# 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 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-15093 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** July 18, 2024 - **Citation:** 89 FR 58505 ## Text 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, 202-418-5283, aolear@cftc.gov; Thomas Smith, Deputy Director, 202-418-5495, tsmith@cftc.gov; Rafael Martinez, Associate Director, 202-418-5462, rmartinez@cftc.gov; Warren Gorlick, Associate Director, 202-418-5195, wgorlick@cftc.gov; Liliya Bozhanova, Special Counsel, 202-418-6232, lbozhanova@cftc.gov; 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 regulations 2 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 1 7 U.S.C. 1 et seq. The CEA may be accessed through the Commission's website, www.cftc.gov. 2 17 CFR chapter I. Commission regulations may be accessed through the Commission's website, www.cftc.gov. 3 Notice of Proposed Order and Request for Comment on an Application for 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 CEA 4 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”). 4 7 U.S.C. 6s(e). 5 The term “prudential regulators” is defined in the CEA to mean the Board of Governors of the Federal Reserve System (“Federal Reserve Board”); the Office of the Comptroller of the Currency; the Federal Deposit Insurance Corporation; the Farm Credit Administration; and the Federal Housing Finance Agency. 7 U.S.C. 1a(39). 6 Subject to certain exceptions, the term “swap dealer” is generally defined as any person that: (i) holds itself out as a dealer in swaps; (ii) makes a market in swaps; (iii) regularly enters into swaps with counterparties as an ordinary course of business for its own account; or (iv) engages in any activity causing the person to be commonly known in the trade as a dealer or market maker in swaps. 7 U.S.C. 1a(49). 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). Section 4s(e) applies a bifurcated approach with respect to the above Congressional directives, requiring each SD and MSP that is subject to the regulation of a prudential regulator (“bank SD” and “bank MSP,” respectively) to meet the minimum capital requirements and uncleared swaps margin requirements adopted by the applicable prudential regulator, and requiring each SD and MSP that is not subject to the regulation of a prudential regulator (“nonbank SD” and “nonbank MSP,” respectively) to meet the minimum capital requirements and uncleared swaps margin requirements adopted by the Commission. 7 Therefore, the Commission's authority to impose capital requirements and margin requirements for uncleared swap transactions extends to nonbank SDs and nonbank MSPs, including nonbank subsidiaries of bank holding companies regulated by the Federal Reserve Board. 8 7 7 U.S.C. 6s(e)(2). 8 7 U.S.C. 6s(e)(1) and (2). 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 9 Margin and Capital Requirements for Covered Swap Entities, 80 FR 74840 (Nov. 30, 2015). 10 Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 636 (Jan. 6, 2016). 11 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. Section 4s(f) of the CEA addresses SD and MSP financial reporting requirements. 12 Section 4s(f) authorizes the Commission to adopt rules imposing financial condition reporting obligations on all SDs and MSPs ( i.e., nonbank SDs, nonbank MSPs, bank SDs, and bank MSPs). Specifically, section 4s(f)(1)(A) provides, in relevant part, that each registered SD and MSP must make financial condition reports as required by regulations adopted by the Commission. 13 The Commission's financial reporting obligations were adopted with the Commission's nonbank SD and nonbank MSP capital requirements, and also had a compliance date of October 6, 2021 (“CFTC Financial Reporting Rules”). 14 12 7 U.S.C. 6s(f). 13 7 U.S.C. 6s(f)(1)(A). 14 85 FR 57462. 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. 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 15 17 CFR 23.106. Commission Regulation 23.106(a)(1) provides that a request for a Comparability Determination may be submitted by a non-U.S. nonbank SD or 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). 16 17 CFR 23.106(a)(3). 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. 17 17 CFR 23.106(a)(3)(ii). See also 85 FR 57462 at 57521. 18 See 85 FR 57462 at 57521. A person requesting a Comparability Determination is required to submit an application to the Commission containing: (i) a description of the objectives of the relevant foreign jurisdiction's capital adequacy and financial reporting requirements applicable to entities that are subject to the CFTC Capital Rules and the CFTC Financial Reporting Rules; (ii) a description (including specific legal and regulatory provisions) of how the relevant foreign jurisdiction's capital adequacy and financial reporting requirements address the elements of the CFTC Capital Rules and CFTC Financial Reporting Rules, including, at a minimum, the methodologies for establishing and calculating capital adequacy requirements and whether such methodologies comport with international standards; and (iii) a description of the ability of the relevant foreign regulatory authority to supervise and enforce compliance with the relevant foreign jurisdiction's capital adequacy and financial reporting requirements. The applicant must also submit, upon request, such other information and documentation as the Commission deems necessary to evaluate the comparability of the capital adequacy and financial reporting requirements of the foreign jurisdiction. 19 19 17 CFR 23.106(a)(2). The Commission will consider an application for a Comparability Determination to be a representation by the applicant that the laws and regulations of the foreign jurisdiction that are submitted in support of the application are finalized and in force, that the description of such laws and regulations is accurate and complete, and that, unless otherwise noted, the scope of such laws and regulations encompasses the relevant non-U.S. nonbank SDs and/or non-U.S. nonbank MSPs domiciled in the foreign jurisdiction. 20 Each non-U.S. nonbank SD or non-U.S. nonbank MSP that seeks to rely on a Comparability Order is responsible for determining whether it is subject to the foreign laws and regulations found comparable in the Comparability Order. A non-U.S. nonbank SD or non-U.S. nonbank MSP that is not legally required to comply with a 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. 20 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 21 17 CFR 23.106(a)(3) and 85 FR 57462 at 57520-57522. 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 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 22 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. 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. 23 17 CFR 23.106(a)(5). To rely on a Comparability Order, a nonbank SD or nonbank MSP domiciled in the foreign jurisdiction and subject to supervision by the relevant regulatory authority (or authorities) in the foreign jurisdiction must file a notice with the Commission of its intent to comply with the applicable capital adequacy and financial reporting requirements of the foreign jurisdiction set forth in the Comparability Order in lieu of all or parts of the CFTC Capital Rules and/or CFTC Financial Reporting Rules. 24 Notices must be filed electronically with the Commission's Market Participants Division (“MPD”). 25 The filing of a notice by a non-U.S. nonbank SD or non-U.S. nonbank MSP provides MPD staff with the opportunity to engage with the firm and to obtain representations that it is subject to, and complies with, the laws and regulations cited in the 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 non-U.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 24 17 CFR 23.106(a)(4). 25 Notices must be filed in electronic form to the following email address: MPDFinancialRequirements@cftc.gov. 26 17 CFR 23.106(a)(4)(ii) and 17 CFR 140.91(a)(11). Each non-U.S. nonbank SD and each non-U.S. nonbank MSP that receives confirmation from the Commission that it may comply with a foreign jurisdiction's capital adequacy and financial reporting requirements will be deemed by the Commission to be in compliance with the corresponding CFTC Capital Rules and/or CFTC Financial Reporting Rules. 27 A non-U.S. nonbank SD or non-U.S. nonbank MSP that receives confirmation of substituted compliance remains subject, however, to the Commission's examination and enforcement authority. 28 Accordingly, if a nonbank SD or nonbank MSP fails to comply with the foreign jurisdiction's capital adequacy and/or financial reporting requirements, the Commission may initiate an action for a violation of the corresponding CFTC Capital Rules and/or CFTC Financial Reporting Rules. 29 In addition, a finding of a violation by a foreign jurisdiction's regulatory authority is not a prerequisite for the exercise of such examination and enforcement authority by the Commission. 27 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). 29 Id. C. Mexico Application for a Comparability Determination for Mexico-Domiciled 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 30 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). 31 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. 32 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. 34 The Applicants represented that pursuant to the provisions set forth in Article 113 of the Law, broker-dealers, 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-in-fact, 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. 36 Id. 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 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 framework for Mexican nonbank SDs subject to the conditions specified in the proposed Comparability Order. 41 37 2022 Proposal, 87 FR 76374 (Dec. 13, 2022). 38 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. 40 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. 41 Id. 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 42 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. 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 Derivatives Association (“ISDA”) and the Securities Industry and Financial Markets Association (“SIFMA”). 44 44 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). 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 45 Associations Letter at p. 2. 46 Better Markets Letter at p. 2; Harrington Letter at p. 11. 47 Better Markets Letter at p. 2. 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 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 48 See 2022 Proposal at 76381. 49 85 FR 57462 at 57521. 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 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 50 Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78 FR 45292 (July 26, 2013) (“Guidance”). 51 Guidance at 45343. 52 Id. 53 Id. 54 See e.g., Comparability Determination for the European Union: Certain Entity-Level Requirements, 78 FR 78923 (December 27, 2013) at 78926. The Commission further elaborated on the required elements of comparability in 2016, when it issued final rules to address the cross-border application of the Commission's margin requirements for uncleared swap transactions. Specifically, the Commission stated that its substituted compliance approach reflects an outcome-based assessment of the comparability of a foreign jurisdiction's margin requirements with the Commission's corresponding requirements. 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. 55 Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants—Cross-Border Application of the Margin Requirements, 81 FR 34817, 34836-34837 (May 31, 2016). 56 Id. 57 Id. 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 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 58 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. 59 2022 Proposal at 76381. 60 Id. 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 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 61 Better Markets Letter at p. 3. 62 Id. 63 Id. at p. 2. 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 64 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 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). 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. 65 85 FR 57462 at 57520. See also Guidance at 45342-45344 and Comparability Determination for the European Union: Certain Transaction Level Requirements, 78 FR 78878 (December 27, 2013) at 78880. 66 Comparability Determination for the European Union: Certain Transaction Level Requirements, 78 FR 78878 (December 27, 2013) at 78880. 67 Guidance at 45343. 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, 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. 68 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). 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 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 representative that, to the best knowledge and belief of the person making the representation, the information is true and correct (Condition 14). 72 69 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). 70 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). 71 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. 72 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 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 73 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 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. 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 74 Guidance at 45343. 75 17 CFR 23.106(5). 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 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 76 Better Markets Letter at pp. 7-8. 77 Id. at p. 8. 78 Id. 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 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 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 79 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. 80 2022 Proposal at 76381 (n. 91). 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-to-market 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 in circumstances when non-U.S. margin rules exempt SDs from margin obligations in connection with swaps with a structured debt issuer. 86 81 Harrington Letter at p. 4. 82 William J. Harrington, Submission to the U.S. Securities and Exchange Commission Re: File No. S7-08-12 (Nov. 19, 2018) at p.8. 83 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. 85 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”). 86 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”). 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. 87 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). 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 jurisdictions that base their requirements on the principles and standards set forth in the BCBS framework. 88 2022 Proposal at 76381. 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 Bank-Based 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 89 Condition 22 of the final Comparability Order. The Commission notes that it made certain non-substantive changes to the language of final Condition 22 as compared to the proposed condition. 90 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 91 See 2022 Proposal at 76382. 92 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. 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 forth under the BCBS framework for identifying and measuring on-balance sheet and off-balance sheet exposures. 94 93 See 2022 Proposal at 76382. 94 Id. 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 95 Id. 96 Id. 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 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 97 Id. 98 Id. 99 Id. 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. 100 100 Id. at 76383. 2. Comment Analysis and Final Determination In response to the Commission's request for comment, Better Markets identified certain differences between the CFTC Capital Rules and CFTC Financial Reporting Rules and the 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. 103 101 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. 103 Id. at p. 13. 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 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-by-line 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. 104 See 2022 Proposal at 76384. 105 Id. In support of its preliminary Comparability Determination, the Commission noted that the CFTC Capital Rules require a nonbank SD electing the Bank-Based Approach to maintain regulatory capital in the form of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital in amounts that meet certain stated minimum requirements set forth in Commission Regulation 23.101. 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. 110 106 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). 108 12 CFR 217.20(c). 109 12 CFR 217.20(d). 110 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. 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) 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. 112 111 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. 112 See 2022 Proposal at 76383. 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. 113 113 Id. 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 SDs with the right to cancel scheduled interest payments and to convert the debt to common equity of the firm. 115 114 Id. 115 Id., (referencing 17 CFR 240.18a-1d and Articles 162 and 162 Bis of the General Provisions). 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. 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. 117 116 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. 117 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. 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 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. 118 118 2022 Proposal at 76386 and Articles 172 and 173 of the Law and Article 162 of the General Provisions. 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. 119 See 2022 Proposal at 76388. 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 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. 120 120 85 FR 57492. In comparison, the Commission observed that the Mexican Capital Rules contain a requirement that each Mexican nonbank SD maintain a fixed amount of minimum paid-in 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). 122 121 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. 122 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. 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 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. 125 123 See 2022 Proposal at 76388. 124 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. 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 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. 128 126 Better Markets Letter at p. 11. 127 Guidance at 45343. 128 2022 Proposal at 76388. 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, 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 companies 130 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. 132 129 17 CFR 23.101(a)(1)(i)(B). 130 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). 131 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. 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 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 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 buffer 135 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. 137 133 See 2022 Proposal at 76388. 134 Articles 172 and 173 of the Law and Article 162 of the General Provisions. 135 Mexico Application, p. 5. 136 Articles 172 and 173 of the Law and Article 162 of the General Provisions. 137 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 risk-weighted assets. Articles 162 and 162 Bis of the General Provisions. See 2022 Proposal at 76388-76389. 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 forth in the Mexican Capital Rules, which generally results in calculated risk-weighted asset amounts that are higher than model-based amounts. 140 138 2022 Proposal at 76389. 139 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. 140 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. 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. 141 141 See 2022 Proposal at 76389. 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, 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. 145 142 See paragraph (3) of the definition of the term BHC equivalent risk-weighted assets in 17 CFR 23.100. 143 17 CFR 1.17(c)(5) and 17 CFR 240.18a-1(c)(1). 144 17 CFR 1.17(c)(5)(iii). 145 17 CFR 1.17(c)(5)(v), referencing SEC Rule 15c3-1(c)(2)(vi) (17 CFR 240.15c3-1(c)(2)(vi)). 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. 146 146 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 × .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 × 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 × 12.5 factor equals $37,500)). 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 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. 150 147 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. 149 See 2022 Proposal at 76386 and Article 152 of the General Provisions. 150 Id. With respect to standardized risk-weighted asset amounts for credit risk from non-derivatives 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 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. 153 151 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. 152 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)). 153 12 CFR 217.33. See also discussion in 2022 Proposal at 76385. 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. 156 154 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. 156 12 CFR 217.132(c). 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 non-derivative and derivative positions, under a standardized approach by taking the accounting value of each of its on-balance sheet and off-balance sheet positions, 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. 158 157 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 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 risk-weighted 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 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. 162 159 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. 160 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. 161 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). 162 See 2022 Proposal at 76389. 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. 163 163 See 2022 Proposal at 76387. The Commission did not receive comments specifically addressing the Commission's comparative analysis of the minimum capital requirement based on risk-weighted assets. In conclusion, the Commission finds that the Mexican Capital Rules and the CF [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-15093. Public record. Not legal advice.