparability Order
provide the Commission and NFA with information necessary to monitor for Mexican
nonbank SDs for compliance with the Comparability Order and to evaluate the firms’
operational and financial conditions.
Furthermore, to the extent that the notice conditions impose new obligations on
Mexican nonbank SDs beyond what is currently in Mexican laws or regulations, the
imposition of such conditions is consistent with Commission Regulation 23.106 and the
Commission’s established policy with regard to comparability determinations. As
discussed in section I.E. 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.243 The Commission’s authority to impose such conditions
is also evident from the language of 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].”244
Therefore, the Commission believes that the imposition of conditions in the
Comparability Order to require Mexican nonbank SDs to file notices of certain events
with the Commission and NFA in a manner consistent with requirements imposed by the
Commission on nonbank SDs under Commission Regulation 23.105(c) appropriately
addresses the fact that the Mexican Financial Reporting Rules do not include comparable
regulatory requirements.
The Associations recommended in their joint comment letter that with respect to
the proposed conditions to require that Mexican nonbank SDs provide notice if the firm

Guidance at 45343.

17 CFR 23.106(5).

experiences a 30 percent or more decrease in excess regulatory capital or if the firm fails
to make or keep current books and records, that the Commission require a Mexican
nonbank SD to file a notice within a defined period of time of when the firm “knows” or
becomes “aware of” the reportable event instead of when the firm “experiences” or
“should have known” of the reportable event.245 In support of the recommendation, the
Associations noted that it was practically challenging for a firm to submit a notification
prior to the discovery of the relevant failure.246
With regard to the proposed requirement that a Mexican nonbank SD notify the
Commission and NFA if the firm “experiences” a 30 percent or more decrease in its
excess regulatory capital, the Commission believes that it is appropriate to impose the
condition as proposed to ensure consistency with Commission Regulation
23.105(c)(4).247 In this regard, a nonbank SD will be expected to maintain diligent
recordkeeping allowing it to become aware of substantial reductions in capital in a timely
manner and to establish procedures for the timely provision of the requisite notification.
As to the proposed requirement in Condition 17 (renumbered Condition 19 in the final
Comparability Order) that a Mexican nonbank SD notify the Commission and NFA
within 24 hours of when it “knows or should have known that it has failed to make or
keep current the books and records required by the Mexican Commission,” the
Commission will align the language of the condition with the timing standard of
Commission Regulation 23.105(c)(3), while also granting additional time for the notice
to be translated into English. As such, the Commission will require the notice to be
provided within 24 hours “if [the firm] fails to make or keep” current the books and

Associations Letter at p. 4.

Id.

17 CFR 23.105(c)(4). For clarity, by “excess regulatory capital,” the Commission refers to the capital
ratio by which the firm’s capital exceeds the core capital ratio requirement of 8 percent of the firm’s riskweighted assets. For instance, if a firm maintains a capital ratio of 20 percent, its excess regulatory capital
would be 12 percent. In this example, 30 percent of the excess regulatory capital would equal 3.6 percent.
records. Although the Commission is adjusting the language in Condition 19 of the final
Comparability Order, the Commission emphasizes that this condition imposes a
requirement to provide a prompt notice upon the occurrence of the reportable event.
Maintaining current books and records of all financial transactions is a fundamental
recordkeeping requirement for a registered nonbank SD, and is essential to provide
management with the information necessary to ensure that transactions are timely and
accurately reported and that the firm complies 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. For further clarification of this condition, the
Commission confirms that the notice requirement will apply with respect to books and
records addressing the Mexican nonbank SD’s financial condition and financial reporting
requirements, and has revised the condition to so specify.
Separately, to promote consistency across the Comparability Determinations the
Commission is adopting with respect to other jurisdictions, the Commission will revise
the proposed early warning notice condition requiring a Mexican nonbank SD to provide
a notice to the Commission and NFA if its regulatory capital falls below 120 percent of
the minimum capital requirement.248 Instead of requiring a notice if the Mexican
nonbank SD’s capital falls below 120 percent of the minimum capital requirement, the
Commission will require that the Mexican nonbank SD provide a notice to the
Commission and NFA if it breaches its capital conservation buffer requirement.249 The
notice must be prepared in the English language. The Commission believes that this
condition, combined with the condition requiring that a Mexican nonbank SD provide

17 CFR 23.105(c)(2).

As noted in Section II.C.2.b., Mexican nonbank SDs are required to maintain a capital conservation
buffer of 2.5 percent of the Mexican nonbank SD’s risk-weighted assets that must be met with fundamental
capital. Articles 172 and 173 of the Law and Articles 162 and 162 Bis of the General Provisions.
notice to the Commission and NFA if it experiences 30 percent or more decrease in its
excess regulatory capital, would provide a timely opportunity to the Commission and
NFA to initiate conversations and fact finding with a Mexican nonbank SD that may be
experiencing operational or financial issues that may adversely impact the firm’s ability
to meet its obligations to market participants, including customers or swap counterparties.
Given that Mexican nonbank SDs are subject to the requirement to maintain a capital
conservation buffer pursuant to the Mexican Capital Rules, the condition requiring notice
in case of a breach of the buffer requirement will not have a material operational impact
on Mexican nonbank SDs.
The Associations also 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 notice reporting obligations imposed by the
Comparability Order.250 Similar to its position with regard to the financial reporting
obligations, the Commission believes that it is appropriate to grant an additional period of
time to allow Mexican nonbank SDs to establish and implement the necessary systems
and processes to comply with the newly imposed notice reporting obligations that require
monitoring of thresholds for which Mexican nonbank SDs do not have an established
process. Accordingly, the Commission is setting a compliance date of 180 calendar days
after publication of the final Comparability Order in the Federal Register with respect to
the notice obligations under final Conditions 18 and 20 of the Comparability Order.
Given the nature of the remaining notice obligation, the Commission believes that
Mexican nonbank SDs should be in a position to comply with all other notice obligations,
including those requiring Mexican 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

Associations Letter at p. 4.

maintain regulatory capital equal to, or in excess of, the U.S. dollar equivalent of $20
million, immediately upon effectiveness of the Comparability Order.
With regard to Condition 20, which requires a Mexican nonbank SD to provide
notice if it fails to post or collect initial or variation margin exceeding certain thresholds,
the Commission notes, for clarity, 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 23.160.251
To the extent Mexican 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
Mexican nonbank SD during the confirmation process referenced in final Condition 6 of
the Comparability Order.
The Commission did not receive any comments with respect to the following
proposed notice conditions: (i) the Mexican nonbank SD files notice with the
Commission and NFA within 24 hours of being informed by the Mexican Commission
that the firm is not in compliance with any component of the Mexican Capital Rules or
Mexican Financial Reporting Rules (proposed Condition 14); (ii) the Mexican nonbank
SD provides notice to the Commission and NFA if it initiates the process of seeking the
approval of the Mexican Commission to use internal models to compute market risk
and/or credit risk (proposed Condition 7); or (iii) the Mexican nonbank SD files notice of
the Mexican Commission approving a change in the firm’s fiscal year-end date, which

17 CFR 23.160.

must be filed with the Commission and NFA at least 15 business days prior to the
effective date of the change (proposed Condition 19).
The Commission, having considered the 2022 Proposal, is adopting the above
conditions as proposed.252 The Commission is also revising the final conditions by
adding Condition 17 to the Comparability Order, which requires a Mexican nonbank SD
to file notice with the Commission and NFA within 24 hours if the firm fails to maintain
regulatory capital in the form of fundamental capital, as defined by Article 162 and
Article 162 Bis of the General Provisions, equal to or in excess of the equivalent of $20
million. The requirement to provide such notice will impose a consistent condition and
obligation on non-U.S. nonbank SDs across the non-U.S. jurisdictions that are the subject
to Commission Comparability Orders, and will provide the Commission and NFA with
information to monitor the financial condition of non-bank SDs.
The Commission is also adopting a compliance date for certain notice
requirements as discussed above in the final Comparability Order.
F. Supervision and Enforcement
1. Preliminary Determination
The 2022 Proposal contained a discussion of the Commission’s and NFA’s
ongoing supervision of nonbank SDs to assess their compliance with the CEA,
Commission regulations, and NFA rules by reviewing financial reports, risk exposure
reports, and other filings submitted by nonbank SDs with the Commission and NFA.253
As discussed, the Commission and NFA also conduct periodic examinations as part of
their supervision of nonbank SDs, including routine on-site examinations of nonbank

The Commission is renumbering proposed Conditions 14, 18, and 19 as Conditions 15, 20, and 21,
respectively, in the final Comparability Order.
253

2022 Proposal at 76396.

SDs’ books, records, and operations to ensure compliance with CFTC and NFA
requirements.254
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, Commission
regulations, and NFA requirements.255 As discussed, the Commission and NFA also
have the authority to require a nonbank SD to provide any additional financial and/or
operational information as the Commission or NFA may specify to monitor the safety
and soundness of the firm.256
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 CEA257 provides the Commission with exclusive
authority to enforce the capital requirements imposed on nonbank SDs adopted under
section 4s(e) of the CEA.258

Section 17(p)(2) of the CEA (7 U.S.C. 21(p)(2)) requires NFA as a registered futures association to
establish minimum capital and financial requirements for non-bank SDs and to implement a program to
audit and enforce compliance with such requirements. 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. See 2022 Proposal at 76396.
255

See 2022 Proposal at 76396.

17 CFR 23.105(h). See also 2022 Proposal at 76396. Regulation 23.105(h) provides that the
Commission or NFA may, by written notice, require a nonbank SD to file financial or operational
information on a daily basis or other basis with the Commission and/or NFA.
257

7 U.S.C. 6b-1(a).

7 U.S.C. 6s(e).

With respect to the Mexican authorities’ power to supervise Mexican nonbank
SDs and to carry out enforcement actions, the Commission noted that the Mexican
Commission has supervisory, inspection, and surveillance powers, which include the
authority to require a Mexican nonbank SD to provide the Mexican Commission with all
necessary information and documentation to verify the Mexican nonbank SD’s
compliance with the Mexican Law and General Provisions.259 In addition, as noted in
section II.D.1. above, the Mexican Central Bank requires a Mexican nonbank SD
licensed to enter into derivatives transactions for its own account to file, with the
Mexican Central Bank, an annual written communication issued by the Mexican nonbank
SD’s internal audit committee evidencing compliance in the performance of its
derivatives transactions with each and all applicable legal provisions.260 When required
by the Mexican Central Bank, a Mexican nonbank SD also must provide the Mexican
Central Bank with all the information related to the derivatives transactions performed by
the firm.261 Furthermore, the Mexican Commission also has the authority to require a
Mexican nonbank SD to adopt any necessary measures to correct irregular activities, and
the Mexican Commission has the authority to conduct all necessary on-site inspections of
a Mexican nonbank SD.262 The Commission also explained that the Mexican
Commission uses information provided through the mandatory financial reporting and
annual stress test assessments that Mexican nonbank SDs are required to conduct, to
monitor Mexican nonbank SDs’ compliance with the Mexican Capital Rules and to

2022 Proposal at 76396 and Article 350 of the Law, Articles 5 and 19 of the Mexican Commission Law
and the Supervision Regulations of the Mexican Commission.
Provision 3.1.3. of the Rule 4/2012 issued by the Mexican Central Bank. See also 2022 Proposal at
76392.
261

Id.

Pursuant to Article 358 of the Law, the Mexican Commission and the Mexican Central Bank are
authorized to provide foreign financial authorities with information that they deem appropriate within the
scope of their competence, such as documents, records, declarations and other evidence that the authorities
have in their possession by virtue of having obtained the information in the exercise of their powers and
duties, provided that there is an agreement with the relevant foreign financial authorities for the exchange
of information, in consideration of the principle of reciprocity. See 2022 Proposal at 76396.
assess the firm’s overall safety, soundness, and ability to meet financial obligations to
customers, counterparties, and creditors.263 As discussed in the proposed Comparability
Determination, the Mexican Commission also uses financial reporting from Mexican
nonbank SDs as a component of its risk-based methodology in setting the frequency and
scope of its examinations of Mexican nonbank SDs.264 The Mexican Commission
generally conducts an examination, including on-site visits, of each firm at least once
every two years. The Mexican Commission will also conduct an examination of a firm,
including an on-site visit, to the extent that its daily, routine surveillance indicates a need
for an immediate review.265
As noted in the proposed Comparability Determination, the Mexican Commission
may also impose fines against Mexican nonbank SDs for failing to comply with relevant
Mexican laws and regulations266 and may order a Mexican nonbank SD that fails to
comply with the applicable regulatory capital ratios, including the 2.5 percent common
equity tier 1 capital buffer, to take corrective measures.267 The Mexican Commission
may also revoke a Mexican nonbank SD’s license to operate as a broker-dealer if the firm

Id.

Id.

Id.

Id. Fines may range from approximately $130,000 to $432,000 for failing to maintain sufficient
regulatory capital in relation to the risks in the Mexican nonbank SD’s operations and from approximately
$43,000 to $432,000 if a Mexican nonbank SD for failing to comply with applicable information or
documentation requirements made by the Mexican Commission or to provide the required periodic
informational filings. Article 392 paragraphs I, subparagraph (a) and paragraph III, subparagraph (v), of
the Law.
Corrective measures may include the following: (i) a prohibition on entering into transactions whose
execution would cause a total capital ratio to be less than 8 percent of the risk-weighted assets; (ii) a
requirement that the Mexican nonbank SD submit for the approval of the Mexican Commission a recovery
capital plan; (iii) a suspension of the payment of dividends; (iv) a suspension of the programs of acquisition
of shares of the capital stock of the Mexican nonbank SD; (v) a suspension of payments of compensation,
extraordinary bonuses, or other remuneration in addition to the salary of the chief executive officer
(“CEO”) and officials of the two hierarchical levels below the CEO, as well as a requirement to refrain
from granting new compensation in the future for the CEO and officials; (vi) an engagement with external
auditors or other specialized third parties to carry out special audits on specific issues; and (vii) a limitation
on the execution of new transactions that may cause an increase in risk-weighted assets and/or cause
greater impairment in the Mexican nonbank SD’s regulatory capital ratios. See 2022 Proposal at 76396 and
Article 153 of the Law.
fails to comply with the above corrective measures or if the firm reports losses that
reduce its capital to a level below the minimum required.268
Based on its review of the Application and its analysis of the relevant laws and
regulations, the Commission preliminarily found that the Mexican Commission has the
necessary powers to supervise, investigate, and discipline entities for compliance with its
capital, financial and reporting requirements, and to detect and deter violations of, and
ensure compliance with, the applicable capital and financial reporting requirements in
Mexico.269 Furthermore, the Commission also noted that it retains supervision,
examination, and enforcement authority over Mexican nonbank SDs that are covered by a
Comparability Order.270 Specifically, the Commission noted that a non-U.S. nonbank SD
that operates under substituted compliance 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.271 The ability of the Commission to exercise its enforcement authority
over a Mexican nonbank SD is not conditioned upon a finding by the Mexican
Commission of a violation of the Mexican Capital Rules or Mexican Financial Reporting
Rules. In addition, as each Mexican nonbank SDs is a member of NFA, the firm is
subject to NFA membership rules, examination authority, and disciplinary process.272
2. Comment Analysis and Final Determination
In response to the request for comment, Better Markets asserted that while the
2022 Proposal states that the Mexican Commission has the necessary powers to

Id.

2022 Proposal at 76397-76398.

2022 Proposal at 76377.

Id. See also, 17 CFR 23.106(a)(4)(ii), which provides that all nonbank SDs, regardless of whether they
rely on a Comparability Order or Comparability Determination, remain subject to the Commission’s
examination and enforcement authority.
272

7 U.S.C. 21(p).

supervise, investigate, and discipline Mexican nonbank SDs for compliance with
applicable capital, financial, and reporting requirements, the Commission does not
provide details regarding the demonstrated past effectiveness of the Mexican
Commission’s supervision and enforcement of Mexican nonbank SDs.273 The
Commission does not believe that Commission Regulation 23.106 requires the
Commission to perform an assessment of the historical effectiveness of the foreign
jurisdictions’ supervision and enforcement programs.
The Commission’s evaluation of the laws and regulations granting the Mexican
authorities’ supervisory and enforcement authority, as discussed in section II.F.1. above,
is consistent with the standard of review articulated in Commission Regulation
23.106(a)(3). Specifically, Commission Regulation 23.106(a)(3) provides that the
Commission may consider all relevant factors in performing the comparability
assessment, including the ability of the relevant regulatory authority to supervise and
enforce compliance with the relevant foreign jurisdiction’s capital adequacy and financial
reporting requirements.
The Commission’s assessment of the Mexican Commission’s supervisory
program included an evaluation of the Mexican Commission’s ability to supervise
Mexican nonbank SDs based on current Mexican laws and regulations, as discussed in
section II.F.1. above. This evaluation included an assessment of the financial reporting
that Mexican nonbank SDs are required to provide to the Mexican Commission, the
authority of the Mexican Commission to conduct examinations, including onsite
inspections of Mexican nonbank SDs, and the authority of the Mexican Commission to
impose sanctions or take other action to address noncompliance with applicable laws and
regulations. Based upon its evaluation, the Commission preliminarily determined that

Better Markets Letter at p. 13, citing 2022 Proposal at 76397.

Mexican laws and regulations are comparable in purpose and effect to the CEA and
Commission regulations, and that the Mexican Commission has appropriate authority to
supervise Mexican nonbank SDs for compliance with applicable Mexican Capital Rules
and Mexican Financial Reporting Rules. The Commission further determined, based on
applicable Mexican laws and regulations, that the Mexican Commission has the ability to
sanction Mexican nonbank SDs for failing to comply with regulatory requirements.
Specifically, as discussed in section II.F.1. above, the Mexican Commission has the
authority to impose fines274 and may order a Mexican nonbank SD that fails to comply
with the applicable regulatory capital ratios to take corrective measures, including the
suspension of payment of compensation to senior officials and a limitation on the
execution of new transactions that may cause an increase in risk-weighted assets.275 The
Mexican Commission may also revoke a Mexican nonbank SD’s license to operate as a
broker-dealer if the firm fails to comply with the above corrective measures or if the firm
reports losses that reduce its capital to a level below the minimum required.276
Better Markets further stated that an information sharing agreement is necessary
for the Commission to communicate and consult with the Mexican Commission to
facilitate cooperation and information sharing regarding the supervision of Mexican
nonbank SDs.277 Better Markets further stated that the proposed Comparability Order
does not contain a draft of the terms and conditions of an information sharing agreement,
include a discussion of the timing of entering into an information sharing agreement, or
condition the Comparability Order on the Commission entering into an information
sharing agreement with the Mexican Commission.278 Better Markets further asserted that

Article 392 paragraphs I, subparagraph (a) and paragraph III, subparagraph (v), of the Law.

Article 153 of the Law.

Id.

Better Markets Letter p. 13.

Id.

given that enforcement is a critical component of any comparability determination, any
comparability determination must be conditioned upon first executing an appropriate
information sharing agreement.279
The substituted compliance framework set forth in Commission Regulation
23.106 allows a Mexican nonbank SD to satisfy the Commission’s capital and financial
reporting rules by complying with Mexican capital and financial reporting rules that the
Commission has found comparable in purpose and effect and has specified in the
Comparability Order, subject to conditions that are also specified in the Comparability
Order. Commission Regulation 23.106 does not precondition the Commission’s ability
to issue a Comparability Order on the Commission and the authority or authorities in the
relevant foreign jurisdiction entering into a formal MOU or similar arrangement.
As discussed in this Comparability Determination, by issuing a Comparability
Order, the Commission is not ceding its supervision and enforcement authorities.
Mexican 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. Mexican
nonbank SDs covered by a Comparability Order also remain subject to the Commission’s
examination and enforcement authority with respect to all elements of the CEA and
Commission regulations, including capital and financial reporting.280 In this regard,
Mexican nonbank SDs are required to directly provide the Commission with additional
information upon the Commission’s request to facilitate the ongoing supervision of such
firms.281 Furthermore, section 17 of NFA’s SD Financial Requirements rule provides
that each SD member of NFA must file the financial, operational, risk management and

Id.

17 CFR 23.106(a)(4)(ii).

17 CFR 23.105(h).

other information required by NFA in the form and manner prescribed by NFA.282 The
ability to obtain information directly from Mexican nonbank SDs 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 Mexican nonbank SDs
to ensure compliance with the Comparability Order. Specifically, as part of this
oversight, the conditions require Mexican 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
Mexican nonbank SDs to maintain current books and records reflecting all
transactions,283 the conditions further require each Mexican nonbank SD covered by the
Comparability Order to file directly with the Commission and NFA: (i) notice that the
firm was informed by the Mexican Commission that it is not in compliance with any
component of the Mexican Capital Rules or Mexican Financial Reporting Rules;284 (ii)
monthly, quarterly, and annual financial reports;285 (iii) notice that the firm has
experienced a decrease of 30 percent or more in its excess regulatory capital as compared
to the last excess regulatory capital reported in filings with the Commission and NFA;286
(iv) notice that the firm has breached its capital conservation buffer;287 (v) notice that the

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.
283

Condition 8 of the final Comparability Order.

Condition 15 of the final Comparability Order.

Conditions 9 and 10 of the final Comparability Order.

Condition 18 of the final Comparability Order.

Condition 16 of the final Comparability Order.

firm has failed to maintain regulatory capital in the form of fundamental capital in
amount equal to or in excess of the equivalent of $20 million;288 and (vi) notice that the
firm has failed to make or keep current financial books and records required by the
Mexican Commission.289 The Comparability Order further requires the Applicants 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 Mexican Capital Rules or Mexican Financial Reporting Rules and proposed and final
material changes to the Mexican Commission’s supervisory authority or supervisory
regime over Mexican nonbank SDs.290 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 Mexican nonbank SDs, will allow the Commission and NFA to conduct ongoing
oversight of such firms to assess their overall safety and soundness.
Although Commission Regulation 23.106 does not condition the issuance of a
Comparability Order on the Commission and the authority or authorities in the relevant
foreign jurisdiction having entered into a formal MOU or similar arrangement, the
Commission recognizes the benefit that such an arrangement may provide.291
Specifically, although Commission staff may engage directly with Mexican nonbank SDs
to obtain information regarding their financial and operational condition, it may not be
able to exchange and discuss such firm-specific information292 with the relevant
authorities or reach shared expectations on procedures for conducting on-site

Condition 17 of the final Comparability Order.

Condition 19 of the final Comparability Order.

Condition 22 of the final Comparability Order.

In an enforcement-related context, both the Commission and the Mexican Commission are signatories to
the International Organization of Securities Commission’s Multilateral Memorandum of Understanding
Concerning Consultation and Cooperation and the Exchange of Information (revised May 2012).
The sharing of non-public information by CFTC staff would require assurances related to the use and
treatment of such information in a manner consistent with section 8(e) of the CEA, 7 U.S.C. 12(e).
examinations in Mexico. Therefore, Commission staff will continue its engagement with
staff of the Mexican authorities to negotiate and finalize an MOU or similar arrangement
to facilitate the joint supervision of Mexican nonbank SDs.
Based on the analysis set out above, the Commission finds that the Mexican
Commission and the Mexican Central Bank maintain supervisory programs over Mexican
nonbank SDs that are comparable to the Commission’s supervisory program over
nonbank SDs. The Mexican authorities’ supervisory programs are comparable in purpose
and effect to the Commission’s supervisory program in that the respective programs are
designed to monitor the safety and soundness of nonbank SDs through a combination of
periodic financial reporting and examinations. Also, as noted above, the Commission
and NFA will receive notices from Mexican nonbank SDs that are comparable to the
notices received from nonbank SDs. The Commission and NFA will use the above
information to assess compliance with the Comparability Order and the financial
condition of Mexican nonbank SDs.
In addition, the Commission finds that the Mexican Commission has sufficient
enforcement authority over nonbank SDs, comparable to the CFTC’s enforcement
authority. As discussed in section II.F.1. above, the Mexican Commission and the CFTC
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 the Mexican authorities with respect to nonbank SD capital and
financial reporting.

III.

Final Comparability Determination and Comparability Order
A. Commission’s Final Comparability Determination
Based on the Mexico Application and the Commission’s review of applicable

Mexican laws and regulations, as well as the review of comments submitted in response
to the Commission’s request for comment on the Mexico Application and the proposed
Comparability Determination and Comparability Order, the Commission finds that the
Mexican Capital Rules and the Mexican 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 Mexican Capital Rules and CFTC Capital Rules and
certain differences between the Mexican 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 would not be
inconsistent with providing a substituted compliance framework for Mexican nonbank
SDs subject to the conditions specified in the proposed Order below.
Furthermore, the Comparability Determination and Comparability Order are
limited to the comparison of the Mexican Capital Rules to the Bank-Based Approach
under the CFTC Capital Rules. As noted previously, the Applicants have not requested,
and the Commission has not performed, a comparison of the Mexican Capital Rules to
the Commission’s NLA Approach or TNW Approach.

B. Order providing Conditional Capital Comparability Determination for
Mexican 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 Mexico 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 Mexican 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 Mexico and is domiciled in Mexico
(a “Mexican nonbank SD”);

(3)

The Mexican nonbank SD is a licensed casa de bolsa (broker-dealer) with
the Mexican Comision Nacional Bancaria y de Valores (Mexican Banking
and Securities Commission) (the “Mexican Commission”);

(4)

The Mexican nonbank SD is subject to and complies with: Articles 2,
113, 153, 172, 173, 228, 350, 358, and 392 of the Ley del Mercado de
Valores (Securities Market Law) (referred to as “the Law”); Articles 5 and
19 of the Mexican Commission Law, the Supervision Regulations of the
Mexican Commission; Articles 10, 137, 144, 146, 150 through 158 Bis,
159, 160, 161, 161 Bis through 161 Bis 5, 162, 162 Bis, 162 Bis 1, 163,

163 Bis, 169, 169 Bis, 175, 176, 179, 180, 201, 202, 203, 204 Bis 1, 204
Bis 2, 204 Bis 3, 204 Bis 7 through Bis 21, 214, 216, 217, Exhibits 5 and 9
of the Disposiciones de Caracter General Aplicables a las Casa De Bolsa
(“General Provisions Applicable to Broker-Dealers”); section C.B1 of
Circular 115/2002, issued by Banco de Mexico (the “Mexican Central
Bank”); and Provision 3.1.3 of Rule 4/2012, issued by the Mexican
Central Bank (collectively, the “Mexican Capital Rules” and “Mexican
Financial Reporting Rules,”);
(5)

The Mexican nonbank SD maintains at all times fundamental capital, as
defined in Article 162 and Article 162 Bis of the General Provisions
Applicable to Broker-Dealers, equal to or in excess of the equivalent of
$20 million in United States dollars (“U.S. dollars”). The Mexican
nonbank SD shall use a commercially reasonable and observed peso/U.S.
dollar exchange rate to convert the value of the peso-denominated
fundamental capital to U.S. dollars;

(6)

The Mexican nonbank SD has filed with the Commission a notice stating
its intention to comply with the Mexican Capital Rules and Mexican
Financial Reporting Rules in lieu of the CFTC Capital Rules and CFTC
Financial Reporting Rules. The notice of intent must include the Mexican
nonbank SD’s representations that the firm is organized and domiciled in
Mexico; is a licensed casa de bolsa with the Mexican Commission; and is
subject to, and complies with, the Mexican Capital Rules and Mexican
Financial Reporting Rules. The Mexican 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

Mexican nonbank SD may comply with the Mexican Capital Rules and
Mexican 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 Mexican nonbank SD shall provide notice to the Commission and
National Futures Association (“NFA”) if at any time it initiates the process
of seeking the approval of the Mexican Commission to use internal
models to compute market risk and/or credit risk. The Mexican nonbank
SD shall not use internal models to compute its regulatory capital under
the terms of this Comparability Order without the authorization of the
Commission or NFA;

(8)

The Mexican nonbank SD prepares and keeps current ledgers and other
similar records in accordance with accounting principles permitted by the
Mexican Commission;

(9)

The Mexican nonbank SD files with the Commission and with NFA a
copy of its quarterly financial report filed with the Mexican Commission
pursuant to Article 203 of the General Provisions Applicable to BrokerDealers and a copy of the monthly financial information, including the
monthly balance sheet and income statement, filed with the Mexican
Commission pursuant to Article 202 and Exhibit 9 of the General
Provisions Applicable to Broker-Dealers. The Mexican nonbank SD must
also include with the monthly information provided to the Commission
and NFA a statement of regulatory capital as of each month end. The
quarterly financial report and monthly financial information must be

translated into the English language and balances must be converted to
U.S. dollars, using a commercially reasonable and observable Mexican
peso/U.S. dollar spot rate as of the date of the report. The quarterly
financial report must be filed with the Commission and NFA within 15
business days of the earlier of the date the quarterly financial report is
filed with the Mexican Commission or the date that the financial report is
required to be filed with the Mexican Commission. The monthly financial
information must be filed with the Commission and NFA within 35
calendar days after the end of each month;
(10)

The Mexican nonbank SD files with the Commission and with NFA a
copy of its audited annual financial report that is required to be filed with
the Mexican Commission in accordance with Article 203 of the General
Provisions Applicable to Broker-Dealers. The audited annual report must
be translated into the English language. The audited annual report must be
filed with the Commission and NFA within 15 business days of the earlier
of the date the audited annual report is filed with the Mexican Commission
or the date that the audited annual report is required to be filed with the
Mexican Commission;

(11)

The Mexican nonbank SD files Schedule 1 of appendix B to subpart E of
part 23 of the Commission’s regulations (17 CFR part 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 Mexican
peso/U.S. dollar spot rate as of the date of the report, and must be filed
with the Commission and NFA together with the financial information set
forth in Condition (9);

(12)

A Mexican 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 Mexican 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 9 and 11 of this
Comparability Order;

(13)

The Mexican 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 filed together with the monthly financial
information required by Article 202 and Exhibit 9 of the General
Provisions Applicable to Broker-Dealers (Condition 9). The margin report
must be in the English language and balances reported in U.S. dollars,
using a commercially reasonable and observable Mexican peso/U.S. dollar
spot rate as of the date of the report;

(14)

The Mexican nonbank SD must submit with the monthly financial
information, the quarterly financial report, and the audited annual report
required under Conditions (9) – (12) of this Comparability Order a
statement by an authorized representative or representatives of the
Mexican nonbank SD that to the best knowledge and belief of the
representative or representatives the information contained in the reports,
including the translation of the reports into the English language and the

conversion of balances into the reports to U.S. dollars (as applicable), is
true and correct. The statement must be prepared in the English language;
(15)

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

(16)

The Mexican nonbank SD files a notice with the Commission and NFA
within 24 hours of when the firm breaches the capital conservation buffer,
which the Mexican nonbank SD is required to maintain pursuant to Article
162 of the General Provisions Applicable to Broker-Dealers. The notice
must be prepared in the English language;

(17)

The Mexican nonbank SD files a notice within 24 hours with the
Commission and NFA it fails to maintain regulatory capital in the form of
fundamental capital, as defined in Article 162 and Article 162 Bis of the
General Provisions Applicable to Broker-Dealers, equal to or in excess of
the U.S. dollar equivalent of $20 million using a commercially reasonable
and observable peso/U.S. dollar exchange rate. The notice must be
prepared in the English language;

(18)

The Mexican nonbank SD files a notice with the Commission and NFA if
it experiences a 30 percent or more decrease in its excess regulatory
capital as compared to that last reported in the financial information filed
with the Mexican Commission pursuant to Article 202 and Exhibit 9 of the
General Provisions Applicable to Broker-Dealers. The notice must be
prepared in the English language and filed within two business days of the

firm experiencing the 30 percent or more decrease in excess regulatory
capital;
(19)

The Mexican 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 Mexican Commission. The notice must be
prepared in the English language;

(20)

The Mexican 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 Mexican nonbank SD on uncleared swap and security-based
swap positions that, in the aggregate, exceeds 25 percent of the Mexican
nonbank SD’s minimum capital requirement; (ii) counterparties fail to
post required initial margin or pay required variation margin to the
Mexican nonbank SD for uncleared swap and security-based swap
positions that, in the aggregate, exceeds 50 percent of the Mexican
nonbank SD’s minimum capital requirement; (iii) a Mexican nonbank SD
fails to post required initial margin or pay required variation margin for
uncleared swap and 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 Mexican nonbank SD’s minimum
capital requirement; and (iv) the Mexican nonbank SD fails to post
required initial margin or pay required variation margin to counterparties
for uncleared swap and security-based swap positions that, in the
aggregate, exceeds 50 percent of the Mexican nonbank SD’s minimum
capital requirement. For purposes of the calculation, the Mexican

nonbank SD’s minimum capital requirement is the core capital
requirement under the Mexican Capital Rules, excluding capital buffers.
The notice must be prepared in the English language;
(21)

The Mexican 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 Mexican Commission. The notice required by this condition 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 Mexican
nonbank SD’s change in fiscal year end;

(22)

The Applicants notify the Commission of any material changes to the
information submitted in their application, including, but not limited to,
proposed and final material changes to the Mexican Capital Rules or
Mexican Financial Reporting Rules and proposed and final material
changes to the Mexican Commission’s supervisory authority or
supervisory regime over Mexican 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 Mexican nonbank SD with the
Commission or 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, 18, 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.

Christopher Kirkpatrick,
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 Dealer Subject to Regulation by the Mexican Comision Nacional Bancaria y
de Valores and Banco de Mexico – Commission Voting Summary, Chairman’s
Statement, and Commissioners’ Statements
Appendix 1 – Commission Voting Summary
On this matter, Chairman Behnam and Commissioners Johnson, Goldsmith
Romero, Mersinger, and Pham voted in the affirmative. No Commissioner voted in the
negative.
Appendix 2 – Statement of Support 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 PRA-designated.
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 nonU.S. nonbank SDs comply with the foreign country’s capital and financial reporting
requirements as well as certain additional capital, financial reporting, recordkeeping, and

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.
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,

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.
examination, and enforcement authority to ensure compliance with the foreign
jurisdiction’s laws and the conditions to substituted compliance.
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 DoddFrank 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

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-reportstestimonies-6136/financial-regulatory-reform-622249.
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 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

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).
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.
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 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

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).
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 non-compliance
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

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.
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 – Statement of Commissioner Caroline D. Pham
I am pleased to support 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 Mexico Comision Nacional Bancaria y
de Valores (CNBV) and Banco de Mexico (Mexico Final Order). The Mexico Final
Order, on balance, reflects an appropriate approach by the CFTC to collaboration with
non-U.S. regulators that is consistent with IOSCO’s 2020 report on Good Practices on
Processes for Deference.1
I would like to thank Amanda Olear, Thomas Smith, Rafael Martinez, Warren
Gorlick, Lilya Bozhanova, and Justin McPhee from the CFTC’s Market Participants
Division for their truly hard work on the Mexico Final Order and for addressing my
concerns regarding the conditions for notice requirements.2 I also thank the CNBV and
Banco de Mexico for their assistance and support.
The CFTC’s capital comparability determinations are the result of tireless efforts
spanning over a decade since the global financial crisis. I commend the staff for working
together with our regulatory counterparts around the world to promote regulatory
cohesion and financial stability, and mitigate market fragmentation and systemic risk.
[FR Doc. 2024-15093 Filed: 7/17/2024 8:45 am; Publication Date: 7/18/2024]

1 IOSCO

Report, “Good Practices on Processes for Deference” (June 2020),
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD659.pdf.
2 Concurring

Statement of Commissioner Caroline D. Pham Regarding Proposed Order and Request for
Comment on an Application for a Capital Comparability Determination (Nov. 10, 2022),
https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement111022.